Noor Patel has had a busy year! She decided to take a cross-country adventure. A

Question

Noor Patel has had a busy year! She decided to take a cross-country adventure. Along the way, she won a new car on the “Price Is Right” (valued at $13,600) and won $500 on a scratch-off lottery ticket (the first time she ever played). She also signed up for a credit card to start the trip and was given a sign-up bonus of $300.

Noor Patel has had a busy year! She decided to take a cross-country adventure. Along the way, she won a new car on the “Price Is Right” (valued at $13,600) and won $500 on a scratch-off lottery ticket (the first time she ever played). She also signed up for a credit card to start the trip and was given a sign-up bonus of $300.

Explanation / Answer

While caculating the amount Noor Patel has to include in her federal taxable income , the following points is to be noted.

1. To report all non-cash prizes as income in fair market value, car in this case.

2. There is no prize amount which is non taxable.

3.According to the Internal Revenue Service (IRS), credit card rewards may be taxable as income. The types of rewards and the way in which you receive them determine whether they are considered taxable. In many cases, the rewards are viewed by the IRS as a discount, not as income. For example, a cash-back program for using your credit card is treated as if it were actually a post-purchase discount. There are some credit card reward programs that offer large sign-up bonuses, however, which the IRS may end up counting as taxable income.

So in this case federal taxable amount to be included ( 13,600 + 500 + 300) = $ 14, 400.

Fair market value of car is connsidered to be $ 13, 600

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