Tuesday, May 16, 2006

Da Vinci Code Quest Taxes


I've been thinking about the tax implications, if, in the 1 in 10000 chance, I won.

I've read the tax rules on this:

If you win a prize or award in a lucky number drawing, television or radio quiz program, beauty contest, or other event, you must include its fair market value in your taxable income and report it on your tax return. For example, if you win a $50 prize or award in a photography contest, you must report this taxable income on Line 21 of Form 1040.


However, if your award or prize meets all of the following four tests it is not taxable on your tax return:
it is in recognition of religious, charitable, scientific, educational, artistic, literary, or civic achievement;
you do not have to perform services;
you were selected without any action on your part;
you assign the prize or award to a government unit or tax exempt charitable organization prior to your use of, or receipt of benefits from, the award. You can't claim a charitable tax deduction for the assignment on your tax return.


If you receive merchandise for a prize or award, you must report the fair market value of the prize or award as taxable income on your tax return.

If you refuse to accept a prize or award, do not include it in taxable income on your tax return.

It seems pretty clear. The total ARV is $128,170.54. At my tax rate that would be close to $50,000 in taxes.

Does anyone have any opinions on this? Can anyone afford to win? There is no cash included in the prize, so this would be out of pocket expense. If I won, I'd probably refuse most of the prize (can't sell it since it can't be transfered).

ID, and that there was only one prize per household, apart from if you win the Cryptex and the Grand Prize.
Jeff Blankenburg said...

I actually got two cryptexes in the mail today. One for me, and one for my wife. I figure if we team up, our second try at the content ought to go pretty well.

here's to $40K in taxes!!!
and
H-sizzle said...

Yay! My cryptexes arrived! (I entered twice, with 2 gmail accounts...)
I've posted this to Wei-Hwa Huang's blog in the hope that he can do something about this cheating, since he was instrumental in the puzzle creation.

Tags: , , ,,,

Lots of links from the official blog

8 Comments:

Blogger David said...

My buddy and I both made it to the finals, so we opened one of the cryptex boxes and left the other sealed. I have listed the sealed box on ebay click here to go to the listing. I left it sealed, and can easily replicate the original shipping label (standard 1"x3" white label)

So you will receive it exactly the same way we did. I created a one day auction, so that someone can receive it on the 18th (if they want to pay for next day shipping.) Hope that helps ease the pain.

David

5:10 PM  
Anonymous Anonymous said...

rumor has it that the taxes will be paid by sony and google

8:19 PM  
Anonymous Anonymous said...

According to the rules:

"No substitution, transfer, or cash equivalent for a prize (or prize component) except that Sponsor, at its sole discretion, may substitute a prize (or prize component) with a prize of equal value, due to unavailability of advertised prize/prize component. Limit one (1) prize person/family/household with the exception of the Grand Prize winner who will have also won a Finalist Prize. All expenses not specifically mentioned as being included are excluded and are the sole responsibility of Finalists and Grand Prize winner. All federal, state, or other tax liabilities arising from the Contest will be the sole responsibility of Finalists and the Grand Prize winner. Grand Prize winner will receive an IRS Form 1099 from the Sponsor for the total ARV of the Grand Prize and the Finalist Prize stated above that he/she won in the calendar year won."

So, no. Sony or Google will not pay your taxes.

So let's do some calculation:

Total value is $128,170.54. That will definitely push you into the 30% tax bracket. Therefore, you will pay at least $38,451.16 more in taxes to IRS alone and additional state tax (if your state has income tax) because it will add to your own income and make your own income subject to higher tax. And now let's take a look at the breakdown of the prizes. Besides the travel portion, the rest of the prizes is only worth $8,773.30. Of couse you could sell these electronic stuffs on ebay, but you may only sell them at or below the fair market value. That's not even close to the $40K you will be paying to Uncle Sam. So you may want to sell the travel package to someone, but it will be difficult. First of all, if someone wants to travel, most likely people will travel coach. Remember the travel portion is all first class. Second, if I know someone is selling that travel portion, of course I won't pay full value for the first class. Therefore, you may be able to sell, but the money you get is definitely lower than the fair value ($29,849.31 per person). Also, when you sell the travel portion, you will be traveling with someone you don't even know. (I think you have to one of the four people traveling if you win because it will be under your name and the travel is made through a coordinator). As a result, all the money that you could get from selling the entire package may just end up paying Uncle Sam and the state. On the other hand, if you have $40K to pay in taxes, why don't you just buy you own electronic stuffs (it costs only $8,773.30 anyway), and that leaves you almost $31K to travel. Now tell me, anyone spend more than $31K on one trip (seven days) for four people?

From these observations, Google would care less if someone cheated, copy, backdoor, or whatever to complete the challenge in about 2 minutes. Google will just hand you the 1099 and you will have to figure out how to get the money to pay Uncle Sam and the state. So let me ask some of you here, why do you want to win the prize so bad that you will do whatever it takes to be the one with the fastest time? Just think about the taxes you have to pay make me care less if I don't win. How about the rest of you?

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