Saturday, March 19, 2011

Friday, March 18, 2011

There’s No Such Thing As A Free Lunch . . . or Donut.

            Winning prizes isn’t as much fun as it used to be.  Last year, Bob Choate of Houston, Texas won a year’s supply of coupons for a free donut or a dozen donut holes and a free cup of coffee.  A delicious treat, so it seemed.  But his smiles turned into tears when the IRS issued a Form 1099 to Mr. Choate for the value of the free loot.  How much? $927.61.  

            Under the Internal Revenue Code, prizes and awards are subject to tax based on their fair market value.  If prizes are valued at more than $600, donors are required to issue a Form 1099 to the lucky winner.  For Bob, this means he will pay tax based on an 83 cent donut, plus $1.25 for donut holes and a $1.25 cup of coffee for 365 days.  

            Next time you “win” something, ask about who will be footing the tax bill before you decide to accept.