Retirement tax questions

As you say, since the prize value was reported on Form 1099-MISC, the IRS will expect to see it as income on your tax return.  So you'll need to enter it in TurboTax, then make an adjustment to offset the amount. 

To do this in TurboTax Online: 

1. Open TurboTax Online
2. Select Tax Home in the left pane
3. Select the dropdown to the right of Wages & Income
4. Select Pick up where you left off, Review/Edit or the edit pencil
5. On the Great! We've got your income info page, select the dropdown to the right of Other Common Income -- Tax refunds, 1099-G, 1099-NEC, 1099-MISC, 1099-K
6. Select Start to the right of Form 1099-MISC
7. Select Yes on the Did you get a 1099-MISC? page
8. Enter the information from your 1099-MISC on the Let's enter the income from your 1099-MISC page, then select Continue
9. On the Describe the reason for this 1099-MISC screen, enter Prize, then select Continue
10. On the Do one of these uncommon situations apply? screen, select the bullet next to None of these apply, then select Continue
11. On the Did the Prize involve work that's like [your] main job? page, select the bullet next to No, it didn't involve work like [your] main job, then select Continue
12. On the How often did [you] get income for Prize? page, answer appropriately, then select Continue
13. On the Did the Prize involve an intent to earn money? page, select the bullet next to No, it didn't involve an intent to earn money. This indicates to the program that this wasn't self-employment income, so self-employment tax won't be triggered. Select Continue
14. On the Your 1099-MISC summary page, select Done, unless you have more Forms 1099-MISC to enter

NEXT:

To enter the adjustment in TurboTax Online:

1. After the above actions, you should be on the Let's get the details on what you told us earlier… screen
2. Scroll down and select the dropdown to the right of Less Common Income
3. Select Start or Revisit to the right of Miscellaneous Income, 1099-A, 1099-C
4. On the Let's Work on Any Miscellaneous Income page, select Start to the right of Other reportable income
5. On the Any Other Taxable Income? screen, select Yes
6. On the Other Taxable Income screen enter the description Return of Prize, then the amount, as a negative (i.e., -2,000).  Select Continue
7. On the Other Miscellaneous Income Summary screen, you should see the transaction.  Select Done

Make sure that you have some paperwork showing that you returned the prize, in case the IRS asks any questions.

If the TurboTax Online navigation described above doesn't look like what you're experiencing, see the TurboTax Help article Why does the TurboTax navigation menu look different for me?.

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