The true cost of free stuff

So there we were, a bunch of guys in their forties on a Tuesday night, sitting around a corporate conference room table playing our once-a-month friendly game of Texas Hold ’em.

On the big screen, the Sox were busy beating up the Indians, the cupboard was overflowing with pizza, Doritos and drinks, Attorney Steve was busy talking about getting a big one for his firm, CPA Rob was talking about his daughter’s birthday and Somewhere in the other end of the table I could hear successful investment banker Brad muttering about his wife demanding a Publix tech stop for frozen chicken.

And there, sitting at the head of the table, was myself, concentrating on one thing and one thing only: looking at film producer Rod, wondering if he was trying to bluff me out of another hand. Believing that a third graze of his eye was his signal, I called his all-in and heroically managed to beat his two-pair with a ten-straight.

Although losing the biggest hand of the night wasn’t meant to be his fondest memory, I managed to show him the bright side of things: technically speaking, the money he just lost could be a tax deduction for him.

Amazing? For many people, it certainly is. In fact, I find that many people are not aware of the laws regarding what we all expect, sometimes referred to as “earning free stuff.”

So while you might not find yourself hanging out with the Hold ‘Em gang on a Tuesday night, who knows? It is possible that he will become the proud owner of something for free. And in the event that you do get something like that, when it comes to taxes and other related issues, here are some quick things to keep in mind…

1. WIN THE LOTTERY

Since there’s a better chance for me to win Powerball than there is for my New York Jets to win another Super Bowl, I guess I should remind myself what will happen if I’m so lucky to win the biggest lottery in the country.

In general, all lottery winnings are subject to federal, state, and local taxes. A prize of less than $600 dollars is often not reported, however, technically speaking, none the amount you earn must be reported as taxable income. Big wins are reported on IRS Form 5754, and aside from swimming to Cuba with cash in your pants, there’s no way to avoid taxes when you win the jackpot.

Upset? don’t be For those who don’t appreciate long swims to foreign lands, you might want to consider not playing the big one at all… Why?… Well, consider this: Powerball is played twice a week and the odds winning is roughly 120,000,000 to 1 (which is close to the odds of my Jets winning another Super Bowl). Doing the math, if you lived to be 77, then you would need to buy approximately 15,000 tickets for each drawing (approximately 30,000 tickets per week) to have a 1:1 chance of winning.

Those aren’t very good odds, and yet another reason why you might want to consider sticking with that nice morning run around the neighborhood instead of training to swim in Cuba.

2. CASH PRIZES

Have you ever won a cash prize? Once I did. High school, 7-11, a scratch-off where I think I made about $20 bucks (and no, I don’t think I reported that to the IRS).

When it comes to winning a cash prize, this one is pretty simple: Cash prizes are taxable, and as a result, federal, state and local taxes are due on the amount you win. Generally, 10% to 25% of winnings from large amounts awarded may be withheld. As for the rest, you’ll have to pay the rest when it’s time for taxes.

3. PRIZES ON PRODUCTS

Forget Phil Mickelson. A few years ago, a friend of mine once got a very sweet hole-in-one at a charity golf tournament. Not only did he get a peck at the snack girl’s check, but he also won a new Porsche.

Sounds good? I sure did, until he found out that Uncle Sam wanted to ride shotgun. When it comes to winning product prizes, the IRS says you’ll have to pay federal, state, and local taxes on fair market value, which makes a kiss on the cheek from the cute snack girl the only thing you’ll want. take home your.

4. GAME

Who wouldn’t want to win money at a casino? I certainly would, and if anyone out there has had the experience of doing such a thing, drop me a note on how you feel.

When it comes to winning big money, casinos typically keep 30-40% of winnings. Ironically, however, the tax laws are actually different depending on the country. play you played to win it.

Look, the casinos managed to convince congress that there’s no way they can keep track of everyone, especially at the lower paying tables when playing blackjack, baccarat, craps, roulette, or the big wheel. . As a result, generally speaking, when playing at those tables, winnings are generally not reported to the IRS, but technically speaking, the player is forever is supposed to report none earnings as money received.

And when it comes to freebies, get this: technically speaking, you get those things for free. could will also be considered taxable items. Needless to say, I don’t know many people who report a free surf and turf at the Bellagio on their tax return, but then again, technically speaking, all that free stuff might as well be something to report.

Other tidbits that come to mind include:

• Bells ringing throughout creation? Congratulations on your prize, but money won on slot machines will be reported if the amount exceeds $1200.
• Pick some winners in Keno? Well done. But any amount over $1,200 will also be reported.
• Chicago Buck or Eddie’s Revenge come first? That’s really sweet and may even get you a date with the prettiest girl on the block, but remember: racetrack or racetrack winnings of more than $5,000 or 300 times the stake will be reported.
• If you’re like me and usually lose more than you win, here’s an important point: one can generally write off gambling losses against their earnings, but only up to the amount of their winnings.
• Excess losses cannot be carried over to the next tax year.
• Play on an Indian reservation? Have fun, bring a date, win big, quit your job, enjoy the Elvis impersonator, but remember, all of the above rules still apply.
• To substantiate winnings and losses, the IRS requires a logbook that lists items that include (1) the date and type of your bets; (2) the name of the gaming establishment; (3) the address or location of the gaming establishment; (4) the names of the other persons, if any, present with you; (5) the amount(s) you won or lost; and lastly, (6), whether or not you were drinking, and if you were, the type of drink you were having (just kidding).

5. GIFTS

Get a Nintendo for your birthday? That’s great, especially since I’ll be happy to come and challenge you to a game of tennis. But what if it was a Really Cute gift? The type of gift I’m talking about is over $12,000. Get one of those sweet things and technically speaking, the person who gave the gift You are required to pay tax on its fair market value (note: $12,000 is for tax year 2007 only; amount generally changes each year).

So the next time someone wants to buy the New England Patriots from you, be sure No To tell them they you have to pay the tax, otherwise you’ll probably end up with the NY Jets instead.

As far as I’m concerned, breaking up the Jets and someone having to pay the tax is silly, but it’s the law. But don’t despair, there are exceptions to the rule. Gifts that are generally not taxable include tuition and medical expenses paid for by another person, gifts to your spouse, gifts to a political organization, and gifts to charitable organizations.

6. INHERITANCE

Uncle Moe was a great guy. He not only bought your first Who album, but he also left you a few million dollars. Nothing bad. But while a few million is all very well, don’t think for a moment that our other uncle doesn’t want his share either.

Sad, but undeniably true, even that occasionally annoying thing called “Death” can be taxed. Specifically, the type of tax I am referring to is often called an “estate tax” or, technically speaking, an “estate tax.”

If there’s any good news about estate tax, it’s that few families actually incur it. Statistically, only a small percentage of people will have to deal with this, but in tax year 2007, if Uncle Moe died with more than $2 million, he will likely have to pay taxes on the estate above that “exempt” amount. “.

Going into detail about estate tax is well beyond the focus of this post, but it’s an important point, and if it hasn’t been addressed within your family, trust me, it’s something you should definitely look at in different ways. can potentially reduce it.

CONCLUSION

I love to win free stuff. After all, who doesn’t? But whether it’s landing snake eyes, a hole-in-one, or someone unloading the New York Jets, the next time fortune rears its handsome head, keeping the things above in mind could be some important points to remember.