Question

In 2019, Joan accepted and received a $10,000 prize for her artwork she entered into a contest. Joan deposits the $10,000 in her checking account, and then 5 days later gifts the $10,000 to her son, Brian. No future services are expected of Joan as a condition of receiving the award. What amount should Joan include in her 2019 gross income in connection with this award?

Answer 1

Solution :

Winnings from a contest is a taxable income and has to be reported as "ordinary income" per the federal taxation laws.

Even though the amount is given away as a gift, the same cannot go unreported. Therefore, Joan should report $10,000 in her tax return as gross total income for the year 2019.

For the year 2019, the gift tax will be attracted only if the amount exceeds $15,000. In this case, Joan gifts $10,000 to her son Brian. Hence no gift tax is attracted as the amount is within the limit of $15,000.

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