Math on SRS winnings

4152 Views 26 Replies 14 Participants Last post by DL, Jun 7, 2007

Discussion Starter · Jun 6, 2007

I was just checking in to the SRS site and was wondering that if you won $30K cash and $25K value in trailer, wouldn't the taxes on that basically wipe out the cash? Don't get me wrong, I'd love to win it. I just thought the tax bracket on winnings is around 50%....

-K

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Cory and Dakota

· #2 · Jun 6, 2007

Most people that would be running would probably be in a mid 30's % tax bracket for ordinary income.

Of course, much of this income could be offset by expenses and greatly reduce the actual taxes paid on the winnings.

CPA regards,
Cory

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Cory and Dakota

· #8 · Jun 6, 2007

Yep, any money coming in during an event like this would be ordinary income for the person that accepts the money, in my opinion. If the owner took the money and then gave half to the pro as payment, it would be taxable to both of them. If he gave it as a gift to the pro, it would only be taxable for the amount over the gift limit. (I think it is $10,000 right now but not sure on that.)

To lower your taxes, try to argue that it is a long term capital gain since you have trained your dog for years to earn this money! Tax rates on LTG's are much lower. Most likey, The IRS would not share this view. LTG however. Your CPA might find a way to do it however.

Cory

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Cory and Dakota

· #14 · Jun 6, 2007

Please provide your opinion if mine is flawed. I am not a personal tax specialist by any means. My practice is strategic corporate tax avoidance and compliance.

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Cory and Dakota

· #17 · Jun 6, 2007

As I put in my prior post, it would be extremely agressive to try the LTG route and does not fit the real intent of a LTG. It was a somewhat sarcastic remark that since you put years of work into the dog, then the gain should be treated as a LTG. The IRS would not share this view since you didn't directly invest money and were expecting the gain later.

A gift to an individual is definitely a taxable situation. If you gave your pro the money as a gift, you have to pay his tax on the money as well for over the limit. Now you are paying tax twice on some of the winnings. (The limit has been increased since I took the CPA exam to $12,000 per year. It used to be $10,000)

Here is the Gift Tax blurb from the IRS website.

"IRS Tax Tip 2007-39

If you gave any one person gifts in 2006 that valued at more than $12,000, you must report the total gifts to the Internal Revenue Service and may have to pay tax on the gifts.

The person who receives your gift does not have to report the gift to the IRS or pay gift or income tax on its value.

Gifts include money and property, including the use of property without expecting to receive something of equal value in return. If you sell something at less than its value or make an interest-free or reduced-interest loan, you may be making a gift."

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Cory and Dakota

· #23 · Jun 7, 2007

DL-

You think if a Pro wins a prestigous event, a gift would be out of the ordinary? I would not think it would be far fetched at all. In fact, I would bet a number of pros that have won nationals for a client have recieved fairly large gifts. I have been given gifts by my clients before (although nothing to trigger a taxable event!) so I would not think a gift from an owner to a pro would would be out of place.

Secondly, gifts over $12,000 are definitely a taxable event. You must file a tax return annually on gifts over $12,000. Whether you owe taxes on that money depends on the situation and what exculsions might apply. A taxable event does not mean that taxes are actually owed. Taxable event means the event must be reported. You are correct that you might not owe taxes until you meet the lifetime threshold.

If you want to read a quick guide that gives some great examples, here is a link: http://www.irs.gov/pub/irs-pdf/p950.pdf

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