Winning a car from a contest can be the ultimate achievement. But sadly, such a large and expensive prize does not come completely free. As you settle in behind the wheel of your new car, take a moment to figure out how you are going to pay the taxes on your four-wheeled prize.
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“In the United States, winners are required to pay taxes on sweepstakes prizes, which are treated as income for tax purposes. That means you’ll be required to add the fair market value of your prize to your earnings from jobs and other sources when you report your income to the IRS,” reports The Balance writer Sandra Grauschopf.
Typically, you will owe 1/3 of what the prize is worth, she adds; so if the car you won is valued at $30,000, taxes will cost approximately $10,000. Here are a few strategies to implement when trying to foot the tax bill on your new car:
- Seek advice: The first step in figuring out how to pay for the taxes on your prize is reaching out to a tax professional.
- Enjoy the moment: Don’t let the worry over the cost of the taxes cloud the joy of winning. You have some time to figure out the budget since you’ll pay the taxes when you submit that year’s tax return.
- Establish the value of your vehicle: the sweepstakes’ organizers might be inflating its true worth.
- Research: Consult with your tax professional about potential tax deductions you’ve overlooked. You might be able to find ways to reduce your overall tax bill, freeing up funds for the taxes on the car.
- Save: If you have a good amount of time between taking ownership of the car and filing your tax return, you can use that window to become a diligent saver.
- Make a sale: You can generate the money you need for the taxes on your new car prize by selling your old car. If that’s not possible, you can sell back the prize and use the money from the sale to purchase a car that fits better into your budget.
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Even though taxes are a definite downer on your winning moment, these strategies can help you handle the unexpected expense so you can drive off in your new car.
DeAnn Owens is a Dayton transplant by way of the Windy City, yet considers herself to be a California girl at heart even though she’s only visited there once. To get through the dreaded allergy season unique to the Miami Valley, she reads, writes, complains about the weather, and enjoys spending time with her husband, two sons, and their newest addition, a Boston terrier puppy that is now in charge of all their lives. In the future, she hopes to write a novel and travel through time. See more articles by DeAnn.