Taxes on winnings question

[cmjb13]

Suppose you win $10,000 on a game show.

How much on average would you have to pay on taxes? (Average because I think it varies depending on what tax bracket you are in, no?)

[zachhoran]

[quote name=\'cmjb13\' date=\'Dec 25 2003, 09:34 AM\'] Suppose you win $10,000 on a game show.

How much on average would you have to pay on taxes? (Average because I think it varies depending on what tax bracket you are in, no?) [/quote]
 At the $10K level, it'd be roughly 30-35% of the winnings in taxes. For Million Dollar winners, from what I recall about how much the WWTBAM winners got to keep, it'd be about 45-50% of the winnings.

[cmjb13]

Then suppose it's a car.

Would you just pay taxes based on the total dollar value of the car?

[zachhoran]

[quote name=\'cmjb13\' date=\'Dec 25 2003, 10:42 AM\'] Then suppose it's a car.

Would you just pay taxes based on the total dollar value of the car? [/quote]
 You'd pay your state's sales tax, as well as California's sales tax at the least.

[clemon79]

[quote name=\'zachhoran\' date=\'Dec 25 2003, 09:15 AM\'] [quote name=\'cmjb13\' date=\'Dec 25 2003, 10:42 AM\'] Then suppose it's a car.

Would you just pay taxes based on the total dollar value of the car? [/quote]
You'd pay your state's sales tax, as well as California's sales tax at the least. [/quote]
 No. You might have to declare it on your state and/or federal INCOME tax, but you are not going to be double-charged sales tax on it (assuming your state has a sales tax). My guess is you are liable for the list price of the car, related licence and emissions fees, and CA sales tax.

[Steve McClellan]

Forgive what might be a stupid question, but why on earth would you be charged sales tax when you're not buying anything? The impression I was under is that you must declare as income the value of whatever you win, nothing more. Then again, I'm not sure--all I've ever won is cash. (And no, I didn't have to pay sales tax on it.)

[Brandon Brooks]

[quote name=\'gameshowsteve\' date=\'Dec 25 2003, 02:16 PM\'] Forgive what might be a stupid question, but why on earth would you be charged sales tax when you're not buying anything? The impression I was under is that you must declare as income the value of whatever you win, nothing more. Then again, I'm not sure--all I've ever won is cash. (And no, I didn't have to pay sales tax on it.) [/quote]
 You did buy it.  Just for free.

Have you ever had a coupon for a free 2-liter drink, and still had to pay tax on it?  I have.

Brandon Brooks

[Steve McClellan]

[quote name=\'Brandon Brooks\' date=\'Dec 25 2003, 11:53 AM\']You did buy it.  Just for free.[/quote]
No, you received it as compensation for your efforts. That's income, not a purchase.

[Brandon Brooks]

[quote name=\'gameshowsteve\' date=\'Dec 25 2003, 07:02 PM\'] [quote name=\'Brandon Brooks\' date=\'Dec 25 2003, 11:53 AM\']You did buy it.  Just for free.[/quote]
No, you received it as compensation for your efforts. That's income, not a purchase. [/quote]
 You can argue whatever subtleties you want.  I don't really care.  But you have to pay taxes on what you acquire.

Brandon Brooks

[BrandonFG]

[quote name=\'zachhoran\' date=\'Dec 25 2003, 09:43 AM\'] [quote name=\'cmjb13\' date=\'Dec 25 2003, 09:34 AM\'] Suppose you win $10,000 on a game show.

How much on average would you have to pay on taxes? (Average because I think it varies depending on what tax bracket you are in, no?) [/quote]
At the $10K level, it'd be roughly 30-35% of the winnings in taxes. For Million Dollar winners, from what I recall about how much the WWTBAM winners got to keep, it'd be about 45-50% of the winnings. [/quote]
 That seems about right. People magazine ran an article about John Carpenter right after he won the million and they said he'd probably get about $600,000. And who better to know than an IRS agent. ;-)

[Steve McClellan]

[quote name=\'Brandon Brooks\' date=\'Dec 25 2003, 07:30 PM\'] [quote name=\'gameshowsteve\' date=\'Dec 25 2003, 07:02 PM\'] [quote name=\'Brandon Brooks\' date=\'Dec 25 2003, 11:53 AM\']You did buy it.  Just for free.[/quote]
No, you received it as compensation for your efforts. That's income, not a purchase. [/quote]
You can argue whatever subtleties you want.  I don't really care.  But you have to pay taxes on what you acquire. [/quote]
 Of course you have to pay taxes---the point of the question is what kind. The differences between paying sales tax, paying income tax, and paying both are certainly not insignificant.

[bttritle]

Any tax paid on cash winnings is based on the tax bracket you're in.  It's considered income for which you'll receive a 1099.

As for prize winnings, there is not only income tax to pay on it, but sales (or gift) tax.  Receipt of the prize is often dependent on the sales (gift) tax being paid by the winner of the prize.

For instance, when I won the car on Jeopardy, I was responsible for roughly $2800 before I could even hold onto the keys.

Ben T.

[scully24]

...What Ben T. said.

Cash winnings get added onto your regular income as miscellaneous income.  What surprises some people is the extra appr. 7.5% social security tax you have to pay.

Suppose you're used to receiving a net paycheck that is about 75% of your gross.  Then you win $10,000 on a game show.  You might think that you'll owe about $2500 on those winnings.  Actually, you'll owe about $3,250, because you're also responsible for the share of taxes that your employer normally contributes.  It is just like self-employment income.

Regarding prizes, another thing to keep in mind is that you're allowed to declare the "fair market value" of the item on your taxes.  So even if there is a high MSRP on the prize, if you can find the same prize for sale at a discount, and can document that, you can declare on your taxes the lower price for that prize.

[tvrandywest]

... what Ben AND Scully said. All right-on.

Just know that if you go the route of substantiating fair market value for prizes by documenting at least two lower-priced sources for the item that you have virtually guaranteed that your tax return will be audited. Not necessarily the full come-in-and-sweat or the pay-your-accountant-an-hourly-rate-to-deal-with-the-fiscal-reaming kind of audit, but at a very minimum the IRS' CP2000 letters will start coming for a limited audit by mail because your declared income does not match the 1099 totals reported to them.

Too bad that in this era of big payouts the IRS Schedule G is barely a memory. That magic document was the form for income averaging, a now deleted part of the tax code that allowed taxpayers with an exceptional, atypical single year of income to do some very simple arithmetic with numbers from their previous years' Form 1040s and substantially reduce their tax obligation.

Enjoy the grandfather clock, tip your porcelin dalmation.

Randy
tvrandywest.com

[Brandon Brooks]

[quote name=\'gameshowsteve\' date=\'Dec 26 2003, 01:02 AM\'] Of course you have to pay taxes---the point of the question is what kind. The differences between paying sales tax, paying income tax, and paying both are certainly not insignificant. [/quote]
And point, which has been made excellently by Ben, Scully, and Randy, is that you have to pay sales tax, because by accepting it, you essentially did buy it.  I had to pay Tennessee (not California) sales tax on the car I won on Hollywood Squares (even though I was driving it before I payed it; I hope no one wants to arrest me).  

Like I said in my example, if you get a coupon for a free 2-Liter soda, many stores will make you pay for the tax on that soda that you bought for free.  It's unfortunate, but that's the way it is.

Brandon Brooks