Income Tax question (minor wins a prize of substantial value; has no other countable income)

[kaylasdad99]

Let’s say that a company is having a sweepstakes where the grand prize has a cash value of $1700. Since they can’t require a purchase for me to win, I read the rules, and I learn about how I can enter the sweepstakes online, one entry per day for the next 78 days. Additionally, I (my household actually) can submit one entry per day for each email account we have access to.

So, I’m submitting an entry for myself, and having my wife submit one using her email address, and our daughter submits one using her email address (she’s 16, and the minimum age is 13 for this thing). With 234 entries during the entry period I think I’m maximizing our family’s chances of winning this Grand Prize (the prize is something that is shared equally among the entire family).

I get that I’m responsible for state and federal income taxes on this if my name is drawn. And if my wife’s name is drawn, well, we file jointly, so no biggie.

If the prize is officially awarded to my daughter, who has no personal income during the year, and is listed as a dependent on our tax returns, how big a tax burden is she looking at (don’t worry; I’m a Dad, not an asshole, and if there actually is one, I’ll be picking it up)?

[kaylasdad99]

Missed the edit window: Thanks in advance for any useful information!

[Alley_Dweller]

@kaylasdad99

Let’s say that a company is having a sweepstakes where the grand prize has a cash value of $1700. Since they can’t require a purchase for me to win, I read the rules, and I learn about how I can enter the sweepstakes online, one entry per day for the next 78 days. Additionally, I (my household actually) can submit one entry per day for each email account we have access to.

So, I’m submitting an entry for myself, and having my wife submit one using her email address, and our daughter submits one using her email address (she’s 16, and the minimum age is 13 for this thing). With 234 entries during the entry period I think I’m maximizing our family’s chances of winning this Grand Prize (the prize is something that is shared equally among the entire family).

I get that I’m responsible for state and federal income taxes on this if my name is drawn. And if my wife’s name is drawn, well, we file jointly, so no biggie.

If the prize is officially awarded to my daughter, who has no personal income during the year, and is listed as a dependent on our tax returns, how big a tax burden is she looking at (don’t worry; I’m a Dad, not an asshole, and if there actually is one, I’ll be picking it up)?

Her standard deduction as a dependent is $950 in unearned income.
So $1700 - $950 is $750.
She’d be in the 10% federal bracket, so the maximum tax would be $75 PLUS whatever your state income tax is, assuming she has no other taxable income.

Now, of course, if you were just using her as a shill and you took the prize money and kept it for yourself, a hard-ass tax auditor could make the case that it was really your income and you should be including it in your return and paying taxes at your rate.

Your daughter would have to file her own income tax return(s), state and federal.
I point this out because many people think that dependents can’t file their own returns.

[md2000]

What would she do if she worked as a model in a TV commercial or the Sears catalog and earned $1700?

The best story: Here Wozniak’s 13yo daughter won $7500 at Keno, and it cost him $7500… Because legally he was the player (she was too young) and he’s already topped up her gift tax limit for the year. SO he collected $7500, paid half in income taxes, then gave her $7500, and paid half that in gift taxes.

http://www.bayarearidersforum.com/forums/showthread.php?p=6876705

[Alley_Dweller]

@md2000

What would she do if she worked as a model in a TV commercial or the Sears catalog and earned $1700?

That would be different because the standard deduction for a dependent’s earned income is higher than for unearned income. If that was her only income for the year, she would not owe any federal income tax. She might owe state income tax. However, if she was self-employed as a model, she might owe self-employment tax.

[dracoi]

@md2000

What would she do if she worked as a model in a TV commercial or the Sears catalog and earned $1700?

When earned income is involved, the available standard deduction goes up. From the IRS

The standard deduction for an individual who can be claimed as a dependent on another person’s tax return is generally limited to the larger of:

$950, or

The individual's earned income plus $300, but not more than the regular standard deduction (generally $5,800).

I’m sure the law is written precisely to minimize the ability to avoid tax by transferring income to minors.

[kaylasdad99]

@Alley_Dweller

Her standard deduction as a dependent is $950 in unearned income.
So $1700 - $950 is $750.
She’d be in the 10% federal bracket, so the maximum tax would be $75 PLUS whatever your state income tax is, assuming she has no other taxable income.

Now, of course, if you were just using her as a shill and you took the prize money and kept it for yourself, a hard-ass tax auditor could make the case that it was really your income and you should be including it in your return and paying taxes at your rate.

Not a shill. The prize is four tickets to an amusement park, and spending the night in a suite over one of the rides.