Would you rather win cash or prizes?

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Just out of curiosity, if you were a sweepstakes winner, and had the option of taking cash or equal amount in prizes, which would be better for you in terms of taxes on the winnings?

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I assume that you are talking sales tax. If so, that may be true depending upon the state. With some items in some sta... (more)

InsuranceExpert (Oct. 29, 2010 @ 1:48p) |

I think lots of people make decisions all the time that are equivalent to taking a prize over a larger amount of cash ju... (more)

LH2004 (Oct. 29, 2010 @ 1:58p) |

Corrected your typos.

BEEFjerKAY (Oct. 30, 2010 @ 10:00a) |

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If the reported retail price of the prize is the same as the cash prize, take the cash

You're going to get taxed on the exact same amount unless you dispute the actual value of the prize with the IRS

this is the same question as which is heavier, a pound of feathers or a pound of gold? if the prize and the cash are the same value, take the cash as you will be taxed the same.

OK. So does anyone know what the tax rate on winnings are?

Same as your marginal income tax rate (federal + state, if applicable), and same as if you scored a bank account opening bonus.

Well the best strategy is to setup a subsidiary in Ireland, the Netherlands and Bermuda.

So you give the winnings to your Irish subsidiary who gives it to your Netherlands subsidiary who gives it to your Bermuda subsidiary. Voila no taxes.

There is no special tax rate for prizes, it's plain old income and plain old income tax

So if you win $25,000 cash in a sweepstakes, you increase that year's taxable income by an additional $25k to your salary?

ablang said: So if you win $25,000 cash in a sweepstakes, you increase that year's taxable income by an additional $25k to your salary?
yes.

miserly said: ablang said: So if you win $25,000 cash in a sweepstakes, you increase that year's taxable income by an additional $25k to your salary?
yes.
No. No money is added to your salary

ablang said: Just out of curiosity, if you were a sweepstakes winner, and had the option of taking cash or equal amount in prizes, which would be better for you in terms of taxes on the winnings?

I'd take the cash unless I REALLY needed the prize items. Chances are I could pay less than retail for the prize item. Cash can help pay the taxes on it, I wouldn't lose on resale of the prize if I don't keep it. The only case where I'd take the prize would be if it is somehow undervalued by a significant amount (more than 10-15%). In this case, tax burden vs. actual value of the prize might make sense to keep the prize. I've rarely seen this scenario though since most prizes are valued at MSRP. That's if the prize itself is not subject to other taxes like registration for a car. That'd make taking cash even more appealing.

Cash, unless the prize is H&B.

Another vote for cash. Cash is king! Ask yourself this...if you had enough cash to buy the prize is that what you would do? If not, you should definitely take cash...if so, you should probably still take the cash and buy it yourself at less than retail...or at least use a rewards credit card or get 0% financing.

There's something about this thread that rattles my confidence in the US educational system.

ellory said: miserly said: ablang said: So if you win $25,000 cash in a sweepstakes, you increase that year's taxable income by an additional $25k to your salary?
yes.
No. No money is added to your salary
the answer is correct. The winnings are part of your income, not your salary

miserly said: this is the same question as which is heavier, a pound of feathers or a pound of gold? if the prize and the cash are the same value, take the cash as you will be taxed the same.

But a pound of feathers (16 avoirdupois ounces [437.5 grains per ounce for a total of 7000 grains]) is heavier than a pound of gold (12 troy ounces [480 grains per ounce for a total of 5760 grains])

AbbaZabba said: Well the best strategy is to setup a subsidiary in Ireland, the Netherlands and Bermuda.

So you give the winnings to your Irish subsidiary who gives it to your Netherlands subsidiary who gives it to your Bermuda subsidiary. Voila no taxes.

You should work foor Google or something

If they are willing to give the retail value of the prize in cash, I can't think of any situation in which it would be advantageous to take the prize even if one wants the prize.

Sweepstake prize "taxable values" tend to be inflated - the absolute highest price that anyone theoretically could pay for it. Well, I guess I don't know about sweepstakes very reliably, but that was definitely the case with tv game shows.

Think about what they report during game shows about the value of new cars (full sticker. And not a dime more!) or vacation trips. But in most of those cases, you don't get an option for any cash substitute, so it's still worthwhile even after taxes if you have any use at all for the prize.

cash.. chances are I can get the item for less than retail by lurking in the hot deals section, using fw cb, and an extra 2% from my credit card.

ablang said: So if you win $25,000 cash in a sweepstakes, you increase that year's taxable income by an additional $25k to your salary?

It's a different line-item on your tax forms, but it does get included in your regular taxable income (along with salary, interest, dividends, taxable retirement distributions, etc.).

Same tax base for either, so I would take the cash. To make this harder, maybe make the option cash over time or prizes.

Always the cash. I would only possibly consider getting a car or house in lieu of cash, IF those items are valued more than the cash amount. Since the value of the prize has to declared on your tax return, you have to come up with that added tax payment when you file. If you cannot come up with the dough, you may end up forfeiting your prize. This has occurred with some prize winners.

the only time the prizes are worthwhile is when they give a huge discount on cash. Like you could get a 50K car or 25K in cash. depending on how inflated the MSRP is, you may be better not winning the prize, you could be paying up to 50% of the prize value in taxes.

BEEFjerKAY said: There's something about this thread that rattles my confidence in the US educational system.

FWF in the last few years rattles my confidence in the US educational system...

FWF used to be about CC and bank deals, not a Help! I've fallen and it will affect me financially, so it belongs in FWF.

BEEFjerKAY said: There's something about this thread that rattles my confidence in the US educational system.


Like it's wrong to ride the short bus

winner declines to accept prize
sometimes it's just not worth it to claim the prize.

there was also a lady here in fw who won a custom designed gown by a famous designer. she was asking for advice, but i don't think she ever told us what she finally decdied to do. she won the dress in the coke contest and it was one of the top 5 prizes and was valued at $10k or something like that. she would have to pay $3k taxes or more for that dress. there were no substitutions for the prize so she couldn't take the cash.

momoman said: winner declines to accept prize
sometimes it's just not worth it to claim the prize.

there was also a lady here in fw who won a custom designed gown by a famous designer. she was asking for advice, but i don't think she ever told us what she finally decdied to do. she won the dress in the coke contest and it was one of the top 5 prizes and was valued at $10k or something like that. she would have to pay $3k taxes or more for that dress. there were no substitutions for the prize so she couldn't take the cash.


Hehe, that winner seems silly. He should of accepted the prize and just wrote it down to FMV (with documentation of course) for his own tax basis.

Reading the article more, looks like he did consider that, but he was worried about getting audited..hmmm..

dress link
this is the link to the old fw thread asking for advice after winning a $7500 dress. i wish we knew the outcome.

If you are in doubt use 33% as a 'luxury' tax
So if it's $10000 cash expect to pay $3300 in tax.
If it's a $20000 car expect to fork out $6600 in tax.
Then you know where you are standing.

My company had this exact situation, poor guy won a Car and couldn't afford the Tax to pay for it.

When I watch shows like Home Improvement on TV, I often wonder doesn't the new home get assessed at a higher value than the one torn down? Since the occupants are financially challenged, how do they come up with the money to pay the much higher property taxes from the new property tax assessments?

cash any day

I would only consider the prize if it was something you can't buy or there isn't a "retail" value for it (i.e. an experience).

gordoco said: Cash, unless the prize is H&B.When are they discounted?

OP: You may want to see what big winners on game shows did. They always found cash to be a lot better than anything else because few prizes can be sold for anything close to list price, especially furniture, jewelry, audio/video, and even cars. Vacations are the worst because they can't even be transferred (and you'll likely be asked for ID at redemption time). Large mainstream appliances are generally best because they're generally not discounted much by stores. The IRS doesn't require that prizes be declared at list price, but you have to provide proof of any discounts (ads work).

miserly said: this is the same question as which is heavier, a pound of feathers or a pound of gold? if the prize and the cash are the same value, take the cash as you will be taxed the same.
What kind of bird has feathers that can be sold for more per pound than gold?

Have you guys considered this:

If you take the cash, and then use it to buy something, you're paying taxes again. So the cash option is taxed twice.

The only prize worth taking would be some one of a kind or impoosible to obtain item you really wanted anyway

dtle said: Have you guys considered this:

If you take the cash, and then use it to buy something, you're paying taxes again. So the cash option is taxed twice.


I assume that you are talking sales tax. If so, that may be true depending upon the state. With some items in some states, one would be paying the equivalent of a sales tax on the won item. ie. a new car won in a state may cost 6% to register in that state if sales tax has not been paid.

It would still take a very strange fact pattern for the item to be better than cash.

I think lots of people make decisions all the time that are equivalent to taking a prize over a larger amount of cash just so that they have an excuse to spend the cash on something they want. If you really, really, really want a $70,000 sports car, and there's no way your wife would ever let you get one, then you might choose to take the car over $75,000 in cash, or even $150,000, that you know your wife would spend on stuff for herself (if you thought that you could get away with making the choice of which prize to take while she wasn't looking too closely).

Now, if that's all you're doing, it's perfectly logical (from a selfish perspective). In lots of other cases, though, people do the same thing where the "wife" is the person himself: I know it would be irresponsible to spend $70,000 out of my bank account on a sports car, but I don't have a rule hammered into my head that says it's irresponsible to turn down $75,000 in cash. If you fall for that kind of reasoning, you're just hurting yourself. But people do all the time, which explains why people that would never dream of spending thousands of dollars on first-class flights have no problem with turning down thousands of dollars in Cash Back to earn airline miles instead, which they redeem for first-class flights.

It's a fact that people make dumb decisions. It is the solemn duty of those of us here who understand what's right to educate everyone else as to how to better accomplish their selfish goals.

Skipping 1 Messages...
LH2004 said: It's a fact that people make dumb decisions. It is the solemn duty of those of us here who understand what's right to profit off of everyone else ... to better accomplish our own selfish goals.

Corrected your typos.



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