It’s just about that time again, tax time, and if you have won prizes this year through sweepstakes you will want to read this post. I wrote this last year and it is still valid this year. I just updated it a bit with new information
Maybe you have questions like this one on paying taxes for prizes you won through sweepstakes.
Taxes on Sweeps?
Will the companies be sending me a 1099 or some form for taxes? or do I just tell the cpa? I don’t even know if I have to claim for a small laptop and tickets to Ellen? What do you think? Does it go by your income and how much you won?
Disclaimer: I am NOT a tax expert. These are just my experiences from years of entering sweepstakes and winning prizes. If you ever have a question about claiming prizes at tax time visit the IRS site or consult with your local tax professional or CPA for tax help.
The quick answer for the first question is yes. The sponsors should send you a 1099 for prizes you won over the value of $600. Not every sponsor does this (although they are supposed to) but that does not get you off of the hook for claiming that prize on your taxes. You should still claim the prize value on your taxes as other income. Sponsors may report smaller prizes to the IRS but do not send you paperwork.
From the IRS website:
Subject to certain exceptions, the cash value of prizes or awards won in a drawing, quiz show program, beauty contest, or other event, must be included on the tax return as taxable income.
Taxpayers must also report the fair market value of merchandise or products won as a prize or award, as taxable income.
For example, both a $500 cash prize and the fair market value of a new range won in a baking contest must be reported as other income on Form 1040, Line 21.
So, the U.S. government DOES require that you claim each and every prize on your tax return. It is up to the individual if they follow these rules or not.
Disputing the Value of a 1099
If you look at the official rules for any sweepstakes you will see that they include the ARV or Approximate Retail Value of a prize that could be won. That doesn’t mean that prize actually IS that value when you receive it. In some cases, there are things you can do to claim a lower value on your taxes.
Example: The trip is valued by the sponsor for $5,000. You receive a 1099 at the end of the year in which you took the trip for a value of $5,000. But the trip actually only cost $3,400. You can claim $3,400 instead.
Here are some things you need to do to claim a lower amount on prizes where the 1099 comes in higher than the real value:
On Trips: You need to do this while you are on the trip or soon after you go on the trip as airline, gas, and other travel expenses fluctuate over time and trying to get accurate values a year later when it is time to file your taxes will be hard to do.
- Keep all receipts when you go on the trip for food, gas, whatever the sponsor is paying for
- Request a copy of the hotel bill when you check out
- Get an estimate of what the airline or travel would cost before you go and print out that information
You only have to claim a trip prize on taxes AFTER you have taken the trip. When we won the France trip back in 2001 we didn’t actually take the trip until 2002 so we claimed it on our taxes in April 2003. That sure helps.
Other Prizes: You can also claim a lower value for a prize such as a computer or TV by finding that exact model online and printing out that information with the date showing on the paperwork as proof that this item was cheaper at the time you won it.
Remember you really need to gather the information on higher priced prizes when you win them. You may not have such good luck proving a lower value if you get the values when you try to do your taxes. Technology prices go way down over time and trying to prove that a TV you won only cost the sponsor $200 when it was worth $500 when you won it is not easy to do.
Many times you can work with the judging agency or sponsor to get them to lower the 1099 value. We have done this several time. The key to getting this done? BE NICE! Rude people do not get what they want. Always remember you are dealing with another human being and yelling and screaming will not get you the result you want.
Another reader, Mila, asked What if you win a trip but for some reason you can’t go on the trip. Do I still have to pay the tax on that or claim it as other income?
If you do not accept the trip you would not be going on it so then, no, you would not claim it on your tax return and would not have to pay taxes on it.
If you accepted the trip and then could not go on the trip for some reason there is a possibility that you could have to claim it on taxes. You would need to work with the sponsor or judging agency in that case.
And, however, if you are offered and accept something in place of the trip like cash you would have to claim that on taxes.
Claiming Sweepstakes supplies as deductions:
When you buy stamps to mail-in entries, buy envelopes or postcards for entries, pay for newsletter subscriptions, and other sweepstakes supplies, keep the receipts Why? When you win you can claim them on taxes as an expense if you are itemizing your taxes. You may need to produce those receipts if you get audited. If you are not willing to keep the receipts then do not claim expenses on your taxes.
On a side note, when you buy lottery tickets and lose, KEEP ALL OF THEM. Why? When you win you can claim them on taxes as an expense but only in the same year of the winnings.
This is why you need to keep good records and why I like using Excel for tracking sweepstakes wins and expenses. If you don’t enter mail-in sweepstakes you may not have as many expenses and therefore may have nothing to itemize.
Now, I don’t know if you can claim your Internet access cost if you win an online sweepstakes so I will leave that one up to you. I have never tried it. I believe that would be a hard one to claim because you use your Internet for so many other things.
If anyone has something to add about taxes on sweepstakes please feel free to email me or fill out my contact form. I will update this article with new information and give you credit for the new information as long as it is correct.
Claiming prize winnings on your tax return has nothing to do with your income.
So, remember, according to the IRS you must claim all sweepstakes prize winnings on your tax return. We have actually turned down prizes because we did not want to pay taxes on them and the prize wasn’t that special to us.
The IRS has a free program called Free File available on their website you can use to file your taxes online too. This is only available for those who have an adjusted gross income is $57,000 or less in 2009.