MORE HERE:
http://www.forbes.com/sites/robertwood/2010/10/14/irs-is-taxing-my-nobel-prize/
Most of us will never win a Nobel Prize, but if we do, it comes with a tax bill. Our old friend the IRS gets a cut of the roughly $1.4 million USD ($10 million Swedish kronor) cash prize. The 2010 winners may not be complaining, but some may be surprised.
Martin Chalfie, won the 2008 Nobel Prize in Chemistry, lamenting that since the Reagan era when the tax code was changed, the IRS collects tax on prizes just like any other income.
President Obama cleverly avoided tax on his Nobel Peace Prize last yearand got great pressby regifting it. Since Jerry Seinfelds eponymous series brought regifting out of the closet, 60% of women and 40% of men admit they regift. Theres even a Gift and Re-Gifts neighborhood on eBay.
Before 1986, many prizes were tax-free as long as no significant services were involved. Since 1986, though, prizes and awards are taxable.
You can decline an award, as George C. Scott did an Academy Award for Patton in 1971. You can even decline a Nobel Prize to avoid the tax. Thats actually surprising, since the tax law routinely attributes taxable income to you constructively when you could have received a payment but chose not to.
If you are awarded a cash prize you can turn around and give it to charity but that doesnt avoid all the tax. Why? You cant deduct charitable contributions exceeding 50% of your contribution basegenerally your adjusted gross income.
The limit is even lower (30%) for gifts to certain types of organizations. You can carry over excess deductions for up to five years, but in the meantime, are paying tax on monies youve given away.
-PJ