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Beware of Prizes Bearing Taxes

A few weekends ago my wife and her sister went to a cooking show. Meanwhile, I sat with my in-laws watching the kids. About 30 minutes before my darling wife returns I receive a text, my wife has won a water filtration system and asks if we can use it.   She had just completed signing the requisite Prize Tax Forms. The value according to the show’s sponsor is $1600 dollars. As this text comes through, the first thought that crosses my mind is “Wow, my wife won something. We never win anything.” I still remember the only thing I ever won, a California raisins keychain when I was 6. So, as I’m sitting there wondering at the size of this win, the first one I really remember in my lifetime, the last line of text starts to nag at me. Can we use it?

A Prize We don’t Need

Well, the honest truth is we have no need for a water filtration system that sits under the sink. We have a nicely maintained whole house system for our well. Even if it were to break I’d probably buy something more generic as this particular example is known for having expensive proprietary filters. So, no we can’t use it. At this realization, I begin to think of the ramifications beyond our personal usage of our new found toy.

Prize Tax

Suddenly, I remember that door prizes and other things you win are taxed as ordinary income. That’s right, if I’m in the 25% federal tax bracket and 5% state, then this door prize just cost me 480 dollars! My mind suddenly shifts to panic. I did some searches for the item, and I found that it does in fact sell for about $1800 dollars new online.  However, it’s usually only sold by specialized dealers.   It’s too late however as my wife has signed the forms to accept their gift and to allow the organization to send us a tax form for our new found wealth. Man, that’s an expensive prize.

Prize Tax, Popular Culture, General Perception

During the Olympics there was a big to do that Olympics payouts and prizes are taxable as regular income for Olympians. There was even a push to make an exemption, that slipped from public sight as soon as the Olympics ended of course. There have also been numerous articles about Nobel Prize laureates declining their cash prize to avoid taxation. Even game shows have come in for discussion as people talk about how little you make on “Who wants to be a Millionaire?” after taxes.

Despite all these, you really don’t think about these ramifications when you win a prize. My wife’s friend for example, who knew all about the Olympics example, thought the tax impact was the same as sales tax. My wife and my first reaction was not even to think about the tax ramifications but instead to celebrate our new found wealth.

Still Trying to Sell It. Maybe Donate?

Since that fateful night I have attempted a few times to sell the system.  Ultimately, my local water dealer can’t touch it because he is not an exclusive dealer for that brand.  Ebay won’t help because if you’ve never sold something over $500 dollars there, they want your first born child as validation you won’t rip someone off before you can sell it.  So, as we approach the end of the year I am currently pursuing one last ditch effort, the wonderful world of Craig’s List.  Should that not work, my backup plan as of now is to donate it to GoodWill on December 31.  If that were to occur, the net impact of this prize to my family would be a cost to me of the time I spent trying to sell it and the gas of my drive to Good Will.

Lesson Learned, Beware Prizes Bearing Taxes

The lesson I learned is unless it is something I want and I value at more then the tax it is best to decline a large value prize.  I might get lucky and be able to resell it, but likely it’s not worth the hassle.

Have you ever won anything of significant financial value?


  1. Mr Defined Sight
    Mr Defined Sight December 2, 2016

    Unfortunately I haven’t been so “lucky” to win anything significant. I always think of people on these game shows that win a new car. Are they prepared for the taxes? Something that a majority don’t realize I bet. It would be interesting to see a statistic on how many keep the car vs selling it right away. Great post!

    • December 2, 2016

      It’s an interesting thought to ponder but a fact I suspect the shows wouldn’t want getting out.

  2. Matt @ Optimize Your Life
    Matt @ Optimize Your Life December 3, 2016

    What an interesting conundrum. I would imagine that I would’ve done the exact same thing: gotten excited about winning something, accept the prize, and then stop and realize that I just walked into tax consequences.

    I remember this being an issue years ago when Oprah gave a free car to everyone in her audience. Everyone was so excited about getting a free $30,000 until they got home and many of them realized that they would have to either sell the car or forfeit it because they couldn’t pay the tax.

    Thanks for a thought-provoking post!

    • December 3, 2016

      You see those articles on the news but you just don’t think about it when it’s you.

  3. Mustard Seed Money
    Mustard Seed Money December 3, 2016

    Let me first say that I won $60 in the state lottery a couple of years ago on a whim. I normally don’t play but as a family on vacation we decided to have fun 🙂

    With that said that must have been incredibly exciting for your wife and in the same breath what a pain to deal with for you all. I can’t believe how difficult it is to sell the prize.

    Good luck on Craigslist, I’ve had some luck over the years so there’s a pretty good chance 🙂

    • December 3, 2016

      I’m hoping. Our local water guy wouldn’t touch it because of the special distributor deal. I’m worried that might make it hard to sell, but we shall see.

  4. Andrew
    Andrew December 3, 2016

    Wow, that sounds like a nuisance! I’ll definitely be on the lookout next time I “win” something. Good luck selling it on craigslist. Hope everything works out! Thanks for sharing.

  5. Susan
    Susan December 17, 2016

    We have had some luck selling things (bikes, skateboards, used tools, a stainless steel cart, a stool) on Let Go. It’s nationwide, I believe, but people shop according to town/zip code. It’s free as well.

    • December 17, 2016

      Thanks, I’ve never heard of that one. I’ll check it out.

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