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Old 11-06-2019, 02:24 PM
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taxes when you buy a prize


It is well known that if you win a prize you need to pay taxes for it. What if the prize awarder instead says "I will give you a great deal: you can buy the prize for one penny". Would you still need to pay taxes on the prize? (I need an answer fast! No, just kidding.)
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Old 11-06-2019, 02:52 PM
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Yes. What you just won is an option contract to buy the prize at $0.01. Options have value that can be calculated and you'll owe taxes on the value of the option.
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Old 11-06-2019, 03:12 PM
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Yes. What you just won is an option contract to buy the prize at $0.01. Options have value that can be calculated and you'll owe taxes on the value of the option.
So does one need to report the value of all coupons used when filing income tax?

Do coupons say "cash value 0.001 cents" to get you out of the taxes? (Or something like that, I don't have a coupon right now.)

Could the prize awarder declare the value of your option to buy the prize to be 0.001 cents, so you only need to report 0.001 cents?
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Old 11-06-2019, 03:53 PM
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Could the prize awarder declare the value of your option to buy the prize to be 0.001 cents, so you only need to report 0.001 cents?
Could your boss declare the value of your paycheck to be $0.001 so you only have to pay income taxes on that amount? No. The relevant factor is the fair market value of the prize, which isn't $0.001 merely because the donor says so.

This article explains why coupons have a declared cash value. https://www.mentalfloss.com/article/...th-1100th-cent It has nothing to do with income taxes.
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Old 11-06-2019, 03:57 PM
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Could your boss declare the value of your paycheck to be $0.001 so you only have to pay income taxes on that amount? No. The relevant factor is the fair market value of the prize, which isn't $0.001 merely because the donor says so.

This article explains why coupons have a declared cash value. https://www.mentalfloss.com/article/...th-1100th-cent It has nothing to do with income taxes.
What's the fair market value of a Big Mac? Or anything else I might buy with a coupon?
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Old 11-06-2019, 04:03 PM
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What's the fair market value of a Big Mac? Or anything else I might buy with a coupon?
I don't know. if you are suggesting that the IRS can't establish fair market value because I don't know the value of a Big Mac, I have nothing more to add.
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Old 11-06-2019, 04:10 PM
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In the OP's case there is a prize of $X off something. You pay taxes on the $X if you buy the thing. (The situation on same game shows has been so bad at times that a lot of people have refused the super-duper $500 carpet cleaning service since the taxes are more than the true value of the service. A good game show allows you to take the cash equivalent.)

Things like coupons, sales, etc. are available to more people, not selected in a contest, etc.
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Old 11-06-2019, 04:11 PM
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Did Mark Cuban need to pay taxes on "fair market cost per mile of airflight" - 12 cents each time he flew with his unlimited pass?
https://www.cnbc.com/2018/04/20/mark...-aairpass.html
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Old 11-06-2019, 04:30 PM
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If I buy something significantly below market price, I don’t owe income tax on the delta vs “what the price should have been”
If I give my employee a discount that’s more than 20% off of what I normally charge for that product or service, the employee owes income tax on (some of) this discount.
I suspect, but do not know, that the difference lies in access to the discount.
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Old 11-06-2019, 04:41 PM
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actually in the 90s E! did a "secrets of " series and one episode was on the price is right and bob barker was saying 90 percent of the cars and big ticket items that were won the taxes were so high that people took the cash option but the one thing people kept were the trips to europe and asia

but apparently barker and cbs had a charity fund for the occasional family/person who needed the stuff they won but couldnt afford the taxes so it was covered ..
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Old 11-06-2019, 05:05 PM
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actually in the 90s E! did a "secrets of " series and one episode was on the price is right and bob barker was saying 90 percent of the cars and big ticket items that were won the taxes were so high that people took the cash option but the one thing people kept were the trips to europe and asia

but apparently barker and cbs had a charity fund for the occasional family/person who needed the stuff they won but couldnt afford the taxes so it was covered ..
Yep, years ago I had a friend who won on the pyramid show. He didn't understand that he had to pay taxes on the money he won. He spent it all on stuff. Then when tax time came around he was in a world of hurt.
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Old 11-06-2019, 05:20 PM
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Originally Posted by Isosleepy View Post
If I buy something significantly below market price, I don’t owe income tax on the delta vs “what the price should have been”
If I give my employee a discount that’s more than 20% off of what I normally charge for that product or service, the employee owes income tax on (some of) this discount.
I suspect, but do not know, that the difference lies in access to the discount.
Yes, that enters into it. A store coupon listed in their ad is a public offer, available to anyone to use. But an employee discount or a company car, etc. are provided only to a limited number of people, as a condition of employment, thus they are considered part of the employment package, and are supposed to be reported as income. (But in many cases, they aren't big enough to matter, and the IRS doesn't pursue them much.)

Similar rules apply in states where they have sales taxes: If Grandpa sells his used car to a granddaughter for $1, the state sales tax authority will insist that sales tax is paid on the blue-book value of the car, not $1.
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Old 11-06-2019, 05:46 PM
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I suspect, but do not know, that the difference lies in access to the discount.
Exactly. Buying something for less than it's worth at an arms-length transaction isn't income to the buyer.

Providing a prize to someone, or compensating employees is income, and artificial accounting tricks don't change that (lawyers and tax agents are very good at deciphering accounting tricks!)
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Old 11-06-2019, 05:56 PM
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People over here complain all the time about taxes, both direct and indirect; after all, someone has to pay for the NHS.

On the other hand, lottery and prize draw wins are free of tax, and if I sell my £20k car for £1 to my daughter or anyone else, no tax will be payable on either side.

Last edited by bob++; 11-06-2019 at 05:57 PM.
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Old 11-06-2019, 06:35 PM
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So circling back to the OP's question, I'm neither an accountant nor a lawyer, but I'm guessing it likely works something like this.

If you win a car on a game show with an MSRP of $20k, you owe taxes on $20k because getting a free car constitutes income.
If you go to a dealership and manage to negotiate the price of that car down to $16k, you don't owe taxes on that $4,000 because theoretically anyone can go to a dealership and negotiate a similar discount.
If you win on a game show and they offer to "sell" you that car for $1, you would owe taxes on $19,999, because that deal is only available to people who win on that show, not the public in general, and there's no way in hell you're going to be able to negotiate that price from a dealer.
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Old 11-06-2019, 08:26 PM
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As a general rule, whenever you ask "Can I get out of paying taxes by doing X", the answer will almost always be "No, because the government isn't stupid, and they want their tax money".
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Old 11-06-2019, 11:51 PM
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Where I live, any lottery prize of $1,000 or over leads to an investigation and if you are delinquent in (in this order) back taxes, child support, or student loans, it will be deducted from the prize, in addition to the taxes being taken out of the lottery check.

My parents sometimes play slots and have won a few jackpots over the years, in the $500-1,000 range, and have gotten a check with the taxes taken out, and a 1099 from the casino.
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Old 11-07-2019, 12:58 AM
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As a general rule, whenever you ask "Can I get out of paying taxes by doing X", the answer will almost always be "No, because the government isn't stupid, and they want their tax money".
What you actually mean is - "The government isn't stupid, some government accountant has already thought about that dodge and come up with a way to prevent evading taxes." If we can dream it up in front of the keyboard, so can any accountant with any imagination.

(OK, I know that's a lead-in to some snappy come-backs. Definition of an auditor - someone with the training to be an accountant, but lacking the personality.).

When I was in New York a several years ago, we went to a taping of a morning show and got some free stuff. When we went again two years ago, they had everyone waiting to be in the audience fill out a form for tax purposes so they could declare the gifts. We were from Canada, so we were not given a form or the gifts. probably too confusing tax-wise. I assume for assorted states, the onus is on the recipient to declare the gift, whereas for foreigners they would hold the studio to account.

Also should note lottery and other prizes in Canada are not taxable. And we have free health care...

Last edited by md2000; 11-07-2019 at 01:02 AM.
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Old 11-07-2019, 01:00 AM
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What's the fair market value of a Big Mac? Or anything else I might buy with a coupon?
What's the price on the menu? That's the FMV. However, the IRS also doesnt really care about de minimus things, like a Big Mac, or really anything up to around $400 or so. I won a $1000 gift card once, however, and they gave me a 1099.

As for a discount, if that discount is readily available to a large class of people, then that's fine. Like all residents or firefighters or everyone named "Jim". But not just "Jim Peebles".
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Old 11-07-2019, 01:06 AM
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So circling back to the OP's question, I'm neither an accountant nor a lawyer, but I'm guessing it likely works something like this.

If you win a car on a game show with an MSRP of $20k, you owe taxes on $20k because getting a free car constitutes income.
If you go to a dealership and manage to negotiate the price of that car down to $16k, you don't owe taxes on that $4,000 because theoretically anyone can go to a dealership and negotiate a similar discount.
....
Now, if you could show that $16K was a normal discount, and you reported that much, (total $20000, taxable $16000 with a letter explaining) you would possibly get audited, or maybe just a correspondence one issue audit. You could quite possibly win in Appeals for that. But be prepared to lose. It would be worth a try, but I'd want solid documentation, like the Edmunds page and a letter from a dealership, and several pages of ads.

"FMV" is not always the MSRP.

Yes, my Bro was a tax auditor for years and now works as a EA.
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Old 11-07-2019, 08:45 AM
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When I was in New York a several years ago, we went to a taping of a morning show and got some free stuff. When we went again two years ago, they had everyone waiting to be in the audience fill out a form for tax purposes so they could declare the gifts.
Probably those were declared prizes and not gifts for tax purposes.

In the US, people receiving (real) gifts are never taxed on them - the tax falls on the gift giver. That said, the IRS doesn't care if you give $5 to somebody on the street. They are looking at transfers of large sums of money (something like $15k a year or more per person). They basically don't want the wealthy "gifting" their wealth to avoid the estate tax.

Quite likely, the TV program didn't want to deal with the tax consequences and pushed that onto the audience members.

Last edited by Great Antibob; 11-07-2019 at 08:45 AM.
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Old 11-07-2019, 11:06 AM
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actually in the 90s E! did a "secrets of " series and one episode was on the price is right and bob barker was saying 90 percent of the cars and big ticket items that were won the taxes were so high that people took the cash option but the one thing people kept were the trips to europe and asia

but apparently barker and cbs had a charity fund for the occasional family/person who needed the stuff they won but couldnt afford the taxes so it was covered ..

They don't do it this way now and haven't for a long while. I know someone that worked on the show as a production assistant, part of her job was coordinating the prizes used on the show. The value of the items on the show are the suggested retail price. If you won a prize, you are only liable the the actual cost of the item. A $20,000 car would result in taxes generally on the wholesale value, somewhere around $14,000 for that car. In some cases, like trips, the wholesale value can be pennies on the dollar. Winners of prizes are also given a window to pay taxes on tangible items, usually 30 days or the day the show is broadcast, whichever is longer. Taxes are automatically withheld from cash prizes, that is currently 24% federal and 9% state of California.
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Old 11-07-2019, 02:14 PM
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Similar rules apply in states where they have sales taxes: If Grandpa sells his used car to a granddaughter for $1, the state sales tax authority will insist that sales tax is paid on the blue-book value of the car, not $1.
I know what you're getting at, but that is a bad example. At least here in Colorado, somebody could give his granddaughter a car, and she would not have to pay sales tax, as vehicle titles can be transferred to family members. Ownership and use taxes would be due on registration, but not sales tax. When my dad gave me his truck, they didn't even care about providing any sort of proof of relation, as we share a last name, and he signed the title over to me.
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Old 11-07-2019, 07:14 PM
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What's the price on the menu? That's the FMV. However, the IRS also doesnt really care about de minimus things, like a Big Mac, or really anything up to around $400 or so. I won a $1000 gift card once, however, and they gave me a 1099.

As for a discount, if that discount is readily available to a large class of people, then that's fine. Like all residents or firefighters or everyone named "Jim". But not just "Jim Peebles".
$600 is the lower limit for a required 1099.
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Old 11-07-2019, 09:58 PM
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$600 is the lower limit for a required 1099.
Yes, and so?
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Old 11-08-2019, 10:55 PM
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:: donning CPA hat ::

There are many things being discussed here, and I'll try to touch on all of them.

Gifts to the IRS are those done out of detached generosity. You generally need some sort of relation with the donee, or at very least no clear business motive to your generosity. Thus it becomes practically impossible to give a genuine gift to anyone with whom you have a business relationship, such as an employee, customer, or vendor. It is also impossible to give a genuine gift to random people if you publicize that you are giving out gifts at random; John Oliver publicly forgave a bunch of medical debt that he bought up cheaply a while ago, and if he hadn't have sold it to a non-profit whose sole purpose is to buy up medical debt to forgive it, those people whose debts were forgiven could be subject to cancellation of debt income. It had to be a genuine act of generosity from the non-profit, who could by definition not profit from the debt being forgiven, plus a "terrible" business decision to sell the debt to them for much less than he bought it for (well, presumably - I actually don't know the details other than a non-profit was involved and it helps explain why there was no tax due for the debtors). Oprah could not give away cars on her show as genuine gifts, as the giveaway gave her a lot of publicity.

Employers are generally allowed to offer employees fringe benefits that involve use of employer services or low cost employer goods, but there are restrictions. Employers cannot sell their goods to employees at less than cost without the difference being income to the employee. Employers providing services for their employees must incur at most a de minimis additional cost for providing the service; think of airline employees getting free flights in seats that would otherwise be unused. Technically there is slightly more fuel being consumed, but it's minor comparatively. Likewise, you're allowed to use your employer's copier without having to recognize income even if the employer leases the machine and pays by the copy. "De Minimis" tends to mean that it's just absolutely not worth anyone's time and effort to keep track of it; even if it does add up over a long period, the effort put into keeping track would be entirely disproportionate to the amounts involved.

So now you're offered a deal of a lifetime by a game show. You are, in some sense, their employee as a contestant (maybe a contract worker or whatever) so if they provide you goods at less than their cost of the item, you must be taxed on the cost of the goods to the show (less the amount you paid), exactly as was described previously for TPIR. This even extends to stock options. There tends to be three ways to profit from stock options: The stock goes up in value after you exercise the option and before you sell, the stock goes up in value after the option is offered and before you exercise it, and the option is offered at a lower price than market value. The latter of these is always ordinary income immediately, as they are offering something at less than "cost". For completeness, the first of the three is always capital gain like any stock buy and sale, but there are numerous requirements involved for the second source of income to be treated as capital gain instead of ordinary income, something I researched once and don't remember the details of.

Also keep in mind that the tax authorities generally have the ability to look beyond the notional legal structure of a transaction and assess tax on a transaction that is in essence one that is taxable. Related-party transactions are often closely scrutinized. You can be forced to recognize interest income on a no-interest loan if the amount is large enough, so you can't get away from some sort of tax by calling the 100 million you give your son a "loan" instead of a "gift" that would incur gift tax. If you sell your business to your son on a installment basis, you will need to charge a minimum rate of interest. We just had a client do that recently, and the installment basis wasn't a regular amortization schedule but was just a percentage of revenue until it was paid off, paid whenever they got around to it. We had to make up our own irregular amortization table to calculate how much interest the father would have to recognize as income.

Last edited by glowacks; 11-08-2019 at 10:55 PM.
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Old 11-08-2019, 11:45 PM
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:: donning CPA hat ::

There are many things being discussed here, and I'll try to touch on all of them.

Gifts to the IRS are those done out of detached generosity. You generally need some sort of relation with the donee, or at very least no clear business motive to your generosity. Thus it becomes practically impossible to give a genuine gift to anyone with whom you have a business relationship, such as an employee, customer, or vendor. ....
You or your company can give a business gift of $25 or less, or you can get one, and the company can write it off and you have no tax on that $25.

OR, if the gift is clearly promotional merchandise, like a advertising pen, etc.
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Old 11-09-2019, 12:18 AM
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Good grief guys...this is not hard.

Income is income.

You can buy the option for a penny but you if you get a $1 million in your bank from that bet that is income and you have to pay taxes on it. Put another way, if you gain something of value you have to pay taxes on the value gained. No messing around...you pay taxes on being more wealthy today than you were yesterday (super simplified but that is the upshot).

Granted, there are ways to evade/minimize taxes legally but the OP's notion won't work.

As Chronos noted the government really wants its share and they will get it if they can and are aggressive in trying to do so.
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Old 11-09-2019, 12:30 PM
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Old Mark Twain quote:
"How many legs does a dog have, if you call the tail a leg too?"
"Five?"
"No, four. Calling the tail a leg doesn't make it one".

Exactly, the government knows what is and is not real money in your pocket, and taxes you accordingly.

Reminds me of the story about one of the Trusts in Canada, which were like the US Savings & Loan companies - and many went bankrupt about the same time in the late 1980's. This one decided that any senior managers, branch manager, etc. should have a stake in the company, and required them to own $X of the company shares. For those who could not afford that in ready cash, they gave loans. So, suddenly the company went belly up and all these guys had hundred thousand or more of outstanding loans for shares that were worthless. There was a capital loss, but capital and earned income are taxed differently. If the company bought back the shares at original cost (i.e. far higher than market value) then the difference in value would be taxed as income. If they forgave the loan - income. If they did not charge market interest rates, the difference was income.

basically, if you end up better off than you were before, it's income. The only hope is that it's capital gains, which is taxed usually lower (half) the rate of earned income, which is why Buffet says his secretary pays more than he does. But, like other schemes mentioned above, any trick that plays games to convert earned income to capital gains has been thought of by the government and already has rules about it.

Last edited by md2000; 11-09-2019 at 12:30 PM.
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Old 11-09-2019, 09:27 PM
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Thus, don't appear on game shows, don't win, and don't accept prizes. If you win anything, give it away before it can be taxed. Right?
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Old 11-09-2019, 11:21 PM
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Thus, don't appear on game shows, don't win, and don't accept prizes. If you win anything, give it away before it can be taxed. Right?
There is a very specific rule in the tax code that lets you give to charity any unsolicited prize you receive for being a generally good person or more specifically "in recognition of accomplishments in scientific, educational, literary, religious, artistic, or civic fields". It must be unsolicited on your part, not require any further services, and you must provide the prize-giver with notice of where to send it before you are awarded the prize. Otherwise, it becomes taxable income and while you can take a charitable deduction, there are limits to that (60% of income, must itemize on Sch A).

https://www.nolo.com/legal-encyclope...s-taxable.html

Whether you can get around things by not accepting the prize depends on how assertive the prize-giver is in getting you to take it. If they somehow make the money available to you, and there are plenty of means of doing so without your permission, you'll have constructive receipt of the money and it will be income. But if they don't do any of those things that would make the money available to you, then it's not income yet, and if you make no further efforts to claim it then it never will be.

Of course, income tax rates are well less than 100%, so unless there's something unseemly about accepting the money, you're not any worse off than you were before. Accept the money and immediately send half of it to the feds and a quarter of it to the state and you'll probably still get a huge refund from both plus the quarter you didn't send anyone.
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Old 11-09-2019, 11:22 PM
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Originally Posted by DrDeth View Post
You or your company can give a business gift of $25 or less, or you can get one, and the company can write it off and you have no tax on that $25.

OR, if the gift is clearly promotional merchandise, like a advertising pen, etc.
True, I didn't get into every sort of way that employers can make small gifts to their employees even though I did cover one of them. But both of those are small potatoes compared to major prizes or free airflights.
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Old 11-09-2019, 11:31 PM
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Good grief guys...this is not hard.

Income is income.

You can buy the option for a penny but you if you get a $1 million in your bank from that bet that is income and you have to pay taxes on it. Put another way, if you gain something of value you have to pay taxes on the value gained. No messing around...you pay taxes on being more wealthy today than you were yesterday (super simplified but that is the upshot).

Granted, there are ways to evade/minimize taxes legally but the OP's notion won't work.

As Chronos noted the government really wants its share and they will get it if they can and are aggressive in trying to do so.
It is quite interesting just how broad the whole "accession to wealth" doctrine is, and literally anything that makes you wealthier that it not specifically excluded is taxable. There was a specific case about a guy who found a huge wad of cash in a piano he had bought, and he was taxed on that. So if you find money lying around on the street and pick it up, if the IRS finds out, they'll require you to claim it as income.

Also, "evading" and "minimizing" taxes are two separate things entirely. It is everyone's right to arrange their transactions such that they minimize their tax. But "evading" taxes is strictly the practice of not paying taxes that you know that you owe, and is a crime. If you think that you're cleverly using the tax code to avoid paying taxes, that's not "evading" but "avoiding" in legal-speak. If you think you're cleverly moving money around in shell companies so that the government will never catch you, then you're evading.
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Old 11-09-2019, 11:55 PM
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Good grief guys...this is not hard.

Income is income.
Not to the IRS.

The ordinary, economic definition of "income" that most people think about -- even when discussing taxes -- is very different from the taxable definition.

If the two were the same, the Internal Revenue Code would be about 5 pages long, and it would take 10 seconds (at most) to figure your taxes.
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Old 11-10-2019, 02:29 AM
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Originally Posted by Flyer View Post
Not to the IRS.

The ordinary, economic definition of "income" that most people think about -- even when discussing taxes -- is very different from the taxable definition.

If the two were the same, the Internal Revenue Code would be about 5 pages long, and it would take 10 seconds (at most) to figure your taxes.
This is wrong. Not only income must be discussed but deductions, credits, payment, fines, penalties, and other taxes.

Pretty much "General definition: Except as otherwise provided in this subtitle, gross income means all income from whatever source derived...."
  #36  
Old 11-10-2019, 03:21 AM
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Originally Posted by Jim Peebles View Post
Did Mark Cuban need to pay taxes on "fair market cost per mile of airflight" - 12 cents each time he flew with his unlimited pass?
https://www.cnbc.com/2018/04/20/mark...-aairpass.html
From your link:
Quote:
In 1981, American Airlines introduced the lifetime unlimited AAirpass, a ticket to fly anywhere as often as you wanted — for a steep fee. The passes cost $250,000 when they were introduced, according to the Los Angeles Times, and buyers could shell out another $150,000 to add a companion pass. In 1990 the pass cost $600,000, including a companion ticket.
It's a business deal. Straightforward. The airline sold these knowing some people would get a bargain and others would pay a lot for not getting their money’s worth out of it. It’s an entirely different kettle of fish.
  #37  
Old 11-10-2019, 11:20 AM
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So there's a couple of edge cases:

a. What if someone offers you their services as a gift? How is this taxed? If your uncle is a heart surgeon and you get a major heart operation performed by your uncle, and he doesn't charge you the normal fee, how does this work? (or your girlfriend is a prostitute...)

b. Airline miles. Everyone's always talking about that "free trip to Korea" from all those miles they got through work. Apparently, a typical "mile" has a value a little over a cent. This sounds like obvious tax evasion if someone were getting enough airline miles to be economically significant. If you traveled for work all year round, and got miles from all your flights and all your hotel stays, would you rack up so many miles that you'd actually have them get reported and needed to pay taxes?
  #38  
Old 11-10-2019, 11:51 AM
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If you traveled for work all year round, and got miles from all your flights and all your hotel stays, would you rack up so many miles that you'd actually have them get reported and needed to pay taxes?
No. (PDF)

Quote:
Consistent with prior practice, the IRS will not assert that any taxpayer has understated his federal tax liability by reason of the receipt or personal use of frequent flyer miles or other in-kind promotional benefits attributable to the taxpayer’s business or official travel.

Last edited by Lord Feldon; 11-10-2019 at 11:51 AM.
  #39  
Old 11-11-2019, 12:18 AM
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Originally Posted by SamuelA View Post
So there's a couple of edge cases:

a. What if someone offers you their services as a gift? How is this taxed? If your uncle is a heart surgeon and you get a major heart operation performed by your uncle, and he doesn't charge you the normal fee, how does this work? (or your girlfriend is a prostitute...)

...
I'm going to guess it depends. A new heart or a new car as a gift is a gift. As mentioned up above, gifts are taxable to the giver not the receiver. However, if you get a new car given to you and immediately sell it, you are obviously just engaging in a scheme to get money. If this is in any way related to some sort of employment or quid pro quo then it's income.

I recall under some interpretation of a campaign finance law, if I as a computer consultant do free work for a campaign, I've effectively donated my time. That has a fee attached. But if I as a full time employee do the same work outside of work hours, then it's not a financial equivalent contribution, because I don't sell my services to miscellaneous clients all over town.
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Old 11-11-2019, 01:20 AM
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Quote:
Originally Posted by SamuelA View Post
So there's a couple of edge cases:

a. What if someone offers you their services as a gift? How is this taxed? If your uncle is a heart surgeon and you get a major heart operation performed by your uncle, and he doesn't charge you the normal fee, how does this work? (or your girlfriend is a prostitute...)
...
More or less services are ignored unless there's a quid pro quo, like "I will clean your teeth if you clean my drains" that's called bartering and the IRS frowns on it. And in that case, it is taxable.

Your uncle can gift you like $15K a year tax free.
  #41  
Old 11-11-2019, 07:17 AM
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People over here complain all the time about taxes, both direct and indirect; after all, someone has to pay for the NHS.

On the other hand, lottery and prize draw wins are free of tax, and if I sell my £20k car for £1 to my daughter or anyone else, no tax will be payable on either side.
While I agree with you that life is so much simpler under the UK regime of gambling winnings being tax-free, the last part of the above is not quite correct - selling your car to your daughter for less than market value could have implications for inheritance tax, if you were to die within 7 years of doing so. As essentially you are making a gift that reduces the value of your estate.

For other assets, there could also be capital gains tax implications - but vehicles are specifically exempt from this (since the vast majority depreciate, and HMRC don't want people to be able to claim this as a tax loss to offset other gains).
  #42  
Old 11-11-2019, 08:54 AM
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In the US regarding gifts:

You can give up to $15k a year to someone (and so a married couple can give up to $30k) without filling out forms. Such gifts are considered part of an estate and the estate only has to pay taxes if your estate exceeds $11.4 million including past reported gifts. (Things are complicated, of course. All sorts of variations and rules.)

Gifts for medical and educational expenses also get a break.

Assessing the value of non-monetary property and when/how changes in value happen is difficult.

E.g., suppose a year ago today (the 11th) someone you know got Stan Lee's autograph on an item and gives it to you. No big deal, right? But the next day Stan died and it turns out this was the last thing Stan ever signed. Now it's a big deal. Was it given before or after his death? When did its value suddenly jump? By how much? Etc.

You turn around and sell it. You pay taxes on the gain. Again, what is the basis? There's the difference in value between signing and giving that's the gifter's responsibility. There's the difference in value after receiving and selling that's the giftee's responsibility.
  #43  
Old 11-11-2019, 10:45 AM
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As I understand it, your rich uncle could give you $1 million and you still would not pay taxes on it. But he would have to report it and pay taxes on the gift. (In the USA)

In Canada, as I understand, if my rich uncle gave me a million dollars (yeah, in my dreams) no tax involvement. After all, as a private individual, if he has $1M in his bank account to give away - one way or another, he's already paid taxes on it. Indeed, since tax brackets are progressive, unless I'm already well off, the government probably collected more tax when he earned that income than if it were my income instead.

So unk would probably be motivated to figure out how to pay me that as a business expense. "Here, for $1M in wages, you can take out the garbage and mow the lawn all this year." But Revenue Canada has heard of this trick - income splitting; if I at the lowest tax bracket pay taxes on $1M that's a lot less revenue than uncle paying it at the highest tax bracket rate. if they deem the payment for work too far above the reasonable value, and there's not an arm's length relationship, they will call it a gift and deem it the giver's income to be taxed.

I just find it weird that the USA would double-tax something - tax already taxed income - because it`s a gift. How does that work? If junior comes with you to Hawaii business class and you bought the tickets, does he have to declare it? What if you own the car but he drives it all the time? What if you own 5 houses and he lives in one? What if he lives in that apartment over the detached 5-car garage, or the gatehouse on the estate? (Did Kato Kaelin pay imputed rent?) I'm sure there's a huge body of precedent, but the mind boggles.
  #44  
Old 11-11-2019, 12:10 PM
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Double taxation is common nearly everywhere, as far as I know. For example, all sales taxes.

The reason for taxing gifts is otherwise it would be trivially easy to avoid inheritance tax by gifting all your assets to your next of kin just before you die (OK, not all circumstances of death allow this, but enough do to make it a sizable hit to the tax income of the treasury).
  #45  
Old 11-11-2019, 12:15 PM
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Originally Posted by md2000 View Post
As I understand it, your rich uncle could give you $1 million and you still would not pay taxes on it. But he would have to report it and pay taxes on the gift. (In the USA)...
I just find it weird that the USA would double-tax something - tax already taxed income - because it`s a gift. How does that work? If junior comes with you to Hawaii business class and you bought the tickets, does he have to declare it? What if you own the car but he drives it all the time? What if you own 5 houses and he lives in one? What if he lives in that apartment over the detached 5-car garage, or the gatehouse on the estate? (Did Kato Kaelin pay imputed rent?) I'm sure there's a huge body of precedent, but the mind boggles.
Sorta. If he gave you that much he'd have to fill out a Gift Tax FORM, and his estate would pay the taxes- if the estate owed any which is doubtful.

You only have to fill out that form for gifts over $15K, and in general shared living expenses are not counted.

But it usually isnt double taxation. Most estate tax is owed upon unrealized and unpaid Capital gains.
  #46  
Old 11-11-2019, 01:00 PM
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Originally Posted by DrDeth View Post
Pretty much "General definition: Except as otherwise provided in this subtitle, gross income means all income from whatever source derived...."
Tax-protestors often point to this to say "you can't have 'income' define the term 'income'" IANATP but I do agree that the IRS uses this circular definition in order to (try to) make everything income. Hey, you traded a sheep for a cow? The cow is market-valued at $1000 more so you owe taxes on $1000. And guess what, the new sheep-owner will get screwed over too.
  #47  
Old 11-11-2019, 01:13 PM
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Originally Posted by md2000 View Post
I just find it weird that the USA would double-tax something - tax already taxed income - because it`s a gift. How does that work? If junior comes with you to Hawaii business class and you bought the tickets, does he have to declare it? What if you own the car but he drives it all the time? What if you own 5 houses and he lives in one? What if he lives in that apartment over the detached 5-car garage, or the gatehouse on the estate? (Did Kato Kaelin pay imputed rent?) I'm sure there's a huge body of precedent, but the mind boggles.
There's a sizable annual exemption per recipient ($14k) and a sizable lifetime exemption ($11.4 million currently, and adjusted for inflation going forward).

So, no, even relatively wealthy people don't have to worry about declaring tickets to Hawaii or cars that relatives drive. Only absurdly wealthy people have to pay gift taxes, and they pay them for the same reason they pay estate taxes: to prevent transfers of dynastic wealth from generation to generation.

And, yeah, mostly it's not double taxation. It's not even as much as the long term capital gains taxes would be on unrealized gains, since basis is reset on inheritance.
  #48  
Old 11-11-2019, 02:04 PM
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Originally Posted by md2000 View Post
I just find it weird that the USA would double-tax something - tax already taxed income - because it`s a gift.
It's not double taxation. The tax applies because there is another transfer. It's like saying that you shouldn't pay payroll taxes on your maid's wages, because the government already taxed the income when you earned it.
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  #49  
Old 11-11-2019, 04:56 PM
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When rich Uncle Pennybags uses his money to:

Buy a car/furniture/gasoline/a crockpot/etc. ... he pays sales taxes (in most states)

Buy some land ... he pays property taxes.

Pay his employees ... he pays a payroll tax.

And on and on. Not one of these are "double taxes". They are just ... "taxes".
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