How To Deal With Small Biz Contest Winnings
Every month, there are numerous contests for small businesses to enter. Your business may be eligible to win based on a good business practice, a unique success story, or on some other criteria. For example, if you have a story to tell about exporting, you can win cash and prizes in an SBA contest ending September 3. To win, you just submit a short video about your export story and conclude it with, “That’s my exporting story. Where will your next customer come from?” along with a referral to www.export.gov for assistance. What does winning a contest mean to you, from a practical and tax perspective?
- Winning a contest gives you recognition and exposure. Your company name may be featured on the contest’s website, printed in press releases, and carried in media stories. You can use your winning to enhance your credibility and build your brand.
- Winning can be extremely helpful in your marketing efforts. This intrinsic value of winning may be priceless to your business, and it isn’t taxable.
Contests may earn you cash, property (such as new smart phones or computers), or services (such as marketing advice). However large or small, and in whatever form they take, the winnings are taxable to you.
Contest organizers will usually provide a Form 1099-MISC showing the winnings if they are $600 or more. However, the prizes are taxable even if not reported on a 1099 (e.g., the prize is $500 or the contest merely failed to issue a form).
When property is received, the organizers are supposed to report the fair market value of the property. They may use the item’s retail value as the property’s fair market value. However, the item may be worth a lot less. What do you do?
- Contact the IRS and ask that it issue you a Form 4598, Form W-2 or 1099 Not Received or Incorrect. Explain why you disagree with the 1099 amount. The IRS will contact the contest; you could receive a revised 1099 or no response. Then you can follow the alternative below.
- Report the prize’s value as it was reported on the 1099, and then make an adjustment. Attach your explanation to the return. For example, say you won a computer but don’t need it and sold it immediately for less than what was reported on the 1099. You can report as income the amount you received for the computer as its fair market value. Retain a receipt for the sale and be prepared to explain your position if the IRS questions your return.
Improving Your Chances
Whether or not you win, merely entering the contest can be helpful to your business. You can garner exposure to further your marketing efforts. But winning is always better than losing, so understand how you can improve the odds in your favor.
- Understand the rules. Note the deadlines, the entry requirements (e.g., a statement of a limited number of words; a video of pre-determined length), and information that must be supplied with your entry.
- Make your entry count. Rework and review your entry to optimize your message.
- Put social media to work. Today, many contests include peer voting. Inform your network about your entry and how people can vote for you. Don’t be shy.
You can find a list of contests for small businesses currently underway at Small Business Trends. Good luck!