So far we figured out that our sweepstakes, lottery and contest winnings are being sent to us by the sponsor on a Form 1099 which is considered miscellaneous income and goes on line 21 on the Form 1040 and if we itemize our deduction on Schedule A we can deduct gambling losses we had during the year up to the amount of our winnings.
The Form 1099 shows winnings from lotteries, raffles, cash, bonds, cars, houses, garage makeovers, trips that are over 600 dollars FMV. Lesser prizes might be spa treatments, computers, M3P players, music downloads, beauty contest, radio program and anything else that is given as a prize and is taxable.
Gambling winnings in a casino will be on a Form-2G. Just like the Form 1099, the FMV of the prize and any tax withholdings are shown in box 1 and 2 respectively. Don’t forget to put any tax withholdings on line 58 of Form 1040. If you refuse a prize you don’t have to pay tax on it.
Winning the lottery jackpot can pose quite a problem. The prize can be collected either in one lump sum payment or in installments, usually spread over 20 years. In this case you must include in your gross income the annual payments and any amount you receive as interest on the unpaid installments. If you sell future lottery payments for a lump sum, you must report the amount you receive from the sale as ordinary income on line 21, Form 1040 in the year you receive it, which might put you in a higher tax bracket than you are used to.
EVERYONE THINKS OF CHANGING THE WORLD, BUT NO ONE THINKS OF CHANGING HIMSELF. (Leo Tolstoy)
Tags: Installments, interest, lottery, prizes, taxes
