Tax season: How you can come out a winner

Everything You Need to Know About Filing Taxes on Winnings

Tax season: How you can come out a winner

The Internal Revenue Service (IRS) states that you need to include all of your income on your tax return.

Now, it's a no-brainer that you'll report the income from your job and your freelance work, but what about your lucky night at the casino or the big win from your fantasy football league? Here's everything you need to know about taxes on winnings to file with a clear mind.

The federal tax filing deadline for individuals has been extended to May 17, 2021. Quarterly estimated tax payments are still due on April 15, 2021. For additional questions and the latest information on the tax deadline change, visit our “IRS Announced Federal Tax Filing and Payment Deadline Extension” blog post.

For information on the third coronavirus relief package, please visit our “American Rescue Plan: What Does it Mean for You and a Third Stimulus Check” blog post.

all other taxable income, the IRS requires you to report prizes and winnings on your tax return, too. That means you might have to pay taxes on those winnings. Your winnings end up being included in your taxable income, which is used to calculate the tax you owe. But before you report your prize and gambling income, you need to know what does and doesn't count as income.

Gambling and lottery winnings and losses

Whether you play the lottery, slots, blackjack, roulette or another game considered gambling, you must report all of your winnings even if you end up losing money overall.

The IRS states that you're supposed to keep a diary or similar record that details your winnings and losses, which includes information such as:

  • The dates and types of specific wagers.
  • The amount you won or lost.
  • The address of the gambling establishment.
  • The names of other people present with you at the gambling establishment.

You should also keep other documentation that demonstrates your gambling activities such as,

  • bank withdrawals,
  • losing lottery tickets or
  • payment slips from the gambling establishment.

Depending on the size of your win, you may receive a Form W-2G, Certain Gambling Winnings and may have federal income taxes withheld from your prize by the gambling establishment.

Gambling winnings are unique because you can also deduct your gambling losses and certain other expenses, but only in specific circumstances (see our article about this).

  • You don't report your gambling income net of expenses, though.
  • Instead, you must report your gambling income and gambling expenses separately.
  • Unfortunately, losses can only be deducted if you itemize your deductions.

You don't need to worry about which forms you need to fill out, though. TurboTax will ask you simple questions to get the necessary information to fill out the forms on your behalf your answers.

Other types of winnings

Casinos and lotteries aren't the only ways you can win money or other prizes. If you've received any kind of income from the following sources, you'll have to report it to the IRS, as well.

  • Cash prizes:  If you enter a drawing and win $1,000, you've won a cash prize. Other ways to win cash prizes could include sweepstakes, a game show or reality TV competition. You'll need to include all prizes as income on your tax return, even if they're as small as a dollar.
  • Noncash prizes:  The IRS considers noncash prizes as income you should report as well. Whether you win a $25 gift card to your favorite restaurant from a radio contest, a new TV, a year's supply of a particular product, a luxury vacation for two to Europe or a brand-new car from a game show, you're required to report the fair market value of these prizes as other income on your tax return.
  • Fantasy sports and pooled winnings:  Fantasy sports and pooled winnings with friends, coworkers or anyone else also need to be reported. Your friends won't issue you a Form 1099-MISC, or Form W-2G, but that doesn't mean the income shouldn't be reported.
  • Gifts:  Gifts aren't considered a form of winnings in the IRS's eyes even if they're a windfall for your situation. In the vast majority of cases, the donor is responsible for paying any gift tax required. However, it is possible for the person receiving the gift to agree to pay the tax instead.
  • Inheritance:  When you receive an inheritance, you generally aren't obligated to pay any taxes on it on the federal income tax level. That said, the estate of the deceased person may have to pay an estate tax before passing on your inheritance to you.

Frequently Asked Questions

Whether you've already won the grand prize or think this is going to be your lucky year, it pays to have your questions answered before it comes time to file. Here are some of the most popular questions and what you need to know.

Is your tax bracket affected by what you win?

Your winnings are part of your taxable income, which determines what marginal tax bracket you fall into. Only the additional income in the higher tax brackets will be taxed at the higher rates. Any income that falls in the lower tax brackets will be taxed at the lower rates.

Are the tax rules different if you receive a lump-sum payout vs. a payout in pieces over time?

The rules regarding tax on winnings are the same whether the prize is issued in a lump-sum payout or in pieces over time. You report the income when you receive it. That said, the tax impacts can be different the year you receive the income because the amount of tax you pay is your total taxable income each year.

  • If you receive a large payout in a single payment, that payout could push you into higher marginal income tax brackets.
  • If you spread it out over multiple years, you may end up staying in lower tax brackets.

What if I didn't receive a Form 1099-MISC or a Form W-2G?

It doesn't matter if you receive a 1099-MISC or a W-2G reporting your winnings or not. You'll still need to report all income to the IRS. You just have to add your unreported winnings amounts to the applicable lines on your tax return.

Thankfully, you don't need to know where to place each item of unreported income on your tax return. TurboTax can help by asking simple questions to make sure you're reporting all of your income and winnings that need to be reported.

How can you prepare yourself and your finances after you win but before you file your tax return?

After you win money, you should take steps to prepare for the potential tax impact. Ideally, you should set aside a portion of those winnings to cover the taxes you'll owe, so you have the money when it's time to pay your taxes.

Keep in mind, you can’t wait to pay taxes until the tax deadline if it’s over a certain amount.  See the section “Do I need to pay estimated taxes” in our article “Estimated Taxes: How to Determine What to Pay and When” to determine if you meet these thresholds.

  • You'll have to run the numbers, especially if you win a large amount of money, to see which marginal income tax bracket the winnings will fall in. Then you can estimate how much you'll potentially owe.
  • TurboTax's TaxCaster can help you estimate your taxes.
  • Depending on the size of the prize, you may want to make a quarterly estimated tax payment as well.

Your taxes have many moving parts that could result in a higher or lower amount owed than your estimate if things don't go exactly as you plan. If you set aside too much money, you can always reclaim the money later, but if you don't set aside enough, you may find yourself owing a big tax bill come tax time.

Remember, with TurboTax, we’ll ask you simple questions and fill out the right tax forms your answers to maximize your tax deductions.

Источник: https://turbotax.intuit.com/tax-tips/general/everything-you-need-to-know-about-filing-taxes-on-winnings/L7ifGWjkX

Tax Filing 2021: How to File Taxes & What to Know

Tax season: How you can come out a winner

Tax filing can be daunting. So if you’re wondering how to file taxes online or on paper in 2021, here’s a cheat sheet on how to do your taxes and how to make tax filing easier.

1. Do you even have to file taxes? (Yes, probably.)

Even if you don’t have to file taxes, you might want to do it anyway: You might qualify for a tax break that could generate a refund. So give tax filing some serious consideration if:

When can I start filing taxes for 2020?

The IRS set the start of tax season as Feb. 12, 2021. That's the date it starts processing returns for the 2020 tax year.

Do you file 2020 taxes in 2021?

Yes. The purpose of the 2021 tax-filing season is to file taxes for the 2020 tax year.

2. Choose how to file taxes

There are three main ways to file taxes: fill out IRS Form 1040 or Form 1040-SR by hand and mail it (not recommended), use tax software and file taxes online, or hire a human tax preparer to do the work of tax filing.

a. File taxes online with tax software

If you’ve used tax software in the past, you already know how to prepare and file taxes online. Many major tax software providers offer access to human preparers, too.

TurboTax, H&R Block, TaxAct and TaxSlayer, for example, all offer software packages or support options that come with on-demand, on-screen or online access to human tax pros who can answer questions, review your return and even file taxes online for you.

Pricing:$60 to $120, plus state costs.
Pricing: $44.95 to $79.95, plus state costs.Promotion Get 25% off federal and state filing costs.
Pricing:$49.99 to $109.99, plus state costs.

» MORE: See our picks for the year's best tax filing software

b. Hire and work with a tax preparer

While it's never been easier to do your own taxes using software, as your financial life gets more complex you might wonder if you're missing something and should get someone to prepare and help file your taxes. If you have a business or a healthy side gig, or you just want help understanding all of the forms, you might seek out a professional's guidance.

If you don't want to meet in person with a tax preparer, there’s a way to file taxes without leaving the house. A secure portal lets you share documents electronically with a tax preparer. Typically, the preparer will email you a link to the portal, you’ll set up a password and then you can upload pictures or PDFs of your tax documents.

3. Understand how your taxes are determined

The government decides how much tax you owe by dividing your taxable income into chunks — also known as tax brackets — and each chunk gets taxed at the corresponding tax rate. The beauty of this is that no matter which bracket you’re in, you won’t pay that tax rate on your entire income.

The progressive tax system in the United States means that people with higher taxable incomes are subject to higher federal income tax rates, and people with lower taxable incomes are subject to lower federal income tax rates.

» MORE: Make sure you're not overlooking any of these 20 popular tax breaks

You’ll need to do this whether you’re hiring a tax preparer or doing the tax filing yourself. The goal is to gather proof of income, expenses that might be tax-deductible or win you a tax credit, and evidence of taxes you already paid throughout the year. Our tax prep checklist has more guidance, but here’s a short version of what to round up:

  • Social Security numbers for yourself, as well as for your spouse and dependents, if any.
  • W-2 form, which tells how much you earned in the past year and how much you already paid in taxes. (If you had more than one job, you might have more than one W-2.)
  • 1099 forms, which are a record that some entity or person — not your employer — gave or paid you money.
  • Retirement account contributions.
  • Property taxes and mortgage interest.
  • State and local taxes you paid.
  • Unreimbursed medical bills.
  • Last year’s federal and state tax returns.

If you owe

  • There are plenty of ways to send money to the IRS. Electronic payments, wire transfers, debit and credit cards, checks and even cash are among your options. (Here's an overview of them.)
  • If you can’t pay your taxes all at once, an option might be an IRS payment plan, which is an agreement you make directly with the agency to pay your federal tax bill over a certain amount of time. There are two kinds of IRS payment plans: short-term and long-term. Either way, typically you’ll make monthly payments to settle what you owe.

If you’re getting a refund

There are a few things you can do to make sure your money hits your bank account as quickly as possible:

  1. Avoid filing your tax return on paper. The IRS typically takes six to eight weeks to process paper returns. When you file taxes online, on the other hand, your return should be processed in about three weeks. State tax filing authorities also accept electronic tax returns, which means you may be able to get your state tax refund faster, too.

  2. Have your refund sent by direct deposit. When you file taxes you can have the IRS deposit your refund directly into your bank account instead of sending a paper check. That cuts the time in waiting for the mail.

  3. Track your refund. You can track the status of your IRS refund and your state refund online.

Источник: https://www.nerdwallet.com/article/taxes/tax-filing

Lottery Tax Calculator – How Lottery Winnings Are Taxed

Tax season: How you can come out a winner

No doubt about it, winning the lottery dramatically changes a person’s life. A financial windfall of that magnitude quickly grants you a level of financial freedom you probably have trouble imagining.

But becoming a Mega Millions or Powerball jackpot winner doesn’t change everything. If you are the lucky winner, you still have to worry about bills and taxes. This is when a lottery tax calculator comes handy.

Jump to the Lottery Tax Calculator

How are lottery winnings taxed under federal and state?

Lottery winnings are considered ordinary taxable income for both federal and state tax purposes. That means your winnings are taxed the same as your wages or salary. And you must report the entire amount you receive each year on your tax return.

For example, let’s say you elected to receive your lottery winnings in the form of annuity payments and received $50,000 in 2019. You must report that money as income on your 2019 tax return. The same is true, however, if you take a lump-sum payout in 2019. You must report that entire amount as well. For this, a tax calculator is an essential tool.

Note: Before you receive one dollar, the IRS automatically takes 25 percent of your winnings as tax money. You’re expected to pay the rest of your tax bill on that prize money when you file your return.

What is the tax rate for lottery winnings?

When it comes to federal taxes, lottery winnings are taxed according to the federal tax brackets. Therefore, you won’t pay the same tax rate on the entire amount.

The tax brackets are progressive, which means portions of your winnings are taxed at different rates.

Depending on the number of your winnings, your federal tax rate could be as high as 37 percent as per the lottery tax calculation.

State and local tax rates vary by location. Some states don’t impose an income tax while others withhold over 15 percent. Also, some states have withholding rates for non-residents, meaning even if you don’t live there, you still have to pay taxes to that state.

Do I have to pay state taxes on lottery winnings if I don’t live in the state where I bought the ticket?

Most states don’t withhold taxes when the winner doesn’t reside there. In fact, of the 43 states that participate in multistate lotteries, only two withhold taxes from nonresidents.  Arizona and Maryland both tax the winnings of people who live out-of-state.

Can I change the amount of tax the lottery withholds?

You don’t have a choice on how much state or federal tax is withheld from your winnings. The only piece you can control is how much money you save to cover any extra money you may owe. For this, you can use a federal tax calculator.

Do lottery winnings count as earned income for Social Security purposes?

Lottery winnings are not considered earned income, no matter how much work it was purchasing your tickets. Therefore, they do not affect your Social Security benefits.

Does winning the lottery affect my tax bracket?

Winning the lottery can affect your tax bracket in a big way. An average family’s top federal tax rate could go from 22 percent to 37 percent. But remember, if that happens, you ly won’t pay the top rate on all of your money.

That is unless your regular household income already places you in the top tax bracket prior to winning. In that case, all of it is taxed at 37 percent. This can be calculated using a tax calculator. Lottery winnings are combined with the rest of your taxable income for the year, meaning that money is not taxed separately.

What are the benefits of taking a lump sum payment versus annuity payments?

If you take a lump sum, you have more control over your money right now. You can choose to invest it into a retirement account or other stock option to generate a return. You could also use it to buy or expand a business.

Several financial advisors recommend taking the lump sum because you typically receive a better return on investing lottery winnings in higher-return assets, stocks. If you elect annuity payments, however, you can take advantage of your tax deductions each year with the help of lottery tax calculator and a lower tax bracket to reduce your tax bill.

The decision for which option is better is complex.

It all depends on the size of the lottery winnings, your current and projected income tax rates, where you reside, and the potential rate of return on any investments.

If you win big, it’s in your best interest to work with a financial advisor to determine what’s right for you. However, you can also determine the taxes using a federal tax calculator.

Are you a lucky winner? Determine what you owe in taxes with this Lottery Tax Calculator

File Your Simple Tax Return For Free With Taxact

Источник: https://blog.taxact.com/lottery-tax-calculator/

NEWS
Leave a Reply

;-) :| :x :twisted: :smile: :shock: :sad: :roll: :razz: :oops: :o :mrgreen: :lol: :idea: :grin: :evil: :cry: :cool: :arrow: :???: :?: :!: