Does the winner of prizes & cash have to pay taxes on their winnings before receiving them? Or later?
Question by Awakening2007: Does the winner of prizes & cash have to pay taxes on their winnings before receiving them? Or later?
I’m planning to enter a fitness contest and the winner receives a total of ,000 in prizes which includes ,000 cash, fitness equipment, and health supplements. Do the taxes have to be paid by the winner upfront, are they taken out of the prize money, or are the taxes paid at the end of the year? I may not be able to afford to even win the contest. LOL Too funny.
I found this information on the irs.gov website which says the winner does need to pay taxes, but it doesn’t say when.
How can I calculate the total taxes on ,000 worth of prizes? Does anyone know how much that would be?
Answer by KrautRocket
Prizes and Awards
Prizes and awards are amounts received primarily in recognition of religious, charitable, scientific, educational, artistic, literary, or civic achievement, or are received as the result of entering a contest. A prize or award is taxable to the recipient unless all of the following conditions are met:
1. The recipient was selected without any action on his or her part to enter the contest or proceeding,
2. The recipient is not required to render substantial future services as a condition to receive the prize or award, and
3. The prize or award is transferred by the payer to a governmental unit or tax-exempt charitable organization as designated by the recipient.
Since you voluntarily entered the contest, yes you owe. My best advice is IF you win, take some of the cash and IMMEDIATELY make a tax payment.
Here is how you estimate.
How much did you make last year?
How much tax did you pay last year?
Tax dividided by income = rough percent of taxes
multiply that by 000 and that is what you should pay at a minimum.
Example, you made 50000 last year and paid 10000 in taxes.
10000/50000 = .20
.20*40000 = 8000
Pay at least 8000.
What do you think? Answer below!