i just won a $25,000 car in a raffle how much can I expect to pay in taxes.I live in California and make $40k

Answer 1

First, make sure $25,000 is accurate. You should report what you would expect to pay at a local dealership. You can calculate your estimate tax on the linked form. I suggest you use a pencil.

You may find yourself assessed with a penalty for failing to make estimated tax payments. Don't panic. If you paid as much this year as you owed last year, you will be exempt from the penalty but have to fill out the form.

Answer 2

The value of the car is taxed as ordinary income. At your income level the total tax could be as high as about 35%.

You'll receive a From 1099 at the end of the year with the value of the car stated on it and that is what you must claim on your tax returns. In most cases they use the MSRP of the vehicle. If you feel that this is unreasonable your best bet would be to ask the promoter to correct the value on the 1099.

Lacking that, you MIGHT have a case to make with the IRS that the value is unrealistically high if you can prove that the same vehicle regularly sells for less in your area. The hassle and expense of that may not be worth the tax savings however.

Also, if you choose to keep the car you'll have to pay the sales tax on the value of the vehicle in order to get it tagged. In the end, you'll shell out 40% or more of the value of the vehicle if you decide to keep it. Most folks in this situation wind up selling the car to pay the taxes due unless they just so happen to be in the market for a new vehicle when they get lucky.