If it’s late spring, it’s time once again for the CNBC stock trading challenge. First prize is $500,000 and the runner-up wins $250,000. Even after taxes, that's a lot of money.
But the non-cash weekly prizes carry such a hefty income tax liability that I don’t think I’d want to win most of them.
If you are in a combined 37% federal and state income tax marginal tax bracket, in week 8 you could win 2 nights in a Bentley (with chauffeur) and pay only $3,700 in income taxes on a prize that retails for $10,000. Because I could rent an ordinary luxury car without a chaffeur for a couple nights for a few hundred dollars, something I'm not inclined to do in any event, I can't imagine why I'd want to rent a Bentley for several thousand dollars, the amount of taxes I would have to pay if I won a "free" prize.
Or you could win week 4’s prize of a private jet to Jamaica for a 3-night vacation for only $12,000 in taxes. Because one can be a guest in many of the world’s best hotels for under a $1,000 a night, $12,000 for 3 nights seems like a lot to spend for a “free” vacation –- one that comes complete with a 1099 showing income of $32,500.
If your tax bracket is a lot lower, then the tax cost would not be so high, but if you live in NYC or other high-tax locales, you would be paying a much higher amount than would be owed in the 37% bracket I used for my hypotheticals.
What do families do when they win a new house on Extreme Makeover: Home Edition? The producers of that show must pay a mint to build a house in a week; I wonder how generously those houses are valued on 1099s. [UPDATE (from "Another Roger" in the comments below): Extreme Makeover recommends a tax dodge.]
But, yeah, I've certainly seen prizes which I am totally uninterested in having, and value way less than the income tax would be.
Also, in the case of families that aren't just down and out but have a need for special facilities due to, e.g., a handicapped child, isn't that part of the value deductible?
Am I just hallucinating in remembering income averaging being done away with in the Reagan era reforms?
I believe the Extreme Makeover people do give house recipients a lump sum to cover real estate taxes for something like three years, though in this guy's case it didn't help because he had to use the money to pay off prior debts. (Said debts being part of the reason his family was poor enough to qualify for an Extreme house in the first place.)
It's not accurate to say "it didn't help." This guy just robbed Peter to pay Paul.
Lots of folks would love to be 'screwed' by being given a free house, amiright?
No good deed goes unpunished.
The combined losses far exceed the combined gains and therefore no tax should be assessed.
You can deduct the cost of all your lottery tickets as "expenses" against the win, I believe. I know you can do it in Vegas for large wins, so you should always track your losses.
This might be the article that he was talking about.
Also, a few years ago I was working at a radio station and we gave away a Dodge Viper. After the hoopla was over, the guy sponsoring the promotion went over to her and said you can have the keys or this check for 65 grand. Needless to say, she didn't take the Viper home.
I thought any government's entire theory for taxing anything was, "we want some of that".
I don't see why the rent must be the "fair market value". Suppose I have no desire to sell my car, but some crazy person really wants my specific car for some reason. Maybe the VIN is his lucky number. If he's willing to pay me ten times what it's worth, you can damn well believe the government is going to want me to pay taxes on what he paid me, not "fair market value".