Tax Law (Questions About Taxes)/Taxes on Contest Winnings
I wanted to know if taxes needed to be paid for books won from contests. www.goodreads.com is site where readers and authors connect, rate and review books, etc. And also, there are giveaways for free books. These books are usually ARCS-Advanced Reader Copies. When these books are given out to winners, it is expected, though not required, that these readers with first access will rate and review them. This is the whole point of authors/publishers giving away books in the first place on this site. I should note that these ARCs don't really have a retail price, as they're not for sale, nor is one allowed to sell them.
Sometimes, authors and bloggers have contests where the prizes are a book/books and miscellaneous items like pins, bookmarks, etc. Would tax have to be paid for these kinds of winnings?
~Thank you for your time and help in this matter.
ANSWER: If you ask the IRS, they will say "Yes" as a general rule and probably stop the explanation right there.
You could do some research and find "De Minimus" exceptions. (hint:http://www.irs.gov/Government-Entities/Federal,-State-&-Local-Governments/De-Min
You could simply consider that if the sender is not sending you a 1099 that attributes a certain value to you as taxable income they are not attempting to deduct the value as an expense. And the taxes on that item have effectively been paid.
None of these are legitimate unless you, feel they are legitimate and, can articulate your justification well enough that someone opposed such as an IRS Agent, their supervisor, an appeals board, or the tax court would reasonable consider that you are sincere in your belief.
In every tax issue:
Some will pay the taxes, some will not.
Of those that don't, some will get audited.
Of those that get audited, some will immediately surrender and pay the taxes and penalties.
Others will fight.
Of those that fight, some will be prepared and win.
Others will have no legitimate grounds for argument and lose.
You must consider whether such a confrontation was worth the savings, and finally, whether such a confrontation would be reasonably anticipated for such a minor issue.
It all boils down to your comfort level, risk tolerance, and confidence that you can convince.
There is no question that you are far better off, finding your answer before it becomes an issue, and making the proper preparations immediately.
---------- FOLLOW-UP ----------
QUESTION: Thanks-now I'm a bit worried.
I recall reading in my research that if you receive something in the case of doing something in return,or for services, tax would not have to paid for this. Would receiving books, with the expectation of reviewing them, count as a 'service'?
Any payment of any kind for services can be attributed as income and taxable. If I was a car salesman and the owner paid me in cars, the FMV, fair market value of the cars would be attributable to me as income.
Winning a game show is taxable.
In the beginning of Wheel of Fortune, the contestant would spend their winnings on furniture. Then they would find out they had to pay taxes on the total value of what they received.