Paying the taxes on winnings isn't too complicated, but we always advise that you consult with your accountant when you win a large prize.

Taxes on prize winnings are due at the end of the year, just like winnings from gambling or the lottery. You claim the amount you won, and you pay taxes on them as earned income. In most states, the minimum amount of a claim is $600. That means that if you win a prize or something of value over $600, you must claim it as winnings. Also, many sponsors will send you a 1099 Form at the end of the year with the amount of the prize you won. This can sometimes be under $600, but you would need to claim it anyway. If you decide to sell one of your prizes, keep the receipt! It's the amount on the receipt that you would claim (along with other supporting information).

You can use your supplies as deductions against those winnings, but you must keep good records of how many entries you sent in over the course of the year, and provide receipts for all of the supplies. For example, everyone buys stamps to mail their bills. For you to claim your stamps as a deduction, you have to keep records of how many sweepstakes you enter in a particular time period, and attach your receipts for the stamps (that's one great use for our worksheets...). The same holds true for your envelopes, 3x5s, postcards, and so forth.

If you have specific questions, the Arent Fox Sweepstakes Law Web site is an excellent resource. They have a message board to which you can post questions, or you can send someone there an e-mail message directly. Again, though, you can always consult with your accountant for a particular question about any local or state laws for your area.