A few weekends ago my wife and her sister went to a cooking show. Meanwhile, I sat with my in-laws watching the kids. About 30 minutes before my darling wife returns I receive a text, my wife has won a water filtration system and asks if we can use it. She had just completed signing the requisite Prize Tax Forms. The value according to the show’s sponsor is $1600 dollars. As this text comes through, the first thought that crosses my mind is “Wow, my wife won something. We never win anything.” I still remember the only thing I ever won, a California raisins keychain when I was 6. So, as I’m sitting there wondering at the size of this win, the first one I really remember in my lifetime, the last line of text starts to nag at me. Can we use it?
A Prize We don’t Need
Well, the honest truth is we have no need for a water filtration system that sits under the sink. We have a nicely maintained whole house system for our well. Even if it were to break I’d probably buy something more generic as this particular example is known for having expensive proprietary filters. So, no we can’t use it. At this realization, I begin to think of the ramifications beyond our personal usage of our new found toy.
Suddenly, I remember that door prizes and other things you win are taxed as ordinary income. That’s right, if I’m in the 25% federal tax bracket and 5% state, then this door prize just cost me 480 dollars! My mind suddenly shifts to panic. I did some searches for the item, and I found that it does in fact sell for about $1800 dollars new online. However, it’s usually only sold by specialized dealers. It’s too late however as my wife has signed the forms to accept their gift and to allow the organization to send us a tax form for our new found wealth. Man, that’s an expensive prize.
Prize Tax, Popular Culture, General Perception
During the Olympics there was a big to do that Olympics payouts and prizes are taxable as regular income for Olympians. There was even a push to make an exemption, that slipped from public sight as soon as the Olympics ended of course. There have also been numerous articles about Nobel Prize laureates declining their cash prize to avoid taxation. Even game shows have come in for discussion as people talk about how little you make on “Who wants to be a Millionaire?” after taxes.
Despite all these, you really don’t think about these ramifications when you win a prize. My wife’s friend for example, who knew all about the Olympics example, thought the tax impact was the same as sales tax. My wife and my first reaction was not even to think about the tax ramifications but instead to celebrate our new found wealth.
Still Trying to Sell It. Maybe Donate?
Since that fateful night I have attempted a few times to sell the system. Ultimately, my local water dealer can’t touch it because he is not an exclusive dealer for that brand. Ebay won’t help because if you’ve never sold something over $500 dollars there, they want your first born child as validation you won’t rip someone off before you can sell it. So, as we approach the end of the year I am currently pursuing one last ditch effort, the wonderful world of Craig’s List. Should that not work, my backup plan as of now is to donate it to GoodWill on December 31. If that were to occur, the net impact of this prize to my family would be a cost to me of the time I spent trying to sell it and the gas of my drive to Good Will.
Lesson Learned, Beware Prizes Bearing Taxes
The lesson I learned is unless it is something I want and I value at more then the tax it is best to decline a large value prize. I might get lucky and be able to resell it, but likely it’s not worth the hassle.
Have you ever won anything of significant financial value?