I was at a fundraiser for an animal shelter this past weekend. There was a 50-50 drawing, for which I purchased $25 worth of tickets. I won! Rather than take the coupla hundred dollars, I asked that it be given to the shelter.
So, people applauded and patted me on the back. Yay, kayaker.
Today an email went out thanking all the attendees. It turns out the 50-50 was an ongoing thing. My prize that I donated was not a couple hundred dollars, but just under 3 thousand. :smack: Heh, I still feel good about it.
If you accepted the prize and then later decided to donate it to a charity, it is taxable, although you may be able to take an itemized deduction for the donation.
And we in the UK think our tax laws are complicated.
My wife does not pay tax because her income is too small (less than 10,600 pounds) so she can now transfer her allowance to me Whoo Hoo. Means an extra 200+ income for us.
Winnings like the OP’s are not taxable here at all, nor are lottery wins. Betting is, however, but at a low rate.
In the US, you could very well end up owing several hundred dollars in taxes.
Suppose you’re in the 25% tax bracket because you and your spouse make $90,000 a year. You don’t make a lot of charitable donations and you don’t own your house, so your itemized deductions come to about $4,500 which is less than the standard deduction of $12,600 so you take the standard deduction. Now, you win a $3,000 prize and you donate it right back to the charity. The charity sends you a 1099-misc form showing $3,000 of income and also a receipt for your donation of $3,000.
At this point, your income has increased from $90,000 to $93,000 and your deductions have increased from $4,500 to $7,500 but that’s still less than the standard deduction so your actual deductions reported on your 1040 form don’t change! But your income went up by $3,000 so your tax due increases by $3,000 x 25% = $750. So you’d be better off just refusing the prize in the first place rather than “donating it back”.
You could very well hurt yourself financially if you accept a prize from one place and then donate it to another place.
It gets even worse if the prize is really big. Suppose you won $600,000 in the lottery and then decided to donate the money to your church. The state lottery commission sends you a 1099-misc for $600,000 of income (so now you made $690,000 this year) and then your church sends you a receipt for the donation of $600,000. The problem is that charitable contributions are only deductible up to 50% of your Adjusted Gross Income, which this year is about $670,000 x 50% = $335,000 and the amount over that ($275,000) you still have to pay the taxes on it, which comes to roughly $90,000. Surprise!
This is an excellent analysis and includes two points that I overlooked. I itemize so I did not consider the case of someone who takes the standard deduction:
In Australia there are no taxes on prizes levied at the recipient (there are a bunch of regulations but generally prizes under $5K are exempt). In the case above you could claim a tax deduction for the monetary prize you “donated” back to the shelter, assuming the shelter would give you a receipt for the amount.
