Taxpayer asks:
I have a difficult situation. I won a lot of money in my church’s 50/50. I know I have to report it as income but when I asked for written information from my church, they asked me not to report it. They say they aren’t legally allowed to run a 50/50 and if I report it, I’ll get them in trouble and they could have to close. I don’t want to get anyone in trouble but I don’t want to cheat on my taxes. What do I do?
Taxgirl says:
You’re absolutely right that you need to report the income. So good on you.
As to the church, this kind of thing happens all of the time. Many organizations are barred by state law from conducting “games of chance” and other random lottery type fundraisers. And the 50/50 is just that: everyone pays into a pot and a random winner takes 50% and the church or other organization takes the remainder. It’s a win-win for the church or other organization because it requires no upfront cash, no real efforts beyond promotion. There’s just that little detail of whether it’s allowable…
The good news in your case is that you don’t have to have a form from the church in order to report the income. Just report it on Line 21 as other income. The IRS asks you to describe the type and amount – it doesn’t actually require you to name the source.
All of that said, it’s not beyond the realm of possibility that you could be asked, at audit, to provide the source of the funds. In that event, do it. The church is clearly aware that what they’re doing is wrong and they’ve made the decision to do it anyway. That’s not on you, it’s on them: any of the fall out resulting from the 50/50 is the result of their calculated risk. And so long as it’s working for them, they’ve decided to keep doing it. Again, not your problem.
So go, enjoy your winnings. Don’t waste another moment worrying about it.
Like any good lawyer, I need to add a disclaimer: Unfortunately, it is impossible to give comprehensive tax advice over the internet, no matter how well researched or written. Before relying on any information given on this site, contact a tax professional to discuss your particular situation.
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Taxpayer asks:
Recently my father-in-law passed away. My Mother-in-law is planning on selling her home and giving each child $10,000 and then putting the rest in CDs and she is planning on doing this before the end of the year. How will this affect the income tax that we have to pay? My husband says that we do not have to pay income taxes on this. We currently get health insurance through the state, but $10,000 extra would put us over the $50,000 income cap and make us ineligible. Any ideas how to avoid this situation?
Taxgirl says:
Gifts of cash are not taxable to the recipient for federal income tax purposes. So, when your mom writes you a check for $10,000, you don’t have to do a thing except tell her thank you.
If the gift were an appreciated asset, like stock or real property, it would not be taxable to you when you receive it, but there would be a tax consequence when you sell it. You would “carry over” the basis from the donor (in this case, your mother-in-law, and use that to determine any capital gain. That’s not the case here, but just so you know.
There may be a gift tax consequence to your mother-in-law, depending upon her pattern of giving throughout the year. Under the federal gift tax laws, your mother may gift any person $13,000 per year without gift tax consequences. So it sounds like the $10,000 gift is okay – but remember, the $13,000 is the total for the year. If your mother gives you other gifts throughout the year, she’ll want to do some tax planning.
I’m not sure where you live but, like the feds, most states do not include cash gifts as income for income tax purposes. I am, however, not sure whether cash gifts are includible as resources for purposes of state benefits (they are includable in some states for purposes of, say, Medicaid applications). I would highly recommend checking with a benefits representative for your state or your attorney to confirm the specifics.
Like any good lawyer, I need to add a disclaimer: Unfortunately, it is impossible to give comprehensive tax advice over the internet, no matter how well researched or written. Before relying on any information given on this site, contact a tax professional to discuss your particular situation.
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Image courtesy of Wikimedia Creative Commons: Photo taken and released under GFDL by Tristanb.
Taxpayer asks:
Hi Tax Girl
Question
If someone pays my Credit line directly. i.e. they write a check directly to my bank to lower my credit line balance.
with their after tax dollars. Is this taxable income to me.
Taxgirl says:
It depends on who that “someone” is…
In most cases, this would be considered a gift to you and since it’s not an appreciated asset (it’s just plain ol’ cash), there should be no income tax consequences. There may be gift tax as a result of the gift (depending on the amount – the current annual exemption for gifts is $13,000 per person per year); gift tax, however, is payable (if due) by the person who makes the gift and not by the recipient. It is not an income tax and is only due once you’ve exhausted your lifetime exemption. It can be a complicated issue, so the person making with the gift will want to check with his or her tax professional for more information.
There are some exceptions to the gift rule. It’s not a gift if the payment is in exchange for any consideration – in other words, if a person is paying your credit down because you painted their house, then it’s not a gift, it’s compensation. Similarly, the IRS considers significant gifts made by an employer to an employee compensation and not a gift at all. In either of those cases, the payment would be considered income.
If it’s a plain vanilla transaction – your girlfriend wrote a check to pay off your line of credit – there are likely no income tax consequences to you (but possibly gift tax consequences to the girlfriend, as noted above). But if it’s tricky at all, you’ll want to get some professional advice about how to characterize it.
Like any good lawyer, I need to add a disclaimer: Unfortunately, it is impossible to give comprehensive tax advice over the internet, no matter how well researched or written. Before relying on any information given on this site, contact a tax professional to discuss your particular situation.
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Taxpayer asks:
Hello, I have a question concerning a 1099 . I work for a company full time and get a w-2 at the end of the year. I have been asked to work additional hours and know that they usually do not like overtime. Can i ask them to 1099 me at the end of the year for the additional hours? Can I use my ss # or would i need to maybe go under a dba name and tax id #?
Thanks so much for your help!
Taxgirl says:
If you’re doing the same kind of work under the same terms, you need to be paid overtime using your regular tax ID so that you can be issued a W-2 for the entire amount. You’re still an employee for that additional work.
I know that employers don’t like to pay overtime. Of course not. They have to pay more for the same work. But tough! If they’re going to ask you to work it, they need to pay you for it. Not only is it the right thing to do, it’s the law. There are employment laws that your employer might be violating by structuring your compensation differently to avoid overtime.
Besides, you’re just shorting yourself by taking the 1099 in this case. As a W-2 employee, your employer withholds your taxes and pays half of FICA (Social Security and Medicare) tax out of their pocket. If you accept a 1099 for this extra work, not only will you lose the benefit of your overtime rate, you will be stuck paying 100% of the FICA tax as SE tax – you’ll essentially be taking an additional 7% hit.
It sounds like you’re trying to be accommodating and I appreciate that. But don’t talk yourself into getting a bad deal in your efforts to be a good team player.
Like any good lawyer, I need to add a disclaimer: Unfortunately, it is impossible to give comprehensive tax advice over the internet, no matter how well researched or written. Before relying on any information given on this site, contact a tax professional to discuss your particular situation.
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