As pointed out before, sweepstakes and contests and any other type of recreational gambling has tax consequences when we end up winning from those activities. Losses from a hobby are not deducted from the winnings because a hobby is an activity from which you do not expect to make a profit. Publication 17, which is the IRS bible for tax prepareers also states that people who collect stamps, coins, or other items as a hobby for recreation and pleasure have taxable gain as a capital gain. However, if they sell items from their collection at a loss, they cannot deduct the loss.
If you receive a free tour from a travel agency for organizing a group of tourists, you must include the value in your income. The fair market value of the tour goes on line 21 of the 1040, if you are not in the trade or business of organizing tours and you cannot deduct the expenses in serving as the volunteer leader of the group at the group’s request, but if you organize tours as a trade or business, you report the tour’s value on Sch C or Schedule EZ and you are able to deduct your expenses connected with this activity. (page 89)
If you find and keep property that does not belong to you that has been lost or abandoned (treasure-trove), it is taxable to you at its Fair Market Value in the first year it is your undisputed possession.
Money that you receive as a gift is not included in your income but if the gift exceeds a certain amount the person who gives you the money has to pay gift taxes, which might come into play when several people pool their money together and buy lottery tickets whose winnings will be divided evenly among the participants. If one person collects all the winnings in their name and gives the others their share, they might end up paying their personal tax on the whole amount of the winnings and in addition gift tax for the amounts they give each person if the amounts exceed a certain amount. To avoid this double taxation on winnings, the person in charge of the group has to ask for the federal tax Form 5754 Statement by Person(s) Receiving Gambling Winnings where all the people involved in the joint venture of buying lottery tickets together have to be listed so thast the payer of the winnings can prepare separate Forms-2G or 1099 for each winner listed and show the taxable winnings for each individual. A lottery pool should be researched before the members enter into it and professional tax help should be consulted to avoid unwelcome consequences.
IT IS AMAZING WHAT YOU CAN ACCOMPLISH IF YOU DO NOT CARE WHO GETS THE CREDIT. (Harry Truman 1884-1972)
Tags: gambling losses, Gifttax, lottery pool, tax forms
