Abundance Bound (a financial education company for artists) had a contest for their clients, so I reached out to them to find out how taxes are handled in those cases.
Here’s what I wrote:
Hey, Miata! Your contest had me wondering, and I’m curious if you can cover this in a blog post: what are the financial ramifications of accepting prizes - either cash prizes, or physical prizes? Using your contest as an example, what kind of taxes would I owe on the prize I received, and how would I know the right tax form to use? Does a company like yours have to provide a statement at the end of the year to the winner, who then files using that data? Do you know how that all works? I ask both as an individual (who may want to enter a contest) and as a business owner (who may want to share your brilliant idea and have a contest of my own.)
Here’s how Miata responded:
Thanks so much. It’s been fun hosting our first contest and I’m happy to take you through my process if you ever want to try it out. The quick answer to your question is that there is no report of your winnings to the IRS unless the prize value exceeds $600. The total amount won (minus any available deductions) is entered on your 1040 (it goes on line 21 as “other income” unless it’s been changed in the last couple of weeks) when you file taxes. As a business owner, you can deduct the value of the prizes you give away as a business expense. You’ll need to send out IRS Form W-2G to the winner if it’s over $600. Remember to keep track of how much you gave away and who were the recipients of your prizes. Of course, although these are the rules for nearly all of us, it’s always best to ask your accountant how to claim these expenses. Here’s a good article at the financial site Bankrate.com. Although it’s about how to report gambling winnings, any sweepstakes would qualify similarly.
So, there you have it! I’m so glad to have developed a great relationship with Miata, as I have with lots of other industry professionals. If you ever have any questions about things that affect your acting career, please comment below and I’ll answer them in another blog.
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Erin Cronican's career as a professional actor and career coach has spanned the last 25 years in New York City, Los Angeles and San Diego. She has appeared in major feature films and on television, and has done national tours of plays and musicals. She has worked in the advertising & marketing departments of major corporations, film production companies, theater magazines, and non-profit acting organizations. To learn more, check out http://www.theactorsenterprise.org.