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Tax implications of free boat drawing

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Tax implications of free boat drawing

Old 07-16-2012, 09:02 PM
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Default Tax implications of free boat drawing

I just saw the website for $130,000 SeaVee they are giving away in August. I was just thinking about buying a raffle ticket but then it occurred to me with the sales tax ($7,800) in my state, and the addition to income tax I will have to pay, I would not be able to afford to keep it. Still may buy a ticket.

With individual income of $70,000+$130,000= income tax in $200,000 plus about $8000 for sales tax and registration. This boat actually would cost you about $50,000 in tax penalties!! Would you guys keep this boat or have to sell it?
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Old 07-16-2012, 09:24 PM
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A lot of places have a cash payout in lieu of the prize (considerably less cash).
Case in point, a friend was playing with me in my clubs member guest golf tournament last year. He has a hole in one and "wins" a $62,000 BMW. He talks to the dealership, whom has purchased an insurance policy, and ends up taking $50,000 in cash.

So, if someone gave you $50,000 in cash, would you take it ... Or refuse it because the taxes were too expensive? Win the boat. Settle with the dealer or sell the boat, pay the taxes and keep the rest.
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Old 07-16-2012, 09:50 PM
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Originally Posted by KismetLRC View Post
A lot of places have a cash payout in lieu of the prize (considerably less cash).
Case in point, a friend was playing with me in my clubs member guest golf tournament last year. He has a hole in one and "wins" a $62,000 BMW. He talks to the dealership, whom has purchased an insurance policy, and ends up taking $50,000 in cash.

So, if someone gave you $50,000 in cash, would you take it ... Or refuse it because the taxes were too expensive? Win the boat. Settle with the dealer or sell the boat, pay the taxes and keep the rest.
Yes but accepting $50,000 cash prize still involves receiving a W9 from the IRS, which you must pay income tax on $50,000.
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Old 07-17-2012, 02:38 AM
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Originally Posted by Smoak352 View Post
Yes but accepting $50,000 cash prize still involves receiving a W9 from the IRS, which you must pay income tax on $50,000.
So you would rather forgo $35k than give the IRS $15K?

The point was if you accept the "prize", you have to come up with the cash to pay taxes, but not if you accept cash in lieu of the prize.
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Old 07-17-2012, 02:51 AM
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I though the question was would you keep or sell? I may be wrong....
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Old 07-17-2012, 03:37 AM
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They all offer a cash pay out on anything like that but taxes only for a boat like that would be a great deal


Two things i tell my clients

1-NEVER not make money because of taxes--however there are a couple of odd situations to that


2-never give anything away just(charitable donations) just because of taxes, Donate from goodness of your heart and take the tax benefits as a bonus

Last edited by tprice; 07-17-2012 at 11:09 AM.
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Old 07-17-2012, 03:58 AM
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Unless it was a boat I planned to buy anyway, I'd take a cash settlement or sell.

Problem I see with winning an expensive "thing" instead of cash is- what is the "value" for tax purposes? Is it MSRP, average sales price, what you can sell it for or what? If MSRP, LOOK OUT! I've seen people awarded stuff with such ridiculous MSRP they couldn't sell the item for enough to pay the taxes.
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Old 07-17-2012, 04:16 AM
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Originally Posted by Smoak352 View Post
I just saw the website for $130,000 SeaVee they are giving away in August. I was just thinking about buying a raffle ticket but then it occurred to me with the sales tax ($7,800) in my state, and the addition to income tax I will have to pay, I would not be able to afford to keep it. Still may buy a ticket.

With individual income of $70,000+$130,000= income tax in $200,000 plus about $8000 for sales tax and registration. This boat actually would cost you about $50,000 in tax penalties!! Would you guys keep this boat or have to sell it?
You also forgot to think about AMT, $200k might push you into that oh so special category, not to mention other issues including the loss of other deductions like medical that is based on % of income.

Despite all that, if you win the boat you would still be ahead.
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Old 07-17-2012, 04:19 AM
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I'd probably cash-out or sell it.

I can't see that you'd be liable for "sales tax" if you can prove that you won it but then I also know about government... You would definitly owe income tax. If you win and there's no cash option you can always sell it. Then your income tax liability will be for the sale amount not the retail price.

Look on the bright side. You're probably not going to win and it's for a good cause.
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Old 07-17-2012, 04:28 AM
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Originally Posted by Kamper View Post
I'd probably cash-out or sell it.

I can't see that you'd be liable for "sales tax" if you can prove that you won it but then I also know about government... You would definitly owe income tax. If you win and there's no cash option you can always sell it. Then your income tax liability will be for the sale amount not the retail price.

Look on the bright side. You're probably not going to win and it's for a good cause.
This is not necessarily correct. You owe income tax on the FMV of the prize when you receive it, not what you sell it for. If you turn around and sell the boat for $25k you don't pay tax on the $25k you pay it on the FMV. I'm not saying that the MSRP is FMV but you could establish FMV by a few methods.
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Old 07-17-2012, 06:10 AM
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My wife is going to win it!
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Old 07-17-2012, 06:19 AM
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We had this discussion last year. Yes, it's pretty steep. Worse is that you're probably into it for another $10-30k to build the boat out 'right' compared to how it's spec'ed out in the contest. I think in the end you just have to look at it as a free $80k down payment on a new SeaVee.

Shame that the government can ruin something as good as winning a $100k boat!

However, it never stops me from buying a ticket!

PS: If you happened to have $100k of losing lotto tickets lying around...
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Old 07-17-2012, 06:23 AM
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Originally Posted by Schmaltz~Herring View Post
My wife is going to win it!

Well you did have 2 Whalers. Might as well have 2 CV's.
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Old 07-17-2012, 07:34 AM
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Originally Posted by Trollin4Tuna View Post
This is not necessarily correct. ...
We had a similiar thread to this last year. One of the responders claimed to participate in many tournaments. Frequently the grand prize is a boat donated by the factory. It was stated that most of these prizes were sold and that was what was reported for taxes. I'd expect that if you drastically undersold the boat the tax-man might take a hard look.

If you did have to pay taxes in MSRP, then sold it for less the loss would be factorred in as well.
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Old 07-17-2012, 09:28 AM
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Originally Posted by Smoak352 View Post
I just saw the website for $130,000 SeaVee they are giving away in August. I was just thinking about buying a raffle ticket but then it occurred to me with the sales tax ($7,800) in my state, and the addition to income tax I will have to pay, I would not be able to afford to keep it. Still may buy a ticket.

With individual income of $70,000+$130,000= income tax in $200,000 plus about $8000 for sales tax and registration. This boat actually would cost you about $50,000 in tax penalties!! Would you guys keep this boat or have to sell it?
I'd immediately form an LLC, get my six pack, and start a charter company if I wanted to keep it. If not, I'd sell it. If i was actually worried about the taxes if I won, I wouldn't enter.
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Old 07-17-2012, 10:14 AM
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It maybe a $130,000 boat but that's nowhere near what you're going to get out of it. So you're paying taxes on the full amount even though you'll never see that much money if you sell it. A money offer might be more lucrative.
P.S. I remember reading an article about somebody winning a cv and talking about taxes a while back ago was that on here?
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Old 07-17-2012, 10:15 AM
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Never mind i found it
http://www.thehulltruth.com/boating-...in-seavee.html
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Old 07-17-2012, 10:16 AM
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Originally Posted by Kamper View Post
We had a similiar thread to this last year. One of the responders claimed to participate in many tournaments. Frequently the grand prize is a boat donated by the factory. It was stated that most of these prizes were sold and that was what was reported for taxes. I'd expect that if you drastically undersold the boat the tax-man might take a hard look.

If you did have to pay taxes in MSRP, then sold it for less the loss would be factorred in as well.
I pretty much agree that if you sold the boat with an arm's length transaction, the sales price would be FMV. It gets complicated if you won it in year 1 and for whatever reason couldn't sell it until late in year 2 or 3 or even further. It is income on the day you can take possession of the boat and that is when you need to establish FMV. If it takes a while to sell and a couple of model years go by the sales price would probably not be FMV when you won it (and income would have to be reported in year 1 anyway).

Then you would have a loss. What kind of loss? The winnings are income from wagering activities but once won, what character is this item considered?

Capital? It was won in a contest and not purchased as an investment. Hard to argue capital.

Gambling loss? No (unless you lost it in a card game)

Personal? On the surface this seems to be the only one that it could be and therefore not deductible. I could see a few ways to turn it into a §1231 loss but that is another discussion.

Sorry for the long post but it got my mind thinking. I will consult my research software when I have a chance as it presents an interesting situation that I have yet to encounter.
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Old 07-17-2012, 10:28 AM
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Originally Posted by tailgator22 View Post
I read through that thread. Mostly talking about sales tax but had one guy who had that happen to him and he filed a Schedule C to report it. They hit him with SE tax. He should have amended and listed it under "Other Income".

It should not have been subject to SE tax as it is by definition income from wagering activities (unless he is a professional gambler who files a Schedule C for gambling as his trade or business).
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Old 07-17-2012, 11:40 PM
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Originally Posted by yarcraft91 View Post
Unless it was a boat I planned to buy anyway, I'd take a cash settlement or sell.

Problem I see with winning an expensive "thing" instead of cash is- what is the "value" for tax purposes? Is it MSRP, average sales price, what you can sell it for or what? If MSRP, LOOK OUT! I've seen people awarded stuff with such ridiculous MSRP they couldn't sell the item for enough to pay the taxes.
Taxes are paid on FMV (fair market value), which is what you can sell it for in an arm-length transaction.
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