I am a corporate entity. I hold a contest for which there is a nominal entrance fee. I want to use aggregate amount of entrance fees to award to a winner, based on some judging criteria. Do I have to pay taxes on the amount collected? Or does awarding the money to the contest winner count as a deductible expense?
2006-10-31 09:15:11 · 5 answers · asked by The Machino 1 in Business & Finance ➔ Taxes ➔ United States
In order for corporate tax laws to be applicable, the contest needs to have been announced as being sponsored by your coporation. If you didn't do this, than you don't need to worry about anything. If you did announce this then read on:
If (A) the collection and dispersement of funds was performed as one activity; and (B) All of the money that was collected is dispersed... there is no net gain to the company and therefore no taxes need to be paid. If you collect more than you disperse, than your company made a profit and you need to pay tax. If you dispersed more than you collected, then it is a deduction.
If the collection and dispersement ARE NOT RELATED activities, then you paysales and use tax on the amount collected.
Even if you mention that your company is related to the event... It is possible that this activity technically does not fit within the provision of your corporation -- as your company is not donating winnings to the contest (where the money was not collected as part of the event). In this instance, don't make it more complicated than it is. This isn't much different than an office pool on fantasy football.
The amount is also important. If you are talking $100 entry fee, then you need to worry about gambling laws. Even in gambling, there is a minimum amount of earnings necessary that you have to make before you need to report it as income. (<$600 entry fee... or the total profit less than 300 times the entrance fee. -- IRS W2g instructions.)
2006-11-01 02:21:55 · answer #1 · answered by Sam I AM 3 · 0⤊ 1⤋
The money you collect will be income and the amount you pay out is a deduction. The money you pay to the individual is income to them and you would have to give them a 1099 form.
You may wanty to check the local gambling laws as this sounds like a lottery which could be illegal
2006-10-31 10:34:43 · answer #2 · answered by waggy_33 6 · 1⤊ 0⤋
If you are giving out all of the money as an award then no, but if you are giving out less money than the fees that you are collecting then yes.
2006-10-31 09:27:44 · answer #3 · answered by kum-Bucket69 2 · 1⤊ 0⤋
At first blush I would thing that the exercise you wish to undertake would be considered gambling and therefore illegal. If that were the case you would report the illegal income but be prohibited from taking a deduction against that income because the enterprise was illegal.
2006-10-31 10:06:52 · answer #4 · answered by ? 6 · 0⤊ 0⤋
Honestly, I think we are all guessing. Ask your accountant who is liable for his answer. Don't do something you see here unless it is backed up with a link to a legitimate web site.
2006-10-31 14:43:20 · answer #5 · answered by TaxMan 5 · 1⤊ 1⤋