Jimmy Fallon Gives Each 'The Tonight Show' Audience Member a Free iPad Air 2

[unplugme71]

With the Tax Reform Act of 1986 all prizes and give-aways became taxable, even if the recipient neither expected nor did anything with a view to perhaps winning a prize. (In New York, where the Tonight Show is taped, there are non-trivial city and state taxes as well.) When Oprah famously gave away a car to each member of a studio audience the advertiser, Pontiac, paid a significant portion of the associated fees and taxes, but of course this isn't always the case. There was once legislation proposed to exempt the prizes won by American winners of Olympic medals, but despite public expressions of support by many politicians, no change in the tax laws was ever made. Consequently, many taxable prizes that accompany recognition, including the Nobel Prizes, are frequently refused or donated, especially when the recipient taxpayer would not be able or willing to effectively offset the incremental tax due through charitable contributions (which for some taxpayers are limited or only carried forward).

As the quoted post suggests, if Apple or the Tonight Show isn't paying all or enough of the incremental taxes incurred by the gift, it may be preferable for someone who is unwilling to effectively buy an iPad Air 2 at less than half-price to convert the gift to cash, pay the taxes, and keep the net cash.

I guess it depends on how long they have to pay the taxes. I know with cars in some states, you need to pay the tax within 30 days of purchase or ownership. If you don't have the money, how can you convert it to cash (in form of selling it) ? Nobody wants to give someone the money for a car before it becomes in their name.

My point is, if you give a prize, the taxes should be paid on their behalf. Or, you can take a cash value of the gift - minus some for administrative fees or such. Ie, a 499 iPad Air 2 would net you $300 in gift cash instead. So there's an incentive to keep the gift but at least you have the option otherwise. With the cash, you can pay the taxes obviously since you have the money.

 

[Cartaphilus]

I guess it depends on how long they have to pay the taxes. I know with cars in some states, you need to pay the tax within 30 days of purchase or ownership. If you don't have the money, how can you convert it to cash (in form of selling it) ? Nobody wants to give someone the money for a car before it becomes in their name.

My point is, if you give a prize, the taxes should be paid on their behalf. Or, you can take a cash value of the gift - minus some for administrative fees or such. Ie, a 499 iPad Air 2 would net you $300 in gift cash instead. So there's an incentive to keep the gift but at least you have the option otherwise. With the cash, you can pay the taxes obviously since you have the money.

I think the tax on a new car you're thinking of is sales tax, and I was speaking of the incremental income tax on a prize, which given the value of an iPad Air 2 would not usually be paid until the April of the following year (unless one were paying estimated taxes). In New York there is a sales tax of around 4% of the value of the car which I imagine must be paid before the car can be registered. Ordinarily one can sell a new car quickly to a company like CarMax or a dealer, or borrow against the value of the car to pay the tax if it can't be sold in time to pay the tax. In the Oprah example, Pontiac paid the sales tax and fees, but not the income tax due. In any case that would have been difficult, since in New York City the sum of the Federal, State, and City marginal income tax rates could be as little as zero or as much as 52.3%, and I doubt that the donor of a prize wants to guess what the marginal rate on taxable income of each recipient might be by the time the tax year ends. And even then, there would be income tax due on any tax reimbursement.

Whoever said there's no such thing as a free lunch was probably an IRS agent.

 

[unplugme71]

I think the tax on a new car you're thinking of is sales tax, and I was speaking of the incremental income tax on a prize, which given the value of an iPad Air 2 would not usually be paid until the April of the following year (unless one were paying estimated taxes). In New York there is a sales tax of around 4% of the value of the car which I imagine must be paid before the car can be registered. Ordinarily one can sell a new car quickly to a company like CarMax or a dealer, or borrow against the value of the car to pay the tax if it can't be sold in time to pay the tax. In the Oprah example, Pontiac paid the sales tax and fees, but not the income tax due. In any case that would have been difficult, since in New York City the sum of the Federal, State, and City marginal income tax rates could be as little as zero or as much as 52.3%, and I doubt that the donor of a prize wants to guess what the marginal rate on taxable income of each recipient might be by the time the tax year ends. And even then, there would be income tax due on any tax reimbursement.

Whoever said there's no such thing as a free lunch was probably an IRS agent.

I get free lunches. Someone else just pays for it (Thanks HP)