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I won $10,000 in a contest (hooray!) and now I'm worried about the taxes. Some people are saying that when they sent the check they'll take it out there, and then it gets taken out at the end of the year again!

What is the procedure for this and how much should I save of the $10000 so that I don't get hit at the end of the year?

2007-11-08 06:49:53 · 2 answers · asked by Holly B 2 in Business & Finance Taxes United States

2 answers

The easiest way is to get a blank copy of the 2006 tax return and pretend you won the money last year. Of if you used software to do your taxes, do a dummy return. (If your income changed dramatically, adjust all the other income figures.) See how much your taxes went up.

If you are in the 25% tax bracket (and don't get pushed into a higher bracket), you could owe $2500. If less than that is withheld from the prize money, you will need to come up with the rest. You can voluntarily send a check or money order to the IRS as an estimated tax payment.

PS, there is a horrible scam at the moment where victims receive a slick looking check for winning a contest. The scammer will tell the victim to deposit the check and then will tell them that must wire taxes to an IRS agent. The check is fake, but will appear to cash (when it bounces, the bank will want all of their money back). The IRS does not accept money by western union and would have made you make the check or money order payable to the US treasury, not someone's name. And if someone is gullible enough to hand over money to the scammer, they'll suddenly be told that the 1st place winner declined their prize and here's another fake check....

2007-11-08 07:04:01 · answer #1 · answered by Anonymous · 0 0

Congratulations! What a nice surprise.

They will probably withold some of the money for tax, and if they do it might be too much or not enough. If they withhold too much, you'll get the extra back when you file your tax return - if they don't withhold enough, you'll have to pay the rest. The amount you'll owe depends on what other income you have. There will be federal tax, and very likely state tax also depending on where you live. Without knowing your state or other income, there's no way to really give you a good answer. Tax will probably be in the range of a fourth to a third of it.

2007-11-08 07:38:24 · answer #2 · answered by Judy 7 · 0 0

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