Contest and Taxes

This is a dilema of conscience. If no 1099 there is a good chance the government doesn't know about your winnings but that does not aliviate you from paying tax on them. It's up to your conscience.

If they want my winnings, they'll get my expenses, too. In the end, I'll win.

Here is an extensive discussion of Hobby vs Business income and expenses:

http://bbq-brethren.com/forum/showthread.php?t=16750&highlight=taxes

As to an event that does not send 1099's.......

There is a minimum $ threshold where 1099's are not required.
Used to be $600, but I don't keep up with that stuff anymore.

The main "exposure" to a team with winnings but no 1099 is from an audit of the event's organizers. Their "expense" ledger would show at least the name of the team or head cook and the $ amount paid. From that, an anal IRS auditor can match up returns to see if $ were reported by winner.

Teams just need to do what they think is correct in all of this----depending on their "tolerance for adventure" :lol:

This is one subject I would still refer to a qualified Tax Professional and not rely on Internet Wisdom.
For sure :redface:

TIM

That's a question I was wondering about the other day when I was doing my taxes. Now that I'm gearing up to start doing comps, would any of my purchases and such become deductible as a hobby expense since there is some chance of winning prize money? I'm far from being a tax whiz or an accountant so what do you guys do?

Plowboy said:

If they want my winnings, they'll get my expenses, too. In the end, I'll win.

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Plowboy,

Remember this is the irs you're talking about, I don't think they ever lose

gary

Never mind. Kapn posted the link to the thread I was looking for. Man, this is becoming a regular thing for me here. I gotta brush up on my thread searching skills. I can't find nothin nomore.

Greatgrills said:

anyone having problems with taxes??? do you have to claim a winning if you do not receive a 1099?? also does anyone have to pay state taxes in different state other then the one they live in?

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This is why I vow to never win a contest. :smile:

JohnMcD348 said:

That's a question I was wondering about the other day when I was doing my taxes. Now that I'm gearing up to start doing comps, would any of my purchases and such become deductible as a hobby expense since there is some chance of winning prize money? I'm far from being a tax whiz or an accountant so what do you guys do?

Click to expand...

NOTE:
I am NOT a tax professional nor do I even begin to pretend to warrant what I say here regarding tax law . . .

BUT - I do have quite an extensive background in starting small companies, geting stuck in tight places and managing to work my way out of them legally and ethically. I have a few ideas that you might want to use . . . or not.

My experience is that before you can begin declaring expenses, you must have some income.

This keeps every basement shotgun shell reloader and weekend wood turner from declaring their hobby expenses. Heckster, if declaring hobby expenses were legal, we might be able to claim HD TV sets as an expense towards our NASCAR race viewing hobby! :wink:

You must show intent to run your competition team as a business . . . and the IRS' acid test for this (in my experience) is if you receive income in direct relation to your activities as a competition Q'r.

You must also show that you are actively seeking out funding (revenues) for your competition Q team. You don't have to be profitable, but you must be able to demonstrate serious intent to profit from your activities.

There are two books that I've read. (And not because I wanted to but because I found myself in a postition where I thought I should.)

1) Accounting for Dummies. Chapter 3 is all about taxes and how to look at them and consider them.

2) The McGraw-Hill 36-Hour Accounting Course. Chapter 16 is all about taxes.

Both of these are well written, although you can probably guess that the For Dummies book is much more fun to read. On the other hand by the end of the Accounting Course book, after I took the final exam, I felt like my knowledge of business accounting was pretty solid.

So take these thoughts for what they're worth. ("But Mr./Ms. IRS Field Agent Smith, I was just following advice I received from some guy I don't even know on an Internet forum" is NOT going to fly!) At least maybe these thoughts will give you some ideas of where you need to head in conversations with your accountant. And yes, you need an accountant. It's one of the ways you're going to be able to demonstrate seriousness in running a business. Besides, it's the best money you'll ever spend. That and a lawyer. :wink:

/Brother Dave

[edit] P.S. To answer Mark and Becky's question, if you "take possesion" of the funds in a state other than the one you live in, then most states expect you to pay them tax on that income. However, your home state often takes consideration of the fact that you received the income in another state and your tax rate on that income can be at a lower rate than your regular rate. At least this is how it was when I was working in Missouri and living in Kansas for a while. At the very least both states expect to hear about your income. Of course most states have some differences in their tax laws - and once again, this is a great reason to hire an accountant. /B.D.

I got a total of ONE 1099 last year... farkin GRAND RAPIDS, MICHIGAN! But actually, I didn't GET it. I've never heard a peep from those people after filling out a form they said I'df get one. Now seven months later (and two weeks past the deadline for them to get it to me)... nodda.

I have been through this extensively with my accountant. You can deduct anything related to competition. It is considered a hobby with the intent to make money.
You can deduct all expenses including your entry fee, mileage, meat, garnish, food & snacks, tools, fuel and your cooker if it is intended solely for competition.
The other side is that if you win and bring in any monies what so ever, you are supposed to declare it. If you ever get audited, they could go back to the contests that you declared expenses from, and see who they paid prize money to. The cut in for 1099's is $600, but finding your income from contests is relative easy, especially if you declared any expense from them.

But my understanding is that you can only claim expenses up to the amount of winnings (like gambling). Is that correct?

Use caution, there may be an IRS Lurker......




http://smiley.smileycentral.com/download/index.jhtml?partner=ZSzeb114_ZN&utm_id=7922

Mark and Becky, Congrats again on your huge walk.

Im no financial guru here but thinking out loud. I dont know what the amount of money was for winning the Royal nor do I care, saying this with total respect. Im sure now that the whole world knows that you won. Therefore im sure if you dont recieve a 1099 form, The IRS still will know about it. Them folks always seem to be lurking somewhere.

I would contact a reputible tax attorney where you reside!

Thats who does my taxes. Also awnsers my questions on subjects like this.

Again Congrats on your huge walk, hope to meet you folks in person someday as well.

I was told by my tax attorney, that even if they don't send you a 1099, that I have to claim it.

Mark,
Congrats again. Tried to get to you in Hermann, but you were busy.

Anyway, we have an llc established (traded my lawyer a brisket and pork loin for his efforts and paid the filing fee). Our attorney's advise was that if we take a check made out to B&B BBQ, we have to claim it. No problem, like Todd said earlier, expenses are easy to come by.

Cash, what cash?

And being as the Royal is a not-for-profit organization ... I think it's highly likely that they have their ducks in a row when it comes to filing their end of the financial paper work.

http://www.americanroyal.com/Default.aspx?tabid=55

Opps, just checked the dates on this thread. Sounds like Great Grills is up to speed on what to do.
Signed, Just wish I was good enough to deal with this issue mod

I agree with Todd's comment last year... they want the winnings, they get the expenses too. Todd said he wins because that makes it pretty much a wash.

However... the words "The" and "IRS" put together spell "THEIRS". :roll: