How are taxes calculated when winning a trip or a travel voucher (in the U.S.)?

Question

My grandma won a $12,500 (ARV) travel voucher and wants to sell it because she needs the money more than she needs to see the world. I know that the tax rate is based on fair market value (FMV) rather than approximate retail value (ARV), so if she used it, I believe it would be based on the amount she used. If she sells it though, would she only pay taxes on how much money she got for it, or on the full amount of the voucher? Please only post if you can provide an educated guess. Thanks in advance!

Answer 1

Many times companies grossly inflate the value of prizes or awards. That is why the tax code and existing case law provide that the FMV of the item determines its tax basis, not the inflated value set by the publicity-hungry companies. Those companies get to deduct NOT the ARV but only the actual cost of the item as recorded on their books, without regard to its retail FMV or ARV.
If your Grandma sells the voucher by advertising for a best offer deal, save the add and attach it to her tax return. Declare the full amount of the 1099 on her return and then take a negative "other income" entry to offset the difference; next to the line write "see attached statement." Explain why it is you are taking exception to the 1099. I have done this dozens of times in my 27 years as a tax accountant and it has never been so much as questioned---because I am right.

Answer 2

If she received a voucher from a travel company, it is hard not to argue that the value of the voucher is $12,500. The company should issue her a 1099 in that amount. She will have to add $12,500 to her income and pay income tax on it. She will not have to pay Social Security or Medicare tax on it.

If she sells it for less than the amount on the voucher, she will not be able to claim a reduced amount of income.

If she uses only part of the voucher, it is possible that the company may issue her a 1099 for only the part that she used, but they are not obligated to do so unless the sweepstakes rules state that this is what will be done.

Answer 3

Your grandma ultimately needs to consult her accountant for any unique circumstances that could cause a different answer, but generally speaking if she keeps the voucher (used or unused), she will need to include that amount in her gross income (the ARV). If she sells it, she would only pay taxes on the amount she sells it for (assuming that the sale is with a non-related party). If she sells it to a related party, she will be taxed on the ARV and the party who bought it would be considered receiving a gift for the difference and the buyer would pay no taxes. As I stated earlier, she definitely needs to speak with her accountant/tax preparer because there are lots of little exceptions that could possibly effect this answer.

Answer 4

The payer of the prize will set the value of it. She will pay tax based upon that amount. If she sells it for less than that amount, she'll STILL be taxed on the value set by the payer of the prize.

All of the folks who were given those cars on that well-publicized stunt on Oprah were also given a 1099 that listed the MSRP of the vehicle as the value of the car. Many of them had to sell the car to pay the taxes on it. Most of them sold the car for a LOT less than the MSRP but were rather dismayed to learn that they still had to pay tax on the value set by Harpo Productions.

The reason for this is that the payer of the prize gets a business deduction equal to the ARV of the prize. That is income to the winner. The only way to get it reduced is to convince the payer to reduce the ARV and send you a new 1099. Good luck with that!

Answer 5

She would pay taxes on the FMV-which is what she sells it for!

Answer 6

Listen to you pinheads. Already working on smearing Hillary? You must be scared. We know how the right operates and I for one have stopped listening to your BS.