With November just five months away, we have started seeing both Barack Obama and Mitt Romney aggressively campaign to secure their seat in the oval office. One of Obama’s campaign tactics is to have a dinner raffle where one or two future supporters may sit down for dinner at a designated restaurant with the President himself. The raffle is considered a “sweepstakes” which means contestants could enter without paying anything, however a $3 donation is encouraged. All of the money collected will go towards Obama’s campaign.
This seems like an excellent opportunity for those who would like to sit down with the President and have a one-to-one chat. However, there is a catch. The total prize for the dinner, airfare, meeting, etc. is valued at $4,800. According to the IRS, “if you win a prize in a…contest or other event, you must include it in your income.” Therefore, that “free” dinner with Obama could cost you several hundred dollars depending on your federal marginal tax rate and state income taxes. This is conditional on whether you accept the air travel and hotel booked by Obama’s campaign team. The dinner itself costs $200.
This is just one example of how prizes and gifts are taxed by the IRS. As good as the opportunities may appear you must know the extent to which the IRS has control over your winnings. Last year, Christian Lopez was showered with gifts from the New York Yankees Organization because he returned Derek Jeter’s 3000th hit ball. However, the IRS has the power to tax all of his gifts he received because they are considered “income.” If you are unsure of whether you must report certain winnings or prizes, consult a tax attorney for advice.
JDKatz is not affiliated with any political party or political views. This post is merely stating the facts associated with winning a prize through a contest.
JDKatz, P.C. is a full-service law firm focused on tax law and estate planning. We are dedicated to minimizing your existing liability and risks while providing valuable tax planning to streamline your tax issues in the future. Please call us at 301-913-2948 to schedule an appointment to meet with one of our trusted attorneys.