We have all, at some point, hoped to win the lottery or daydreamed about what we’d do if we suddenly had a million dollars. If that reality comes to pass, though, the logistics may be a bit more complicated than the daydream. That’s because prize money income is, unfortunately, taxable. While it would be nice to “take the money and run,” the IRS has other ideas.
Why Is Prize Money Taxable?
In short, prize money is taxable because the IRS sees it as income. While it’s not income you’ve earned from a job per se, it’s still income. And, under that umbrella, the IRS has the right to tax it, just like they have (in some situations) the right to tax money or assets that you inherit or are gifted.
I Won Money–Now What?
Typically, when you win money, you’ll get a form 1099-MISC from the body that made the award indicating the award amount as income. You are then obligated to report that income on your tax return when you file.
One of the things to keep in mind is that a large prize may bump you to a new (more expensive) tax bracket. The amount you’re taxed is based on how much you make. In general, the percentage you’re taxed at increases with your income. So, if you win that million dollars from the lottery, you may suddenly find yourself in a brand-new tax bracket!
If you have won prize money and are not sure how to navigate the tax portion of the situation, reach out to your local tax professionals for assistance. They’ll be able to guide you through the preparation and filing process to make sure everything is done correctly.
If you need help with prize winnings or other tax questions in Austin, contact the team at Taxation Solutions, Inc. We have a wealth of experience handling myriad tax situations, and we’ll be happy to help with yours. Call us today!