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.
No comments:
Post a Comment