If you come into a lump sum of cash, you may be wondering whether it is taxed. Follow these general guidelines, and discuss them with your tax consultant.
- If you happen to win money while gambling (this includes raffles and lottery winnings that income is taxable as “other income”.
- If you happen to lose money while gambling, you are allowed to deduct those losses up to the number of your winnings, as a miscellaneous itemized deduction.
- If you can prove that your gambling activity was conducted as a “trade or business” your losses (and/or winnings) would be reported on Schedule C (instead of as an itemized deduction for losses), but be careful here….your gambling losses are still limited to the extent of your gambling gains. Also, you should be very careful when completing your return as a professional gambler as the courts have a hard time envisioning gambling as not being pure recreation.
- If you win cash(or a cash equivalent like a shopping card or gift certificate) from a drawing or contest it is considered taxable income and must be reported on your return as “other income”.
- If you win something that is not cash, like a TV (or car, boat, a trip, etc.) then the fair market value of your winnings needs to be reported on your return as “other income”. You are allowed to report a value lower than the FMV reported on Form 1099 if you can substantiate the lower value.
- If you happen to find a briefcase full of money and the police were not able to find it’s prior owner, the money is yours and it’s taxable as other income.
- If you happen to find any non-cash item and the police are not able to find it’s prior owner, the item is yours and the FMV is taxable as other income.
- When someone gives you a gift of cash it is NOT taxable to you.
- When someone gives you a non-cash gift, it is NOT taxable to you.
- The sale of a gift may produce a capital gain, which would be taxable.
- Inheritances are usually not taxable to you.
- Inheritances that would have been taxable income to the decedent is taxable to you.
- Income earned from the inherited property is taxable to you after transfer to you.
- The sale of inherited property may produce a capital gain, which would be taxable to you.