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FOR THE LOVE OF MONEY: Ghetto Superstar Part 1
*This years ESPY awards marks the first time in history that an autistic person received a top honor. The best moment award went to Jason McElwain, the autistic manager of his upstate New York high school's basketball team, who scored 20 points in barely four minutes as a substitute. Yes, of course, Kobe was nominated because of his 81 points scored in one game last season, and no, that hasn't been done in ages, but what Jason did hasn't been done….ever! It's like "Ghetto Superstar," (Praz featuring Maya, 1998), meets "We Are The Champions," (Queen, 1977). How do you choose a winner from that? I must confess, I happen to be partial to the autistic boy. His one act has inspired millions of people, particularly those with autistic children, like me.
In "honor" of this amazing ESPY award, this week I'm going to breakdown the tax implications of winning a prize or award.
Game Shows
Let's first start with the game shows. Believe it or not, game shows – and every other large gift giver and casino – must report the winners to the IRS.
It's often the responsibility of the winner to fess up on their tax return.
You have two choices when you are fortunate enough to win a big prize - pay the tax or sell the prize and pay the tax with that.
Who could forget the infamous Oprah show where she started her 19th season in 2004 by giving away Pontiac G6's to everyone that was in her audience that day (a reported 276 cars). Everyone was so happy; after all, who wouldn't like to win a new car. But, although Pontiac paid for all of the local sales taxes and licensing fees, they didn't cover the income taxes that each person would have to pay as a result of including the prize in their income.
This came as quite a shock to many folks, because these cars were valued at over $28,000. This extra income caused some of the guests to be in higher tax bracket for that tax year. Also, they had to pay additional state income taxes. In the end, many of the guests probably decided to sell the car and use some of the money from the sale to pay off their taxes.
Most recently, that's exactly what the winner of HGTV's "Dream Home Sweepstakes," decided to do as reported in CNN.com. Winners Don and Shelly Cruz quickly realized that the 6,000 square foot 3 story "dream home" required more upkeep than their salaries could afford. So after tying their best, and receiving "Bills, Bills, Bills," (Destiny's Child, 1999), from the IRS saying they still owe 672,000 in taxes on the house, the Cruz's have decided to sell. They have been the only winners in 10 years of the contest that even attempted to live in the house at all!
There is a third, I guess "choice" that I unfortunately must mention. Some people opt to just do nothing. That was the case of Richard Hatch, the first winner of the TV show, Survivor. After winning $1 million on national TV, he apparently filed his tax return, but somehow forgot to include his prize money as income. His argument? He thought as an "employee" of CBS it was their responsibility to withhold any taxes and pay them over to the IRS; even though he probably signed paperwork that said he was an independent contractor and taxes were his responsibility. "In Case You Forgot," (Aretha Franklin, 1998), a few weeks ago in this column (Innocent, EUR July 6, 2006) I told you that ignorance of the law is rarely an excuse when it comes to the tax man.
That "decision" landed him in jail and facing a $250,000 fine. As in most cases in life, the "do nothing" approach is probably not that bright!
Celeb Goodie Bags
Even the stars can't run from these laws. The "Goodie Bag(s)," (Goodie Mob, 1995,) that stars get at the various awards shows have become big business. It was reported that the 2006 Oscar winners and presenters were each given lavish gift bags that included a $25,000 hotel package at the Halekulani Hotel in Honolulu, a $500 facial from a New York Day Spa and a leather trimmed cashmere travel blanket for starters. All in, the goodie bags were worth more than $100,000 each. Mark Evereson, the IRS Commissioner, issued a warning in March to put these celebs on notice that the IRS is watching and these "gifts" must be reported as taxable income. "This has become big business for companies promoting their products. "These things aren't given without pride and prejudice. There is a tax implication for them. We just want to make sure no one crashes into the tax code," Everson said.
Shannon King Nash is the author of the award-winning book entitled, "For the Love of Money: The 411 to Taking Control of Your Taxes and Building Your Net Worth." She uses song lyrics and entertaining stories ripped from the headlines to teach readers how to manage their finances and taxes. Shannon is a CPA, Tax Attorney, and regular expert commentator on KJLH FM Radio in Los Angeles, and has appeared on national television. Contact the Nash Management Group at 818-986-2665 or visit www.nashgroup-usa.com.
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