Should You Accept the Prize You Just Won?
A recent caller to my Saturday radio show said she won a cruise worth $8,000 on a television game show. After the show’s taping was completed, the producer asked if she wanted the trip; she said she did. Later, her husband became ill and they were unable to take the trip.
This past January, she received a copy of Form 1099, stating that the producer had notified the IRS of her prize. As a result, the IRS expected her to pay taxes on the trip’s value. Since she didn’t go, she shouldn’t have to pay the taxes, right?
Wrong. She owes federal and state income taxes, which could be as much as $4,000. She agreed to go, and that’s what triggered the tax liability; the fact that she didn’t go is not the producer’s (or the IRS’s) problem.
People who win raffles, lotteries, and prizes on game shows often don’t realize that their winnings are considered to be taxable income. Worse, when the prize is an appliance, car, furniture, or vacation, the producer issues a 1099 based on the full retail price, even though the item can often be purchased from retailers at a substantial discount.
Before accepting a prize, make sure you truly want it. Is it worth the taxes you’ll have to pay? If yes, be prepared to receive a 1099. But before you pay the tax, shop around and obtain quotes for the actual fair market value, for this figure will often be less than the manufacturer’s suggested retail price (which is likely the basis for the amount on the 1099). By enlisting the aid of a talented tax advisor, you’ll be able to reduce the tax liability on that prize.
I hope you can “afford” to win!