How to Calculate Taxes on a Cash Windfall
Original post by Stephanie Ellen of Demand Media
While a cash windfall like winning the jackpot on a slot machine or winning at the dog track can be thrilling, Uncle Sam also wants his share. Cash windfalls are counted as taxable income by the Internal Revenue Service and are fully taxable. In order to determine how much tax you'll have to pay on a cash windfall, you'll need to determine your total taxable income for the tax year.
Gather your information. In order to figure out which tax bracket you are in, you'll need to calculate your total income. Collect your pay stubs, bank and brokerage statements, self-employment income totals and any other taxable income for the year.
Add up your income, including your cash windfall.
Locate the tax table for the tax year on the IRS website. Type "YEAR tax table" into the "Search" text box at the top of the IRS's home page, where "YEAR" is the actual tax year when you'll be reporting the income. For example, type "2010 tax table" into the Search text box and then click "Search." Tax tables change periodically, so make sure you are referencing the right tax table.
Look up how much tax is due on your taxable income. Find your income in the table and then look at the figure under your filing status. The figure is the highest amount in taxes you'll be expected to pay and does not include deductions or credits. If you have dependents, school credits or other forms of tax relief, your bill will be lower.
Tips & Warnings
- Input your details into your favorite tax software for a better picture of exactly how much tax you'll have to pay on your income -- including the windfall. If you want to know how much you'll be paying but the tax software hasn't been released for the current tax year, go ahead and use last year's software. However, bear in mind that you'll only be getting an estimate; tax rules change slightly every year.
- Tax preparation software
About the Author
Stephanie Ellen teaches mathematics and statistics at the university and college level. She coauthored a statistics textbook published by Houghton-Mifflin. She has been writing professionally since 2008. Ellen holds a Bachelor of Science in health science from State University New York, a master's degree in math education from Jacksonville University and a Master of Arts in creative writing from National University.
- John Foxx/Stockbyte/Getty Images