As a Matter of Tax

What should you do first? Take that luxury vacation you always wanted? Buy your mom a new house (she really deserves one)? Maybe you’ll just eat copious amounts of sushi.

How about you pay the man? No, seriously.

“But it’s not income!”, you cry in a fit of denial. “I didn’t actually work for this money,” as you scour a sweetly-addressed tax form delivered from the game show company to your mailbox.

Look, we can get into weeds about the definition of Section 61 of the Internal Revenue Code and philosophically debate the meaning of “income” just like I did in my first year taxation class. Or, you can take my word for it that all cash and non-cash prizes you’ve won over $600 are reported to the IRS by the entity that gave you the prize, and you’re required to report the value of that prize on your tax return.

Wait, did you say non-cash prize?

Yes. That car you just won? The brand new Kia worth $50,000? You’ll need to pay tax on it. But, the IRS won’t take 20% of the car. The IRS wants cash. And if you don’t have the cash now (we’ll get into timing on another post), you’ll need to find a way to get it or face steep penalties. Some of the smartest game show winners in this situation will do one of a few things: [1] sell the car and pay the IRS with a portion of the proceeds, or [2] refuse the prize altogether. Pretty drastic if you ask me, but the rules are the rules.

Fortunately, the cash situation is a little simpler: that $20,000 cash prize is already liquid. If you end up owing, you can pay the IRS directly with those funds.

Winning big (or even winning medium or small) doesn’t come without its price, even if the IRS didn’t help you with that final trivia question or that lucky showcase guess.

Keep in mind that how much to pay and when depends on your unique tax situation. For that reason, it’s important to reach out to a qualified tax professional who can help you ensure that winning the grand prize is the only surprise you get.