No. of Recommendations: 0
(Well, this is the Motley Fool!)

As Jeanie pointed out, the IRS taxes would be killer. Not to mention state taxes.

And what would it do to your ability to contribute to your ROTH? (Assuming you have any money left over after mortgaging your house to pay the taxes on the prize...)
Print the post Back To Top
No. of Recommendations: 0
As Jeanie pointed out, the IRS taxes would be killer. Not to mention state taxes.



Which is why I'm playin' fer funsies! :)

Andrea
Print the post Back To Top
No. of Recommendations: 8
There is no big tangible (like a car) the winner could sell to help pay the windfall tax.

The total retail value of all the "sellable" items is less than $8K, and you couldn't get full value for them anway.... so, this Grand Prize is more of an albatross.

Who's going to take a hundred-thousand-dollar vacation that will put them in debt to Uncle Sam to the tune of $60k? Heck, if I had a discretionary $60k and a few months to research Expedia, I could probably duplicate that vacation and take 6 people instead of 4.

Very clever Hollywood Marketing & Accounting Techniques! They probably designed this contest knowing full well that the winner will never accept the prize once the liabiity is spelled out to him/her.

I once ran a sweepstakes in which we gave away a perfectly restored 1947 Buick Roadmaster (like the "Rainman" car). I tied my promotion into Buick's reintroduction of the Roadmaster that year (c. 1992-93). The ultimate winner was given the choice of the antique, or a brand new Buick Roadmaster. He chose the antique because he was a fan of old cars and it was a spectacular restoration. He signed the tax liability acknowledgement form we provided him at that time. That was in October. In March, the man called me - shaken - he'd just learned what his taxes would be, and begged us to buy the car back from him. We did.

"Careful what you wish for" :-)


Jeanie
Print the post Back To Top
No. of Recommendations: 1
Who's going to take a hundred-thousand-dollar vacation that will put them in debt to Uncle Sam to the tune of $60k?

Is the tax hit really going to be that much? Aren't lump-sum amounts like that just bundled in with your regular income and all to determine the final tax bracket, so that at worst you'd be paying 36%? Granted 36% of $128,000 is still a big chunk of change (~$40,000), but it's also still not as bad almost 50%.

As for who would take such a prize given the tax liability -- I would. I have degenerative arthritis in both feet (they should have cast me as Leigh Teabing; no pretending to have problems walking here), and by the time I'm retired and could take/afford such a trip, I may be so unable to walk at that point that it would be a waste (just from the perspective of how many points of interest in each place I wouldn't be able to see due to lack of handicapped access). If I could get such a trip now, and paid for, even if it meant taking out a home equity loan for the bulk of the tax liability and paying it off over the next several years as yearly bonus checks allowed, I'd take it. It would be totally worth it, and the memories of the four trips would far outweigh the (relatively) fleeting memory of the tax hit.


- Joe -
Print the post Back To Top
No. of Recommendations: 0
Hi Joe,

It's hard to say what the tax hit would be for any given individual. I used ~50% as a worse-case, and it's probably not realistic. Still, at 36% Federal and living in a state that imposes 8% (not to mention a NYC resident who could pay another 3%) -- you can see how bad it could be.

Maybe the answer is, since the trip is for 4, is to find 3 friends who would be willing to chip in $10k each to help the winner offset the tax payment. Dunno.

If I could get such a trip now, and paid for, even if it meant taking out a home equity loan for the bulk of the tax liability and paying it off over the next several years as yearly bonus checks allowed, I'd take it.

But the thing is, the trip isn't really "paid for". You would pay $30k, $40k-whatever in the end (plus interest on that HE loan). Seems it would make more sense to finance a great trip through one of those senior tour operators that plan excursions for folks with limited mobility -- and for <$5K.
There are some great train tours - like The Orient Express - or barge trips through the great rivers of Europe, that you could manage without too much difficulty. I've always wanted to do the Castles-on-the-Rhine boat tour... you get to see magnificent vistas without leaving your deck chair! Check out Grand Circle Tours sometime. It's not that cost-prohibitive and they have lots of experience assisting those with disabilities. Carpe Diem, Joe :-)


Jeanie
Print the post Back To Top
No. of Recommendations: 0
Can the winner argue the valuation of the prize? Or do the tax authorities just assume the valuation provided by the prizegiver is correct?
Print the post Back To Top
No. of Recommendations: 0
I've always wanted to do the Castles-on-the-Rhine boat tour... you get to see magnificent vistas without leaving your deck chair!

I guess this is where we have a difference of opinion. My personal attitude is that I would want to see the insides of those castles and not just have what happened there narrated to me while it slides by. To me, that would be like going to Saint Peters Basilica and only seeing the outside of it, without witnessing the architecture inside. Yes, it's still nice and you can say you've seen it, but you haven't really gotten as full an appreciation of the place as if you go inside, crane your head to see the vaulted ceilings, look at the decorative work, etc.

I just feel that if I'm going to visit historic places, then I want to see and experience as much as possible. So if I can go to Rome and walk inside the Colliseum (if they even allow that any more), I'd much rather do that than just get a look at the outside, say "that's nice", and be whisked along to the next item on the itinerary.

That's just me, though. I've done so little traveling and experienced so little of the world outside the USA that I want to soak it all up when I finally get a chance.

- Joe -
Print the post Back To Top
No. of Recommendations: 0
Can the winner argue the valuation of the prize? Or do the tax authorities just assume the valuation provided by the prizegiver is correct?

The company giving the prize files a form with its own tax return stating the value (since it is a deductible expense for the company), and includes the winner's SSN, so the two need to match.

I guess if you were to argue the valuation, that would need to be done before such reporting takes place - and before you accepted the prize.


Jeanie
Print the post Back To Top
No. of Recommendations: 2
The company giving the prize files a form with its own tax return stating the value (since it is a deductible expense for the company), and includes the winner's SSN, so the two need to match.

On the Tax Strategies board, one of the regular posters said he won a prize (airfare) where the stated prize value was severely inflated compared to the actual worth. When he filed his return, he used his own valuation for the prize (I think he searched on Orbitz). The IRS wrote back asking about the discrepancy; he sent them his supporting documentation for his valuation of the prize and that was it.
Print the post Back To Top
No. of Recommendations: 0
The "value" of the airfares do seem a little steep. $29,000 for 4 people to fly to London? Even if you get people to chip in for their own tickets, you're still paying around $2,500 just for your airfare to/from London. I could spend 2 weeks at an all-expenses-included resort in the Caribbean for that much....
Print the post Back To Top
No. of Recommendations: 0
Thanks, Jeanie and jrr7. That's interesting about the tax reporting.
Print the post Back To Top
No. of Recommendations: 4
TMFJeanie writes (in part):

The company giving the prize files a form with its own tax return stating the value (since it is a deductible expense for the company), and includes the winner's SSN, so the two need to match.

I reply:

I'm pretty sure that the amounts need not match. I won a nice little trip in 2002. Disney sent me a 1099 declaring full retail value. My wife did the legwork to duplicate the trip and accommodations through Priceline, and the documentation of her work resides in our 2002 tax folder. That's the price we declared on our taxes, and we never heard a peep out of the IRS.

You are required to declare fair market value. You are not required to accept the sponsor's estimate of that value. Just be ready to document your estimate should it be challenged. --Bob
Print the post Back To Top
No. of Recommendations: 1
The "value" of the airfares do seem a little steep. $29,000 for 4 people to fly to London?

Don't forget that you're being flown First Class, not Economy. I just did a search on Expedia and Orbitz, and both sites showed that round trip, First Class airfare from EWR or JFK to Heathrow for four nights (depart on Friday, return on Tuesday) is between $10,500 and $12,000 per person for a non-stop flight, down to about $6,500 per person for a one-stop flight. This was with a mid-June time frame for this year.

I'm sure that, depending on the time of year that you choose, you could get even less expensive rates. But the fact of the matter is that First Class airfare is bloody expensive, and their ARV of $29,000 isn't that inflated at all if you go with a one-stop flight. If it's non-stop, they're actually giving a lower price for the ARV.

- Joe -
Print the post Back To Top
No. of Recommendations: 0
>>>>>>>>Don't forget that you're being flown First Class, not Economy. I just did a search on Expedia and Orbitz, and both sites showed that round trip, First Class airfare from EWR or JFK to Heathrow for four nights (depart on Friday, return on Tuesday) is between $10,500 and $12,000 per person for a non-stop flight, down to about $6,500 per person for a one-stop flight. This was with a mid-June time frame for this year.<<<<<<<


I know, I know. But, as a 20-something with student loans, car payments, and no house, I'm flying economy for a while... ;)
Print the post Back To Top
No. of Recommendations: 0
I know, I know. But, as a 20-something with student loans, car payments, and no house, I'm flying economy for a while... ;)

LOL! As a 30-something with 2 young kids, a mortgage, day care expenses, etc., I'm also flying economy for a while. ;-)

It's funny how you think things will get better once you've cleared out obligations X, Y, and Z. Only thing is, new obligations come along (although I admit that kids are a lot more entertaining an obligation than car payments :-D) and you never do quite seem to get to reach that magical point where you can do things like indulge in flying first class.

At least, not until retirement. Then it may well be possible, as long as you've been good about funding that retirement around all those earlier obligations. ;-)

- Joe -
Print the post Back To Top
No. of Recommendations: 6
(Joe:)"and you never do quite seem to get to reach that magical point where you can do things like indulge in flying first class."
_______________________________________
The back of the plane arrives so soon after the front of the plane, I never really figured the extra money was worth it.

Bill
Print the post Back To Top
Advertisement