New Thread on Win-Car-Owe-Tax -> Change in Tax Code

Dick Adams wrote:

- quote -

> The moral of this story is "Always take the money."

That sounds like a corollary to Willie Sutton's famous
response to the question of why he robbed banks.

Bill

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2005) - All rights reserved. > << ================================================== ===== >

- quote -

> This thread has been worn to death.

Not if you ever plan on winning a contest, it hasn't. )

As for the question...I've seen a couple of contests which
include a cash settlement in addition to the non-cash grand
prize. These were about 20-25 percent of the grand prize
ARV if memory serves. (I think a recent Kraft contest had
this feature, prize was a timeshare.) Obviously, if the
prize is cash, or costly merchandise which the sponsor
doesn't mind the winner selling, there's no need for that.

However...there was a recent contest, and I should remember
the sponsor but don't, which awarded a million dollar home
in Tyler, Texas. There was much publicity of the winner
getting the prize, selling their own home, and migrating to
the new home. I've heard from a local resident that they
received an offer for $3.2 mil for the house and turned it
down...not verified. But evidently the winner did not
consult a tax professional until waaaayyyy too late.

I don't know the end of the story, but the sponsor hasn't
announced a follow-on contest yet. (This was an annual
contest, and they'd given away homes three times before
IIRC.)

Caveat emptor. I don't enter a lot of contests simply
because the tax consequences are too dreadful.

Hank Murphy
speaking only for myself

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2005) - All rights reserved. > << ================================================== ===== >

Dennis G. Rears wrote:

- quote -

> This thread has been worn to death. New question though. What
> would you think of a federal tax code change where game shows,
> reality shows, state lottery games, talk shows, etc... could
> offer a prize that is truly tax free to the recipient. For the
> sake of argument forget about state and local taxes. The host
> show might have to pay a federal income/excise/whatever 40% tax
> to the feds for the privilege? The 40% figure is higher than
> the current tax maximum income tax rate?

Organizations that give away awards and prizes already have
the option to make the award tax-free by merely uplifting
the amount of the award to cover the taxes. Try it... For
someone in the 25% bracket an award of $10,000 requires an
additional $3,330 to cover the taxes.

--
Alan
http://taxtopics.net

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2005) - All rights reserved. > << ================================================== ===== >

Dennis G. Rears wrote:

- quote -

> This thread has been worn to death. New question though. What
> would you think of a federal tax code change where game shows,
> reality shows, state lottery games, talk shows, etc... could
> offer a prize that is truly tax free to the recipient. For the
> sake of argument forget about state and local taxes. The host
> show might have to pay a federal income/excise/whatever 40% tax
> to the feds for the privilege? The 40% figure is higher than
> the current tax maximum income tax rate?

A much simpler idea is to give cash prizes.

A man won a car at golf outing when he got a "hole-in-one" on
the designated hole. Because he understood the process, he
went to the insurance company and got cash (which is just as
good as money - Yogi Berra).

Another person took the car and sold it. He had some tax
problems.

The moral of this story is "Always take the money."

Dick

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2005) - All rights reserved. > << ================================================== ===== >

Dennis G. Rears wrote:

- quote -

> This thread has been worn to death. New question though. What
> would you think of a federal tax code change where game shows,
> reality shows, state lottery games, talk shows, etc... could
> offer a prize that is truly tax free to the recipient. For the
> sake of argument forget about state and local taxes. The host
> show might have to pay a federal income/excise/whatever 40% tax
> to the feds for the privilege? The 40% figure is higher than
> the current tax maximum income tax rate?

Organizations that give away awards and prizes already have
the option to make the award tax-free by merely uplifting
the amount of the award to cover the taxes. Try it... For
someone in the 25% bracket an award of $10,000 requires an
additional $3,330 to cover the taxes.

--
Alan
http://taxtopics.net

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2005) - All rights reserved. > << ================================================== ===== >

Dennis G. Rears wrote:

- quote -

> This thread has been worn to death. New question though. What
> would you think of a federal tax code change where game shows,
> reality shows, state lottery games, talk shows, etc... could
> offer a prize that is truly tax free to the recipient. For the
> sake of argument forget about state and local taxes. The host
> show might have to pay a federal income/excise/whatever 40% tax
> to the feds for the privilege? The 40% figure is higher than
> the current tax maximum income tax rate?

The show can do this now--they just have to work things out
mathematically so the additional tax due on the taxes paid
on behalf of the prizewinner are also taken into account.
The show could also just figure things based on a
hypothetical taxpayer in the 25% bracket (the mandatory
withholding amount for these types of payments) or at 35%
(the current maximum tax rate).

The formula for determining the amount of tax due would be:

((tax rate)x(value of prize)) / (1 - (tax rate))

Let's say a show wanted to use the 25% bracket, and that
they awarded a car to someone worth $10,000. The winner
would get the car and a 1099 form showing prize winnings of
$13,333, on which $3,333 had been paid in withholding taxes.
The game show would forward the 3,333 to the IRS, and
everyone is happy (except maybe for a prize winner who is in
a tax bracket higher than 25% and would end up owing some
additional tax).

If the game show wanted to be generous, they could assume
that the prize winner is in the 35% bracket. In that case,
the 1099 would be for $15,385, and the game show would
forward $5,385 to the IRS. This would mean that all of the
prize winners end up paying no tax,and that most prize
winners end up with a little cash back in their pockets.

It's a workable system, and doesn't require any changes to
the tax code. I'm guessing that most shows don't do it
because they don't have to do it. They are in the business
to maximize their profits, and do see any obligation to pay
the tax liability of the contestants.

--Chris Ballard

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2005) - All rights reserved. > << ================================================== ===== >

"Dennis G. Rears" wrote

- quote -

> This thread has been worn to death. New question though. What
> would you think of a federal tax code change where game shows,
> reality shows, state lottery games, talk shows, etc... could
> offer a prize that is truly tax free to the recipient. For the
> sake of argument forget about state and local taxes. The host
> show might have to pay a federal income/excise/whatever 40% tax
> to the feds for the privilege? The 40% figure is higher than
> the current tax maximum income tax rate?

The state would lose out, and not be happy - at all.

Instead, have them gross-up the prize for the taxes they
"withhold" and have them pay the tax on the winners behalf.

--
Paul A. Thomas, CPA
Athens, Georgia
taxman at negia.net

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2005) - All rights reserved. > << ================================================== ===== >

This thread has been worn to death. New question though. What
would you think of a federal tax code change where game shows,
reality shows, state lottery games, talk shows, etc... could
offer a prize that is truly tax free to the recipient. For the
sake of argument forget about state and local taxes. The host
show might have to pay a federal income/excise/whatever 40% tax
to the feds for the privilege? The 40% figure is higher than
the current tax maximum income tax rate?

dennis

<< ================================================== ===== > << The foregoing is intended for educational purposes only > << and does NOT constitute legal OR professional advice. > << > << The Charter and the Guidelines for submitting > << messages to this newsgroup are at www.asktax.org. > << Copyright (2005) - All rights reserved. > << ================================================== ===== >