How much will a free trip cost me?
May 21, 2008 12:26 PM
I won a trip in a drawing. I have questions about the tax implications of accepting the prize.
I have a contract that states:
4. I am seeking to be declared the official winner of the following prize (the “Prize”) in the Promotion: “A trip for two persons to (Event) on (dates) in (Location). Trip includes (i) roundtrip airfare for two (2) people to (Location) from the major United States gateway airport nearest your (winner’s) home, (ii) two (2) nights double occupancy hotel accommodations and (iii) two (2) two-day general admission tickets to (Event) on (dates), including two (2) free parking passes and food provided by (venue). Hotel, airline, airport and food to be designated by (venue). Estimated retail value up to $1,700 depending on winner’s point of departure.” I understand that (venue) reserves the right to substitute the Prize (or any portion thereof) with one of comparable or greater value, at its sole discretion.
No other dollar amount or prizes are mentioned anywhere in the contract, however someone from the company said that they're saying the ARV of the prize is $40,000, but that includes "VIP stuff and things that are not really taxable." She couldn't tell me anything about what the approximate taxes I might have to pay are.
Does anyone have any ideas, or know how I could find out by COB tomorrow?
I have a contract that states:
4. I am seeking to be declared the official winner of the following prize (the “Prize”) in the Promotion: “A trip for two persons to (Event) on (dates) in (Location). Trip includes (i) roundtrip airfare for two (2) people to (Location) from the major United States gateway airport nearest your (winner’s) home, (ii) two (2) nights double occupancy hotel accommodations and (iii) two (2) two-day general admission tickets to (Event) on (dates), including two (2) free parking passes and food provided by (venue). Hotel, airline, airport and food to be designated by (venue). Estimated retail value up to $1,700 depending on winner’s point of departure.” I understand that (venue) reserves the right to substitute the Prize (or any portion thereof) with one of comparable or greater value, at its sole discretion.
No other dollar amount or prizes are mentioned anywhere in the contract, however someone from the company said that they're saying the ARV of the prize is $40,000, but that includes "VIP stuff and things that are not really taxable." She couldn't tell me anything about what the approximate taxes I might have to pay are.
Does anyone have any ideas, or know how I could find out by COB tomorrow?
"If you win a prize in a lucky number drawing, television or radio quiz program, beauty contest, or other event, you must include it in your income.... Prizes or awards in goods or services must be included in your income at their fair market value." IRS pub. 17 (p. 89, going by the page numbers actually printed on the publication, which is p. 91 according to Acrobat Reader)
Since the prize is considered income, the amount you will have to pay depends on your tax bracket.
"VIP stuff and things that are not really taxable."
I do not believe this is accurate.
posted by DevilsAdvocate at 12:43 PM on May 21, 2008
Since the prize is considered income, the amount you will have to pay depends on your tax bracket.
"VIP stuff and things that are not really taxable."
I do not believe this is accurate.
posted by DevilsAdvocate at 12:43 PM on May 21, 2008
how I could find out by COB tomorrow?
Ask the person at the company not how much the prize is "worth", but what value they are planning to report to the IRS. Then consult with your tax professional (whether accountant or attorney) to learn what the implications are for you. If you do not have a tax professional, get one.
posted by dersins at 12:44 PM on May 21, 2008
Ask the person at the company not how much the prize is "worth", but what value they are planning to report to the IRS. Then consult with your tax professional (whether accountant or attorney) to learn what the implications are for you. If you do not have a tax professional, get one.
posted by dersins at 12:44 PM on May 21, 2008
This page, which discusses the difference between approximate retail value (ARV) and fair market value (FMV), and what to do if you believe the ARV is inaccurate, may also be helpful.
posted by DevilsAdvocate at 1:03 PM on May 21, 2008
posted by DevilsAdvocate at 1:03 PM on May 21, 2008
Estimated retail value up to $1,700 depending on winner’s point of departure.
That's the figure I would use.
posted by misha at 1:49 PM on May 21, 2008
That's the figure I would use.
posted by misha at 1:49 PM on May 21, 2008
Be aware that prize values, especially travel, are calculated at their most expensive possible price, such as last second walkup rates.
There was a widely publicized instance a couple years back where the winner of a number of "fly anywhere you want" passes from a major US airline ended up refusing the prize, because he would have had to pay more in taxes using the absurd value the airline put on the prize than had he just paid for the flights the way one normally would.
posted by ewagoner at 1:52 PM on May 21, 2008
There was a widely publicized instance a couple years back where the winner of a number of "fly anywhere you want" passes from a major US airline ended up refusing the prize, because he would have had to pay more in taxes using the absurd value the airline put on the prize than had he just paid for the flights the way one normally would.
posted by ewagoner at 1:52 PM on May 21, 2008
Seconding ewagoner. Beware of unexpected costs/values. Now, of course, I'm wildly curious. Dare we ask where you're going and what you might be seeing? Congrats!
posted by arnicae at 3:58 PM on May 21, 2008
posted by arnicae at 3:58 PM on May 21, 2008
The Sponsor may submit the 1099-Misc form for either the ARV or the actual amount spent on the prize. Typically for a trip prize, the ARV is higher than the actual cost because as ewagoner says, the ARV is must be calculated at the highest possible cost.
You will have to claim the 1099-Misc amount as income, so it will be added to whatever you regularly earn and taxed at that rate (unless it bumps you up a bracket).
If you won the trip this year, but don't take the trip until next year, the Sponsor can issue the 1099 for either of those years.
The fact that the rules state $1,700 but they are saying $40,000 is really fishy. The rules are a contract between the Sponsor and the consumer and must be registered in NY and FL. Calculating the cost of VIP stuff like meet and greets with celebs is tough, someone might pay $10,000 to meet a celeb, but the Sponsor can get away with a low value for tax purposes.
I am not your lawyer/accountant, but I have given away many a prize.
posted by dripdripdrop at 8:05 PM on May 21, 2008
You will have to claim the 1099-Misc amount as income, so it will be added to whatever you regularly earn and taxed at that rate (unless it bumps you up a bracket).
If you won the trip this year, but don't take the trip until next year, the Sponsor can issue the 1099 for either of those years.
The fact that the rules state $1,700 but they are saying $40,000 is really fishy. The rules are a contract between the Sponsor and the consumer and must be registered in NY and FL. Calculating the cost of VIP stuff like meet and greets with celebs is tough, someone might pay $10,000 to meet a celeb, but the Sponsor can get away with a low value for tax purposes.
I am not your lawyer/accountant, but I have given away many a prize.
posted by dripdripdrop at 8:05 PM on May 21, 2008
To add to the above, I think the Sponsor could get in serious trouble if they tried to issue a 1099 for more than the ARV.
posted by dripdripdrop at 8:09 PM on May 21, 2008
posted by dripdripdrop at 8:09 PM on May 21, 2008
Do you have to accept the whole prize (like, if you don't have even one car, can you waive the two parking passes; or if you have a friend you can stay with, can you skip the fancy hotel; or do you have to bring a friend and pay the tax on their share of the prize)?
posted by Scram at 8:52 PM on May 21, 2008
posted by Scram at 8:52 PM on May 21, 2008
Thanks for all of the responses! I've emailed the person in Sales and Marketing that I've been talking to, and let her know that I can't accept the prize until I get a better idea of what will be on the 1099 form, something closer to $1,700 or $40k.
dripdripdrop, I think that when she said that the $40k number included "stuff that's not really taxable", she meant exactly the kind of meet and greet thing that you mentioned. Hopefully, I'll get clarification soon.
posted by amarynth at 6:56 AM on May 22, 2008
dripdripdrop, I think that when she said that the $40k number included "stuff that's not really taxable", she meant exactly the kind of meet and greet thing that you mentioned. Hopefully, I'll get clarification soon.
posted by amarynth at 6:56 AM on May 22, 2008
Just an update -- I got an email saying that the $1700 figure was correct, but now she wants my guest (my boyfriend) to sign the exact same contract, which seems weird to me. Why would he sign a contract saying that he won a trip for two? So now we'll have another round of phone calls and emails.
posted by amarynth at 6:16 PM on May 22, 2008
posted by amarynth at 6:16 PM on May 22, 2008
Typically you will have the guest sign a Travel Companion Waiver type of thing. It's so that he doesn't sue them should something go wrong on the trip. You have already signed away that right in the document you signed (I assume), but he hasn't. His form should be slightly different, identifying him as your guest and not the winner.
posted by dripdripdrop at 7:20 AM on May 23, 2008
posted by dripdripdrop at 7:20 AM on May 23, 2008
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posted by amarynth at 12:33 PM on May 21, 2008