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Saturday, March 19, 2011
Friday, March 18, 2011
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.
Posted by Lindsey W. Cooper Jr. at 3:57 PM