are gifts received on TV shows free

[removeps-groups]

On some of the TV shows guests as receiving free gifts. I was
wondering if these gifts are taxable by the recipient. I think yes,
as Other Income, though I'm not sure if this is so or if anyone
actually reports it. And I also wondered about the home shows where
they renovate a person's home (from leaky roofs, etc) to chic. In
this case, the value of the gift is so huge I wonder if sometimes the
recipient could even afford to pay it.

 

[Kurt Ullman]

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.

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

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

 

[Russ in San Diego]

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

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.

 

[Chip Wood]

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

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

 

[Stuart A. Bronstein]

(e-mail address removed) wrote:

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

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.

 

[Alan]

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.

 

[Vic Dura]

On some of the TV shows guests as receiving free gifts.

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

*Prizes* won by a contestant are a different matter. They are taxable
to the winner.

 

[Kurt Ullman]

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

*Prizes* won by a contestant are a different matter. They are taxable
to the winner.

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?

 

[Alan]

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.

 

[D. Stussy]

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.

 

[Alan]

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.

 

[Stuart A. Bronstein]

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.

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.

 

[Chip Wood]

Oprah (Harpo Productions, Inc.) gives taxable prizes.
She has also been providing cash (also taxable) to defray the tax bill.

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

 

[Seth]

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?

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

 

[Mark Bole]

The series converges.

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

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

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.

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

-Mark Bole

 

[Mark Bole]

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?

[...]
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.

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

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
25% for bonus payments made separately from wages).

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

 

[Pico Rico]

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

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