Questions Regarding Taxes on Sweepstakes Prizing

By: Sync Marketing | In: Ask Sync, Ask Sync Marketing, Best Practices, Sweepstakes

February is the beginning of tax season so we thought it fitting to address some questions that we’ve received from winners and clients alike regarding paying taxes on sweepstakes prizing.

How will I know if I will have to pay taxes on a prize?

Any prizing that you win that totals over $600 in value will be reported to the IRS, and you will receive a 1099 for the tax year in which you accepted the prize. During the process of accepting a sweepstakes prize, you will be asked to fill out and sign a W9 form, so this will be your first indication that you will have to pay taxes on your prize. The amount of taxes that is paid is based on the individual, so it is recommended that you speak with a tax professional to determine what your taxes will be before you accept the prize.  Here is a good article about prizing and paying taxes: http://www.marketwatch.com/story/you-win-and-now-you-owe-taxes-2014-03-12

How do I determine the ARV on a prize for tax purposes when running a sweepstakes? 

We are often asked by our clients to determine the approximate retail value (ARV) of a prize for a sweepstakes. If the prize is an item that is sold by our client, that is the manufacturer’s suggested retail price, which we use to determine the ARV. If, however the prize is a service or trip, we do our due diligence to research the average price of the trip elements to ensure that the ARV is on target.  For more information, see our previous blog article about ARVs here.

What if I accept a prize such as a trip but end up canceling at the last minute? Do I still have to pay taxes on the prize?

Ultimately this is up to the sponsor of the sweepstakes. If the trip elements were already booked and paid for by the sponsor, they will submit a 1099 to the IRS for the advertised ARV.  However, if there are elements of the trip such as food or ground transportation at your destination that wasn’t pre-paid, you could dispute the ARV since those elements were never purchased by the sponsor. Here is an article about taxes on vacation prizes.  http://contests.about.com/od/vacationsweepstakes/f/Which-Taxes-Do-You-Pay-On-Vacation-Prizes.htm

If you are a client thinking of running a sweepstakes or if you have additional tax questions, please contact us at info@syncmarketing.net.   

Sweepstakes Prizing – What to Give Away

By: Julie Link | In: Best Practices, Contests, Legal and Prize Fulfillment, Sweepstakes

It seems these days that everyone is getting in on the fun by running online sweepstakes and contests. That’s because it’s an extremely effective way of not only gathering consumer data, but rewarding consumers in return.  Today, I am going to focus on the best part; the prizing, and the most effective sweepstakes prizing recommendations for your next promotion.

1. Money, money, money: Everyone loves cash. If you choose to award cash as your prize, make sure it’s a significant amount, as with all prizing, winners are taxed on anything over $600. If you choose to go the cash route, it is recommended to always relate the cash prizes back to your product. Take Don’t Touch My Dart: The Sweepstakes…Here, Chrysler gave away $10,000 for the winner to use as they wish, but in the creative and official rules they promoted it as money to be used towards the purchase or lease of a new Dodge Dart.
2. The once-in-a-lifetime experience prize: Awarding your winners with a prize they cannot buy is the ultimate prize. Whether it’s to a red carpet event or a VIP back stage pass; offering prizing that is not available to the general public will allow you to receive entries from consumers who are truly interested in your prize and the exclusive experience.
3. A trip: Pretty much everyone loves to travel, so a trip is a great way to entice consumers to enter. Just be sure to include all of the critical trip elements; airfare, hotel, transportation, and spending money/money for taxes. And, of course, relate it back to your product or service.
4. Your product or service; Giving away an iPad is great, but if it doesn’t relate to your product or service, then you might not be getting the type of entrants you want as well as the fact that the promotion will seem disjointed. If you offer a fantastic service, give consumers the chance to win that particular service free for a year. Or, if it’s a product, why not offer gift cards or a prize pack containing your promoted items?
5. Many prizes. It’s always important to give one larger grand prize, but if you want entrants to feel like they have a true shot at winning, consider giving away several smaller prizes. 

Most importantly, make sure that the prize-winning experience is extremely enjoyable and stress-free for your consumers. By hiring an agency like Sync Marketing to handle your sweepstakes prize fulfillment, you can rest assured that your winners will understand all of the details of their prize and will be taken care of all the way until tax season. For a full list of Sync Marketing’s prize fulfillment offerings, please take a look at our Legal and Prize Fulfillment page, here.

Keeping Winners Happy – Even During Tax Season!

By: Jennifer French | In: Best Practices, Contests, Marketing, Sweepstakes

Since we are almost down to the wire for the end of tax season, I thought it fitting to bring up a few thoughts about sweepstakes prizing and paying taxes.  Yes, the reality is if you host an online sweepstakes or contest and offer consumers the chance to win exciting and sometimes expensive prizing, Uncle Sam will be waiting to receive his fair share from the winners come April.  Despite this, running a sweepstakes or contest is a great way to engage and excite consumers, and if you keep the few items below in mind, there won’t be any surprises at tax time and your winners will walk away with positive feelings due to their winning experience.

• Clearly outline in the official rules that the winner is responsible for all taxes and fees associated with the prize.
• Provide the potential winner with an affidavit of eligibility and release form that again reminds them that if they agree to accept the prize, they are responsible for all taxes and fees associated.
• Suggest that the potential winner speak to their tax consultant regarding their personal financial situation and what accepting the prize will mean to them.
• Refer them to http://www.irs.gov for more information on paying taxes on sweepstakes prizes.

These are just a few suggestions, but my number one recommendation, if your budget allows, is to offer a cash prize to offset the winner’s taxes. Your gesture of providing cash to ease their tax burden will go a long way!  Ultimately, the main reason you run sweepstakes is to engage and reward  new and current consumers, so make sure that in addition to their great prize, you reward them with the best possible experience.