Solidifying A Better Future For My Kids

Getting A Check From Your Tribe? How To Handle It When Tax Season Comes

11 July 2016

Jackie Watts

Have you been notified that you will begin receiving per capita distributions or gaming proceeds from your tribe? There's no doubt that the extra income will be welcome, but it also comes with a few extra financial responsibilities and decisions to make. Here is a brief guide on how to handle your tribal income on your tax return. 

Reporting the Income

In the spring, you should receive a tax document called Form 1099-MISC, which is a way of reporting income earned from being self-employed or getting payments from unusual sources. This form is sent both to you and the IRS, so be sure you receive the form and include this income on your taxes or you could be in for some hefty penalties.

You will need to enter the per capita payments or gaming proceeds on Line 21 of your Form 1040 income tax form. Include a description on the dotted lines -- usually this reads, "Indian Gaming Proceeds" or "Indian Tribal Distrib." 

How Are Your Taxes Affected? 

There is good news and bad news about your taxes with this income. The bad news is that you will generally have to pay regular state and federal income tax on these proceeds. The good news, though, is that you won't have to pay the self-employment tax that often comes with income reported on the same form. 

Depending on your other sources of income and how much you received in gaming profits, your taxes may be affected very little, or they may increase quite a bit -- perhaps even into a higher tax bracket. 

One way to ensure that you don't get a tax bill at the end of the year is to request that the tribe withhold income taxes from the money before it is paid out. Although this doesn't reduce your overall tax liability, it can help avoid having to write a big check in April. 

How Can You Reduce Your Taxes?

Since it's a bad idea to understate or ignore this income, the best way to ensure that your tax bill doesn't skyrocket from the additional money is to take advantage of tax deductions and credits. A simple way to make your profits non-taxable is to invest them in a qualified retirement account -- usually an Individual Retirement Account or your employer's 401(k) plan. You can also reduce your taxable income by itemizing your deductions or donating a portion of your proceeds to a qualified charitable organization. If you have taxable investments, consider harvesting your losses before the end of the year to produce a loss to take against your income.

If you have received a significant tribal payment, it may be best to consult with a qualified accountant to determine the best way to handle the money and the tax implications. This way, you can help ensure a less stressful present and a better future. 

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