Everyone knows that they need to pay taxes on regular income, but not everyone is as familiar with how the IRS treats windfalls – lottery and gambling winnings, inheritances, prizes, stock dividends and other unexpected and infrequent cash payouts. It may come as no surprise that the IRS requires taxpayers to pay taxes on all income, no matter what the source.
While setting aside a percentage of gambling income for taxes may not be a big deal, the IRS also expects you to pay the tax on the cash value of any non-cash prizes. So if you were lucky enough to win that new car at the local charity raffle, you would have to pay the taxes on the value of that car. The same would hold true if you won a vacation, free pizza for a year, or any other item of value.
Unfortunately, the more fabulous the prize, the higher the tax bill, which would explain why every single winner of the million dollar HGTV dream home contest so far has had to turn around and sell their prize in order to pay their tax bill.
Arizona residents lucky enough to have won a valuable prize this year should consult with a tax adviser on how to pay taxes on it. Bear in mind that a substantial prize could also push you into a higher tax bracket – meaning you’d have to pay a higher rate than usual on your regular income as well.
At The Pew Law Center, PLLC, we understand that tax problems with the IRS can be overwhelming. Whether you owe back taxes, haven’t filed taxes for several years, or have received an audit or wage garnishment notice from the IRS, the attorneys at The Pew Law Center, PLLC can help you or your business with these and any other federal and state tax problems.
We are a dedicated debt relief law firm. We help people work through tough tax problems or file for bankruptcy every day. We can help stop the debt cycle and give you relief from your overwhelming, burdensome, and crushing tax problems. Please don’t wait another moment. Call us right away – our attorneys will help get you the fresh start you deserve.