taxes and prizes?

Question

i had a very lucky year i won a trip worth 25k, car worth 15k and furniture/tv/entertaiment valued at 20k. I know that, i will get somesort of tax papers in and i kind of figured it our that i will owe the IRS like 10-11k yeppie!!!!!! I dont have that kind of cash laying around Yes i have about 14k locked up in 401k and 3k in savings. I was looking at a putting it on my credit card but the damn intrest rates are always bad. What i am wondering if i could take out a loan with the car i won?
here is my situation i make 47k a year single.
Live in a townhome with no equity and pay 1400 a month
i have a cc balance of 5k with all combine a 24k limit
i also have good creidt. where do i start, to prepare myself in April were Mr. bush gets a good pay day on me.
thanks in advance for the answers

Answer 1

Wow! Congratulations! I hope you really enjoyed that all because, yes, you have some taxes coming. Unfortunately, you're probably looking at somewhere in the $15,000 tax range and not the $10-11k that you were thinking.

1. Wait until you get the W-9's.
2. File your faxes as normal but CONTACT THE IRS immediately --- don't try to ignore or avoid them.

The IRS is actually pretty easy to work with if you are up front with them but they get hard as nails if you try to beat them. They'll set up a payment plan with you .... there'll be interest charges but it'll work out. (It sucks but on the other hand think of the fact that you got $60,000 worth of prizes and are only paying about $15,000 ... not too shabby!).

Hope this helps!

(Side note ---- don't blame Bush for the higher taxes. He's tried many times to lower them. With the $60,000 in prizes and your $47,000 in income --- you've graduated into the category of "rich" (believe it or not) and are subject to the higher tax rates that the Republicans have been fighting against for 20+ years).

Answer 2

It is fabulous that you were so lucky last year, congrats. But I do see the problem. You will owe a ton. My best advice would be to try to sell one or more of the prizes. This is fairly common by the way, that the winners of prizes don't get to keep all of it because if the taxes. Anyway, without equity in the home, your next best bet WOULD probably be to get a loan on the car. It is new enough that the rate should be a great deal better then the credit cards. But perhaps you should check to be sure there is not enough equity for a small loan. Stay away from the 401-K, always a bad move. As a last resort, the IRS would be happy to let you make payments at about 12% until they are paid.

Good luck with all that and Happy New Year

Answer 3

I hate to see people in the debt game, especially with credit cards.
The best financial plan is:
1. saving money by paying at least $2000 out of your savings to pay down the credit card debt. This will lower your monthly minimum card payment.
2. Pay what you can out of your taxes and owe the IRS (US Treasury Department) the rest., their rates are going to be cheaper than a credit card debt or a personal loan on the car as collateral.
There will be $140 dollar fee to set up a installment plan. Just beware that even if they approve the installment plan, you must pay all future income tax on time or the installment plan become null and void and the Treasury Department will issue a lien on you. The lien will appear on your credit report for up to 7 years after it paid off--something you want to avoid.
If the installment plan option is the way you go, consider using a CPA/tax preparer to help you set it up--however you can do can do it yourself--the IRS will even lead you through the process.
3. Stop contributing to 401k, UNLESS MATCHING FUNDS ARE INVOLVED. Use this money to pay off the Treasury Department and credit cards. Then you would have more money to put into your 401k and savings--because you will not be throwing it away on interest payments.
I wish you the best.

Answer 4

You could get a loan against your car. Go to your credit union or bank about it.

You will get 1099s from the companies that awarded you the prizes. If you can document that the items could be purchased for less, you can take the smaller figure. This may be especially true for the travel, so get working on that so you claim the lowest price for which your prizes could be purchased at the time you won them (or when you took the trip).

The value of your prizes goes on Line 21 of Form 1040. It is not subject to self-employment tax, but is taxed as ordinary income.

Expect an increase in taxes of approximately $15K as you are well into the 25% tax bracket if not higher.

Answer 5

What you owe on the prizes will probably be more like $16K or $17K for federal, and maybe something for state depending on where you live. You might be able to take a loan against the car for some of it. If you can't pay it all, the IRS will set up a payment plan for you - you'll pay interest, but it will probably be lower than credit cards.

$25K - that must have been some trip!!!!

Answer 6

Years ago I paid off my Suburban but I had no cash for a down payment on a new home. So I went to the bank and use my suburban as collateral and got $15,000. I paid my Suburban off two times but it was worth it and I got my house.
Leave your 401k plan alone, severe tax consequences if you mess with it.