Winning a prize, but can't afford the taxes?

[wildernesslodgelover]

Has this ever happened to you?

It happened to us...a few years ago, I won a contest through Corningware (I think) where I won a dinner party from Giada DiLaurentis. She was going to come to my house and cook for a party of 12. I was SOOOO EXCITED!

THEN, we found out we would have to pay the taxes...and the taxes were crazy, like 5k I think. We had our accountant look it over, and I think I remember it being 3 or 4 or 5k. I remember the total amount of the prize was something high....like maybe 20k. I am sure Giada flies first class, and her hotel would be top notch, and she probably has some sort of an entourage that travels with her.

Now, let's face it...if the prize was something tangible of monetary value...like, a new kitchen, or a car...we would have done whatever it took to pay those taxes. We just couldn't spend that money on a dinner party...no matter who was cooking. And trust me, I *LOVE* Giada (so does my hubby, of course, she is gorgeous!)

I wish I would have asked to switch with the second place winner...I think second place was $500 in kitchen items. To this day, I wonder who finally got that prize of Giada. DH and I agree, you would have to be pretty well off to afford that.

Just wondering if this happened to anyone else. I am very into reading the fine print of contests now!!!

 

[Green Tea]

If it was Giada my dh would have found the money. He loves her !



Tax would be calculated along with your income. 25%, 35%. Whatever your rate is. The value is income.

 

[TriMom]

Not taxes, but still a prize I couldn't accept -

Many years ago when I was a travel agent, I somehow managed to sell 2 separate couples a Raddison Seven Seas (now Regent Seven Seas) cruise to Tahitti within the same week. The sales rep for my area calls me and says she has never had anyone one book two Tahittian cruises just days apart and she would like to reward me with a balcony suite stateroom for a Tahittian cruise that summer. If I was going to pay OOP for that room, it would have cost us close to $15,000.
But, I had to pay the airfare to Tahitti, and we did not have $4000 laying around to fly to Tahitti. I still kick myself for not trying harder to come up with that money. Talk about a once in a lifetime experience!

 

[MichelleVW]

I'm pretty sure you don't have to pay the taxes up front. It just gets included in your tax return at the end of the year.

 

[trip]

Didn't a lot of people have tax problems when Oprah did that whole audience car give-a-way?

 

[wdwmom0f3]

I would have passed on that too OP. That's the cost of a nice Disney vacation and I would take that over a dinner party anytime.

 

[Acklander]

Didn't a lot of people have tax problems when Oprah did that whole audience car give-a-way?

No, the news media used that angle for the story. The Oprah audience was told before the showing that they would be getting the car, and explained about the taxes, and that they would have the option of turning it down. No one turned it down.

 

[Disney1fan2002]

No, the news media used that angle for the story. The Oprah audience was told before the showing that they would be getting the car, and explained about the taxes, and that they would have the option of turning it down. No one turned it down.

Now see, this is what I hate! So that whole "if your box has a key, you're getting a car" was all fake? All those people KNEW that their box was going to have a key? The reactions of surprise were faked???

 

[StacyMarie]

Every year in my town, we have a weekend gathering of 10,000 to 15,000 Harley riders that gather for a long weekend of camping, auctions, food, and concerts and all the proceeds go to cancer research. Each year, they do a raffle for a brand new Harley that is all decked out and is estimated to cost around $20,000. The bike is donated by the local Harley shop so all the proceeds from the ticket sales go to the charity. Last year, a guy won the bike and could not come up with the $4,000 tax bill that went along with it so he never claimed his bike. I remember him begging people on Myspace and Facebook to donate so he could claim the bike, LOL!

 

[acourtwdw]

Usually when someone win something over a certain amount, the winner gets a 1099 form to use when they file their taxes. It is "earned income"

 

[WDSearcher]

Now see, this is what I hate! So that whole "if your box has a key, you're getting a car" was all fake? All those people KNEW that their box was going to have a key? The reactions of surprise were faked???

No, they weren't. Everyone was told that they had the POSSIBILITY of winning a car. They were told the tax hit and they were told that IF they won the car, they would have the ability to turn the prize down. It wasn't until they all opened their boxes that they realized EVERYONE was getting a car. It was originally supposed to be only a few people within the audience but, because there was no way to know who would win, everyone got the rules in advance.

 

[princesspiglet]

Now see, this is what I hate! So that whole "if your box has a key, you're getting a car" was all fake? All those people KNEW that their box was going to have a key? The reactions of surprise were faked???

No, it wasn't totally fake. My friend was in the audience that day and she said that a stage manager came out and said something to the effect of, "Today we will be giving away some prizes- brand new vehicles to be exact. There will be certain boxes that have a key in them, if your box has a key, you will get a car. If you do not want the opportunity to win the car- as there will be tax implications- please come to the front and let us know."

This is not verbatim, but this is what she remembers him saying. He then went into great detail about what the taxes would be and gave everyone another chance to step forward if they did not want to pay the taxes. She said no one stepped forward. She said they did not say that "everyone" would be getting a car, only that there would be certain boxes with keys in them, so they were all under the impression that it was a crapshoot and that only a lucky few would be getting the cars. So when they all opened their boxes and saw that everyone had a key, they all went crazy. So their reactions were genuine and real.

 

[wildernesslodgelover]

Oh, that's a good idea, Stacy...I am not above begging. I was also trying to figure out how to make it a "charity" event. I also thought about "charging" friends to come. I was really trying to make it work!

Thank you, wdwmom! I feel the same way!

trimom-ohhh, that stinks! I had a similar problem recently, a friend invited me and my DD to stay at her timeshare for a week in Aruba with her and her kids (he DH couldn't make it, and she did not want to go alone) and she said I would not have to pay for anything except airfare and meals...and I just couldn't do it right now.

(geez, I am really sounding like an impoverished person now, aren't I?)

Michelle-I see...but still, if we had to pay it at ANY point...still cannot do it.

Green tea-I think my DH was more disappointed than I! She really is gorgeous, isn't she? And she *seems* sweet.

 

[wildernesslodgelover]

My DH and I just strated discussing this again, because we want to enter a kitchen makeover contest, and I see the retail value for the kitchen is 30k. I *think* you pay taxes on the fair market value, NOT the retail value, though. So we are trying to figure out what our taxes would be.

For something like this, we are more than willing to beg, borrow or steal (don't flame me, it is just an expression, we won't steal, LOL) to get the money for the taxes, though.

 

[StacyMarie]

No, it wasn't totally fake. My friend was in the audience that day and she said that a stage manager came out and said something to the effect of, "Today we will be giving away some prizes- brand new vehicles to be exact. There will be certain boxes that have a key in them, if your box has a key, you will get a car. If you do not want the opportunity to win the car- as there will be tax implications- please come to the front and let us know."

This is not verbatim, but this is what she remembers him saying. He then went into great detail about what the taxes would be and gave everyone another chance to step forward if they did not want to pay the taxes. She said no one stepped forward. She said they did not say that "everyone" would be getting a car, only that there would be certain boxes with keys in them, so they were all under the impression that it was a crapshoot and that only a lucky few would be getting the cars. So when they all opened their boxes and saw that everyone had a key, they all went crazy. So their reactions were genuine and real.

I want a box with a key to a new car, PLEASE!

 

[Toad_Passenger]

I've heard this happening a lot of times. From people who win cars to people who win the "Dream Home"" type giveaways, I wonder how many of those prizes go unclaimed because of the tax implications.

As the OP said, if it was cash you could, at least, set the taxes aside from the cash prize, but with material goods, it's not that easy.

 

[Cheshire Figment]

Two comments.

One as a CPA. I have had clients win major prizes. I have reported the 1099 amount on the Form 1040 but also then reported an adjustment downward with an explanation of why the actual income dollar amount should be less for my client. This was never challanged.

The other is a few years ago with Disney's Year of A Million Dreams program, all of the major prizes included a sizeable cash component that approximated the typical family's tax effect. So if the prize was valued at $30,000 and would probably have a tax effect of $7,500, then they added $10,000 in cash for a total 1099 value of $40,000 and a tax of $10,000 which was covered by the cash payment.

 

[cteddiesgirl]

Taxes are the reason why I won't enter any contest where the grand prize is not money or is not something I can sell. Or if they don't include the taxes with the prize.

 

[bettymae1121]

I've heard this happening a lot of times. From people who win cars to people who win the "Dream Home"" type giveaways, I wonder how many of those prizes go unclaimed because of the tax implications.

As the OP said, if it was cash you could, at least, set the taxes aside from the cash prize, but with material goods, it's not that easy.

This is why i never enter contests for a "dream house". Between the income taxes and the property taxes on such an expensive house, there is no way to swing it. Of course you can enjoy it for a few months and then sell it for the money, but still seems like more trouble than it's woth. Or maybe not, if it's a million dollar house....

I could come up with $5k in taxes on a new car, but not tens of thousands for a house (plus property taxes and upkeep going forward).

 

[brerrabbit]

We enter the HGTV Dream House contest every year hoping to win. We already know that if we were ever lucky enough to win it that we would go there for the reveal show, stay in it for a week during which time we would meet with a realator to list the house for sale with everything included, furniture, curtains, lines etc. We would then drive the new vehicle that is usually included in the package home and wait for the thing to sell. For us it is a no brainer. After all the time to sell it is right then because you have received the equivalent of millions of dollars of national advertising from HGTV. Take any cash they give you and give it to the IRS as a prepayment of taxes owed, sell the house, pay the rest of what you owe, and keep the cash that's left over for yourself.

Supposedly in the history of the DH giveaway only one time have the winners tried to keep the house and it was a disaster. They claimed they did not know they owed taxes, spent the cash prize, moved from Chicago to Tyler, Texas and had massive money issues. The whole story was captured pretty well by Money Magazine in the section where financial advisors recommend a course of action for people in financial trouble.