Legality of Raffles

[TacoBelle]

Ok, so I LOVE raffles. And I had never thought twice about the legality until somebody mentioned it in another thread. Here's my scenario: I sometimes do raffles where the prizes are cash (the winner can choose Amazon gift card or Paypal). And they are BIG prizes (like 500-1000$ each). I asked my CPA if they were tax-deductable after explaining the situation. He said they most definitely are, as long as I have the receiver's full name. Now I'm wondering exactly how that would work if gambling is illegal here. Would they be considered "gifts" as if I had gifted them to that person?

http://www.gambling-law-us.com/State-Laws/

 

[Just Me]

Ok, so I LOVE raffles. And I had never thought twice about the legality until somebody mentioned it in another thread. Here's my scenario: I sometimes do raffles where the prizes are cash (the winner can choose Amazon gift card or Paypal). And they are BIG prizes (like 500-1000$ each). I asked my CPA if they were tax-deductable after explaining the situation. He said they most definitely are, as long as I have the receiver's full name. Now I'm wondering exactly how that would work if gambling is illegal here. Would they be considered "gifts" as if I had gifted them to that person?

http://www.gambling-law-us.com/State-Laws/

You would really have to consult an attorney to find out for sure. The laws vary so much state by state when it comes to these contests/raffles.

One rule of thumb is contests where skill is involved are generally ok, but random drawings are considered gambling by most states. Have you ever noticed most of the big companies contests and raffles always say "no purchase necessary"? I am quite sure that is to protect themselves from the laws governing raffles and contests because if you are saying a purchase is necessary to enter it becomes gambling. At least that is my guess.

Cash prizes could really be an issue with the IRS, if they consider this gambling you would be responsible for issuing the winner a 1099 based on how much they spent and how much the payout. I do not know where the cutoffs are, that would be something your CPA would know more about.

 

[rexcode]

Ok, so I LOVE raffles. And I had never thought twice about the legality until somebody mentioned it in another thread. Here's my scenario: I sometimes do raffles where the prizes are cash (the winner can choose Amazon gift card or Paypal). And they are BIG prizes (like 500-1000$ each). I asked my CPA if they were tax-deductable after explaining the situation. He said they most definitely are, as long as I have the receiver's full name. Now I'm wondering exactly how that would work if gambling is illegal here. Would they be considered "gifts" as if I had gifted them to that person?[/url]

I don't see how you could possibly take a legal deduction on this. Well, unless your raffle happened to be won by a non-profit organization. A gift to an individual is not tax-deductible. I suppose you might try to call it a business expense, but it's probably not worth the potential trouble.

Probably the raffle isn't legal whether the prizes are cash or something else (not that anyone is likely to do anything about that). So in that case, whoever won should also declare the winnings on their 1040 long form under "proceeds from illegal activity" to cover their ass with the IRS. There's another area to fill in proceeds from gambling, but it is intended to be used for winnings from legal gaming.

 

[emptiedglass]

Ok, so I LOVE raffles. And I had never thought twice about the legality until somebody mentioned it in another thread. Here's my scenario: I sometimes do raffles where the prizes are cash (the winner can choose Amazon gift card or Paypal). And they are BIG prizes (like 500-1000$ each). I asked my CPA if they were tax-deductable after explaining the situation. He said they most definitely are, as long as I have the receiver's full name. Now I'm wondering exactly how that would work if gambling is illegal here. Would they be considered "gifts" as if I had gifted them to that person?[/url]

I don't see how you could possibly take a legal deduction on this. Well, unless your raffle happened to be won by a non-profit organization. A gift to an individual is not tax-deductible. I suppose you might try to call it a business expense, but it's probably not worth the potential trouble.

Probably the raffle isn't legal whether the prizes are cash or something else (not that anyone is likely to do anything about that). So in that case, whoever won should also declare the winnings on their 1040 long form under "proceeds from illegal activity" to cover their ass with the IRS. There's another area to fill in proceeds from gambling, but it is intended to be used for winnings from legal gaming.

"Proceeds from illegal activity" might raise the interest of more than just the IRS. FBI, DEA, DHS... take your pick of alphabet boys. :lol: