are gifts received on TV shows free

All taxable. At retail from what I recall. It's for the winner to prove the going price is less than the MSRP. In many cases, the winner will refuse certain items. A trip that includes a plane fare valued at $1000 when the super saver fare is $200 is no bargain unless the winner is ready for a long discussion of how and why they undervalued those winnings.

The renovation? The homeowner should know in advance they will have to pay the taxes. The show might give them some money as well. Joe

There was a minor dustup about that a few years ago. Some pundit actually suggested that Oprah shoulda paid the taxes on all that loot. Never did understand why it was her responsibility.

The homeowner often gets double dinged. Not only the income taxes, but also higher property taxes in most states.

If the prize is worth more than $600, winners will generally be required to fill out a W-9, which ends up getting filed with the IRS in the form of a 1099-MISC.

If it's under $600, no W-9 will generally be required, and nothing specifically tied to the winner will go the IRS.

In either case, the winner is supposed to report the winnings as other income. In practice, in the latter case, most winners probably don't bother to declare the income.

I know all this because winning stuff is a hobby of mine. And I'm one of those suckers who declares everything, regardless of whether the company issues a 1099-MISC.

Local example: Guy lost his legs in accident, big news and lots of money rolled in (donations and big lawsuit) to renovate his home for wheelchair. Foreclosed a couple of years later, couldn't or didn't pay taxes. Apparently there were several relatives that were living high on the hog.

Chip

My understanding is that the home renovation shows try to structure it so it will be non-taxable. First there is the rule that when you rent out your home for no more than 14 days in any given year, any income received is tax free, though costs of the rental are non- deductible.

On top of that there's the rule that when a tenant makes improvements to property he rented, the improvements become the property of the owner without tax consequences (until the place is sold, of course).

I don't know whether that kind of thing has been challenged, but at least in theory it can be structed to be tax free.

I think you are correct about structuring the deal as a rental of less than 15 days with a substantial rental payment. However, I think there was some letter from the IRS that said the improvements would not be considered as leasehold improvements as they were in substance an award/prize. In addition, as someone else mentioned, the property gets reassessed for the improvements.

On Sat, 25 Dec 2010 13:47:34 EST, " snipped-for-privacy@yahoo.com" wrote Re are gifts received on TV shows free:

Gifts are not taxable to the recipient of the gift. The giver of the gift pays any taxes that would be due.

Hadn't thought about that. So, Oprah's stuff would all be gifts and not taxable to the recipient because there is no competition involved?

This subject has been beat to death. Oprah does not give tax free gifts to her audience. Oprah (Harpo Productions, Inc.) gives taxable prizes. She has also been providing cash (also taxable) to defray the tax bill.

For it to be a prize (or award), one has to do something like enter a contest or gamble. However, here, there is no affirmative act nor expectation (cf. "door prize"). To me, the indication is that these are gifts. How the donor chose to classify it doesn't have bearing.

One of the prerequisites for a gift is a "detached and disinterested generosity" of the donor. Those words can be found in a bunch of tax court cases. Oprah, her production company and the manufacturers and distributors of the prizes do not meet that requirement. They have a motive for providing those prizes. Therefore, there is no tax free gift.

On Wed, 29 Dec 2010 22:17:08 EST, "D. Stussy" wrote Re Re: are gifts received on TV shows free:

I agree. However, Oprah or whoever are the ones sending out the (incorrect IMO) 1099s which would need to be contested by the tax payer.

For it to be a gift it has to be given from disinterested generosity. In Oprah's case she does it at least in part for ratings. She doesn't know the people individually, so she doesn't pass an initial test of it being a gift, unless you're a qualified nonprofit that is set up for that purpose in the first place.

Not being an accountant, this has always intrigued me. When I was working I received bonuses and had extra money tacked on to cover taxes. But how do you do that? Every penny added for tax payment also gets taxed. Seems like the bill just keeps getting higher. What formula do you use to finally come up with a total payment?

Chip

The series converges.

If you're in the 40% tax bracket, a payment of 2/3 of the prize's value covers the taxes on the prize and payment.

Better yet (cheaper in the long run), pay 40% of the prize's value the following January, 40% of that payment the January after, etc.

Seth

Let

P = the prize amount G = the additional "gross up" amount x = tax rate

Then

(1-x) is the amount you keep after tax, and we want the following:

P = (P + G)(1 - x)

(the amount you keep on the total amount received)

or solving for G,

G = P * (x /(1 - x))

If you're in the 25% bracket, it's 1/3, etc.

But that might be considered deferred compensation (if it's a bonus to an employee), not to mention a bookkeeping headache.

-Mark Bole

Another comment:

Your employer (or Oprah-like prize-awarder), as a practical matter, does not know what your tax bracket is. They simply gross up the bonus payment to cover the withholding requirement, whatever that is (usually

Hopefully they gross up for state withholding also -- the idea is to present you with a check showing the actual bonus or prize amount exactly as promised. You may still well owe additional tax on that when you file your return.

-Mark Bole

Not to mention being paid is better than taking the risk of not being paid. A bird in the hand . . .