September 17, 2004
nothing is "free"
I was wondering when someone would point out a slightly overlooked detail about this story. Sure, Oprah "gave away" 276 new Pontiacs. According to the IRS, however, Oprah provided INCOME to those people, and it is subject to tax the same as if it were cash.
The cars are valued from $21,000 to a maximum of $28,000 depending upon options selected, and Pontiac says that they will be paying the state sales taxes and license fees for each car. The total value of the car, taxes, and fees paid will be included on an IRS form 1099 for each recipient who will then have to file an esitmated federal return and make payment of the taxes due. A car worth say $25,000 at 7% sales tax = $1750, plus est. license fees of $500 would result in a taxable gain of $27,250 reported on the form 1099 and at the 28% tax rate equals a federal tax of over $7600 due on filing. Oh, and don't forget the insurance premium on the new car as well.
I read a horror story a few years ago about people who rack up all kinds of loot on TV game shows and discover themselves in severe tax problems later. Win a $30,000 showcase on The Price is Right. You don't have the cash just lying around to pay the $8,000 tax bill for the "prizes," so you sell a bunch of the loot to pay the taxes on the rest. Be careful there.
If you "won" a car valued at $25,000 and you sell it for $15,000, you still owe taxes on the $25,000 value, not what you actually received for the car. In other words, you could win $30,000 worth of shit you can't use, sell the whole kit and kaboodle for $8,000 and owe every dime of that money to the federal government in taxes on income that you never saw.
I'm no tax attorney, but I'm pretty sure the system still works that way.
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