Recently I was talking to an acquaintance of mine who’s tax work I am not involved with. I congratulated him on the hole in one that he had and the $55,000 Ford Mustang that went along with the ace. He said he talked to his tax guy and he realizes this will be taxable to him.
He said, “Because I won this car, I’m looking for all the deductions I can possibly get.”
I thought about his comment for a second and then I asked him, “Shouldn’t you always be looking for all the deductions you can get?”
He looked at me and said, “You know you’re right.”
The lesson here is the fair market value of the car that he won is going to be taxable to him. This will be ordinary income so if he’s in a 25% tax bracket plus a 7% state bracket, his income tax will be roughly $17,600. In addition to this, he has to buy license plates, pay property tax on the vehicle, plus the insurance. It’s still a good deal but at the same time there are some taxes involved.
But the real lesson to be learned is even if you don’t hit a hole in one and win a vehicle, you still should try to take all the deductions that are allowable.
