Question

Ethan competed in the annual Austin Marathon this year and won a $25,000 prize for fastest wheelchair entrant. Ethan indicated that he would transfer the prize to the local hospital. How much of the prize should Hal include in his gross income?

A. $25,000
B. $25,000 because all prizes are taxable
C. Zero because prizes transferred to charities are excludible
D. Zero because all prizes are excludible
E. Zero because prizes from charities are excludible

Answer 1

Hal should include zero of the prize in his gross income because prizes transferred to charities are excludible.

Step-by-step explanation:

Hal should include zero of the prize in his gross income because prizes transferred to charities are excludible from taxable income. In this case, Ethan indicated that he would transfer the $25,000 prize to the local hospital, which qualifies as a charitable organization. According to the tax laws, amounts received as gifts or prizes from charitable organizations are generally excluded from gross income for tax purposes.