What would the tax bill be on EAA's sweepstakes Cub?

Stearman

Stearman

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Stearman
So I've wondered this a lot with both the AOPA and EAA sweepstakes airplanes. It seems the winner is always a retired professional who already owns an airplane, maybe lives on an airpark, and spends their weekends on a 50' yacht in the Gulf - basically not at all the type of people I know in aviation. My theory is that the taxes and fees associated with this are so prohibitive that the only people who CAN win it are pretty well-to-do individuals. They probably end up drawing multiple winners until finding someone who has enough free cash.

Anyone care to chime in? Estimated value for EAA's Cub is $60k (no idea how they arrived at that ridiculous number, but whatever). I'm guessing at least $20k in taxes and fees to take possession?
 
I guess the tax amount would vary depending on where you live. Does Wisconsin have a "fly away" clause? If so I think you would only need to pay taxes for wherever you end up keeping it.

If I were to win I think I would be looking at about $4500 in state sales tax.
 
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$4,200 in taxes in Tennessee @7%. $1950 in Oklahoma @3.25% (or was last time I had an a/c registered there).
 
I was always under the impressions that the value of the raffle item was taxed as additional income.
 
You don't have to have the money up front to take possession. You can fly it and sell it when the tax comes do if you want. It's listed as taxable income, so it just adds to your tax bill. I would think that you could easily get financing for the taxable value of a sweepstakes aircraft if you didn't have the money laying around. Taking out a note for less than half (usually less than a quarter) of the market value shouldn't be too difficult unless you were really tight on your budget.

Same goes for things like when you win the St. Jude's dream home giveaway. The home is usually worth $300K+, and the winner of the raffle is stuck with the tax bill, so most sell it in order to pay the tax bill. Even so, they still come out way ahead (free money). If you absolutely wanted to stay in the home, someone will make a mortgage loan to you for the amount of the tax bill.
 
JP11283 said:
I was always under the impressions that the value of the raffle item was taxed as additional income.
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Could be, but Tennessee has no income tax. I assume the Feds would want a cut if it falls under income. I've never won any raffle to need to inquire. I know TN does have a 7% excise tax on any vehicle which changes hands and is registered in the state. Oklahoma had only 3.25% tax. When I moved my plane from OK to TN, I had to pay the difference to TN. Chapped my ass I had to pay taxes on it simply because I moved.
 
Soon as that N number ends up in the monthly FAA pull at the Revenue office, expect a polite bill for 6% with a penalty for being beyond 30 days, payable in full as soon as possible. Don't worry, the property tax won't be due till October so you'll have time to sell it before paying both.
 
If your net taxable income is $99k or less, but winning a $60k prize increases it to $100k or over, you'll be in for some serious sticker shock. Chances are, if you couldn't afford to buy an airplane, you won't be able to afford to keep the prize, unless you do some serious reorganizing of your priorities.
 
wilkersk said:
If your net taxable income is $99k or less, but winning a $60k prize increases it to $100k or over, you'll be in for some serious sticker shock.
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That's not how income taxes work.
 
Unit74 said:
Soon as that N number ends up in the monthly FAA pull at the Revenue office, expect a polite bill for 6% with a penalty for being beyond 30 days, payable in full as soon as possible. Don't worry, the property tax won't be due till October so you'll have time to sell it before paying both.
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Eh, no. You only need to pay the tax on when that quarter's estimated tax is due. Even then, unless you have some really bizarre additional stuff going on, the feds aren't going to assess interest/penalties. There are safe harbor provisions.

You figure out what the tax bill is based on your income brackets (after adding in the plane). 28% or so.

Even the states I am familiar with don't whack you until filing time.
 
The market value of the airplane is going to be treated as ordinary taxable income at both the state and federal levels. Easiest way to estimate what your tax burden would be is take your current AGI, add whatever the value of the airplane is to it, and use a tax calculator to figure out your approximate effective tax rate. It's likely going to be in the 25% range if you're in the moderate/middle-class income range. So, on a $60k airplane, you could end up owing $15k or more in income tax (that won't have been withheld, so you'll get to write a check). Whether you owe sales or use tax is a matter of state law. And of course, you also may owe property tax.
 
bradg33 said:
That's not how income taxes work.
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So, how does it work, Obie Wan?

Take for example, a married couple filing jointly, with a net taxable income of $45k. What would their total federal income tax liability be? Now figure their taxes after winning a $60k grand prize.
 
wilkersk said:
So, how does it work, Obie Wan?

Take for example, a married couple filing jointly, with a net taxable income of $45k. What would their total federal income tax liability be? Now figure their taxes after winning a $60k grand prize.
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Income taxes are marginal. Going from $99k to $101k will have no significant change to income tax liability.
 
I generally calculate up to 40% withholdings on “windfall” income, and I’m rarely disappointed. I’d say most should calculate 25-30% minimum for planning purposes.
 
For most people I'd guess 15-25% of the value of the airplane for federal. Then whatever their state requires. So you can either come up with that much in taxes and keep it or you can sell it and have that much more money to buy another one.

It's still not a loss, although for this reason I kind of find giveaways of big ticket items kind of silly. I'd rather have the cash value. Or if they insist on this maybe throw in some money to pay the taxes with? IDK, just a thought.
 
If ****ing AL wasn't so damn crazy about raffles I'd gladly pay the tax due.
 
bradg33 said:
Income taxes are marginal. Going from $99k to $101k will have no significant change to income tax liability.
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Income taxes are also progressive. If you tack on a $60k windfall to the income of someone who has less than $100K in taxable income, their net effective tax rate will be significantly higher. That's because they've jumped into the 25% marginal tax bracket (the real meaning of "marginal" as applied to US income tax). - Its called the middle class screw. You make enough to actually fall into the higher marginal tax brackets and not enough to have access to all the tax dodges the wealthy have.
 
When I was on Wheel of Fortune they told us that many contestants had to turn down trips they won because they didn’t win any cash to cover the tax. I didn’t have that worry, I won all cash... lol
 
gdwindowpane said:
When I was on Wheel of Fortune they told us that many contestants had to turn down trips they won because they didn’t win any cash to cover the tax. I didn’t have that worry, I won all cash... lol
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SWMBO works for a major beverage company which does quite a few promotions over the year. They have had numerous "winners" turn down prizes because of the out of pocket expenses involved.

Win a $10k Superbowl trip? Congratulations! But it'll still cost you $4k outta pocket to pay the tax man.

Lots of people don't have that $4k in their budget and have to pass on the prize.
 
wilkersk said:
Income taxes are also progressive. If you tack on a $60k windfall to the income of someone who has less than $100K in taxable income, their net effective tax rate will be significantly higher. That's because they've jumped into the 25% marginal tax bracket (the real meaning of "marginal" as applied to US income tax). - Its called the middle class screw. You make enough to actually fall into the higher marginal tax brackets and not enough to have access to all the tax dodges the wealthy have.
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I stand by my statement that you don't understand how our tax system works. The link below shows the marginal tax brackets. Assuming married filing jointly, a couple making $78k is taxed at the same marginal rate as a couple making up to $165k. For 2018, the effective federal tax rate for someone making $78k is around 11.6%; the effective federal tax rate for someone making $165k is roughly 17%.

https://taxfoundation.org/2018-tax-brackets/
 
cowman said:
For most people I'd guess 15-25% of the value of the airplane for federal. Then whatever their state requires. So you can either come up with that much in taxes and keep it or you can sell it and have that much more money to buy another one.
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That's not enough. This is not a capital gain, but ordinary income. 28% is the number I tend to use.
 
bradg33 said:
I stand by my statement that you don't understand how our tax system works. The link below shows the marginal tax brackets. Assuming married filing jointly, a couple making $78k is taxed at the same marginal rate as a couple making up to $165k. For 2018, the effective federal tax rate for someone making $78k is around 11.6%; the effective federal tax rate for someone making $165k is roughly 17%.

https://taxfoundation.org/2018-tax-brackets/
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That proves my point. 11.6% of $78k is $9,048. Hopefully, youre not being under withheld. And 17% of $165k is $28,050. That is a chunk of change!

No matter how you slice it. If you're net effective tax rate works out to 17%, and you win a $60k airplane, you've got $10k in additional taxes you owe the government. And, thats just federal! Now, can you afford to keep the plane?
 
wilkersk said:
That proves my point.
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That's not actually what your original point was. Your original post indicated that if one goes from $99k to $101k or more that they'd be in for "sticker shock." That's simply not true.
 
wilkersk said:
If your net taxable income is $99k or less, but winning a $60k prize increases it to $100k or over, you'll be in for some serious sticker shock. Chances are, if you couldn't afford to buy an airplane, you won't be able to afford to keep the prize, unless you do some serious reorganizing of your priorities.
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bradg33 said:
That's not how income taxes work.
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@bradg33 is correct on this. Tax brackets do not work by bumping the taxes on ALL of your income, only the income above the bracket line.

People may not be able to pay the taxes on a windfall of a capital good like an aircraft if they won one, but it’s not because of “tax brackets”, nor the silly notion that many people have that jumping a “bracket” raises your entire tax bill.

Let’s say there’s only two tax brackets and the tax bracket changes at $99,999. The person jumping from $60,000 to $100,000 will pay a higher tax rate on... $1. The $99,999 is still taxed at their lower bracket rate.
 
Stearman said:
So I've wondered this a lot with both the AOPA and EAA sweepstakes airplanes. It seems the winner is always a retired professional who already owns an airplane, maybe lives on an airpark, and spends their weekends on a 50' yacht in the Gulf - basically not at all the type of people I know in aviation. My theory is that the taxes and fees associated with this are so prohibitive that the only people who CAN win it are pretty well-to-do individuals. They probably end up drawing multiple winners until finding someone who has enough free cash.

Anyone care to chime in? Estimated value for EAA's Cub is $60k (no idea how they arrived at that ridiculous number, but whatever). I'm guessing at least $20k in taxes and fees to take possession?
Click to expand...

Depends on how and we're you register it, $0 if you're smart
 
I don't know the brackets, nor do I really care. But, let's say I hit the 20% bracket at $150,000, the next bracket is 25% at $200,000 I make $199,999 in taxable income in a year. If I win a $60,000 airplane, I'm going to pay taxes on $59,999 at 25%, not my marginal tax rate.

I pay my taxes and pretty much don't complain about it, but I cringe when I hear politicians say they want to raise taxes.
 
Fortunately the cost for the rest of us of buying raffle tickets is deductibleo_O

I never could figure out the tax planner's logic where if two people put money into a pile and one takes it all thru some action that it becomes a taxable transaction for income but not for a corresponding deduction.
 
bradg33 said:
That's not actually what your original point was. Your original post indicated that if one goes from $99k to $101k or more that they'd be in for "sticker shock." That's simply not true.
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I think you need to go back and re read my post. the increase is $60k, not $1.00.
 
PaulS said:
I don't know the brackets, nor do I really care. But, let's say I hit the 20% bracket at $150,000, the next bracket is 25% at $200,000 I make $199,999 in taxable income in a year. If I win a $60,000 airplane, I'm going to pay taxes on $59,999 at 25%, not my marginal tax rate.

I pay my taxes and pretty much don't complain about it, but I cringe when I hear politicians say they want to raise taxes.
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Quite correct, but the “bracket” isn’t why someone who wins an item, suddenly can’t afford their taxes, the capital item being won can’t easily be split so they can keep a their portion and send the IRS its portion, which is the real problem.

If someone handed you $60,000 in cash as winnings, you’d just pay the taxes on it and keep the rest.

Progressive scaling of the tax system isn’t the problem when people win cars, boats, houses, airplanes... that causes them not to be able to pay the taxes on them. They’ve been withholding at a rate that’ll pay their usual tax rate.

If... they win very early in the tax year, and they immediately bump their withholding up to pay the tax on the item they won, which assumes of course that they live on less than they make, perhaps have some real emergency fund savings, or a combination of the two, maybe they can hold on to the item they won.

If they have a business tied to their personal taxes like a sole proprietorship and are paying quarterly taxes, they’ll need to do a very big jump in those, same as changing their withholding if they’re an employee.

As far as politicians always wanting taxes increased, that’s completely normal when we’re tens of trillions in debt. Not even the so-called fiscal conservatives dare suggest slashing government to the bone to pay off all debt and then operate the government on only what’s being collected. That doesn’t keep them in the fine manner to which they’re accustomed.

Plus we’re well beyond the point wheee taxing everyone at 100% would pay off the debt before we all starve to death. The whole system is broken. Fake valuations based on debt ratios, not anything real. Inflation is just a way to rob anyone who can’t earn a raise higher than the inflation rate every year.

This same silliness happened when Oprah gave a bunch of people free cars. Most of them couldn’t afford the taxes on the income the car represented and sold the cars. Oprah tried to come up with a way to pay the taxes, but that just raised the winners income again. So they owed even more.
 
wilkersk said:
I think you need to go back and re read my post. the increase is $60k, not $1.00.
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Yes but you have $60k that you wouldn’t have had otherwise. You’re not worse off. Even if the tax rate you pay on the $60k is 50% - you’re still $30k better off - nothing happens to the rest of your income or taxes you pay.

It just sucks to write a big check to the IRS, but pocketing the rest of it should make up for it.
 
deonb said:
Yes but you have $60k that you wouldn’t have had otherwise. You’re not worse off. Even if the tax rate you pay on the $60k is 50% - you’re still $30k better off - nothing happens to the rest of your income or taxes you pay.

It just sucks to write a big check to the IRS, but pocketing the rest of it should make up for it.
Click to expand...

The problem in the case of an airplane is, you can’t pocket it until you sell it. The value is trapped in a depreciating asset.
 
denverpilot said:
Quite correct, but the “bracket” isn’t why someone who wins an item, suddenly can’t afford their taxes, the capital item being won can’t easily be split so they can keep a their portion and send the IRS its portion, which is the real problem.

If someone handed you $60,000 in cash as winnings, you’d just pay the taxes on it and keep the rest.

Progressive scaling of the tax system isn’t the problem when people win cars, boats, houses, airplanes... that causes them not to be able to pay the taxes on them. They’ve been withholding at a rate that’ll pay their usual tax rate.

If... they win very early in the tax year, and they immediately bump their withholding up to pay the tax on the item they won, which assumes of course that they live on less than they make, perhaps have some real emergency fund savings, or a combination of the two, maybe they can hold on to the item they won.

If they have a business tied to their personal taxes like a sole proprietorship and are paying quarterly taxes, they’ll need to do a very big jump in those, same as changing their withholding if they’re an employee.

As far as politicians always wanting taxes increased, that’s completely normal when we’re tens of trillions in debt. Not even the so-called fiscal conservatives dare suggest slashing government to the bone to pay off all debt and then operate the government on only what’s being collected. That doesn’t keep them in the fine manner to which they’re accustomed.

Plus we’re well beyond the point wheee taxing everyone at 100% would pay off the debt before we all starve to death. The whole system is broken. Fake valuations based on debt ratios, not anything real. Inflation is just a way to rob anyone who can’t earn a raise higher than the inflation rate every year.

This same silliness happened when Oprah gave a bunch of people free cars. Most of them couldn’t afford the taxes on the income the car represented and sold the cars. Oprah tried to come up with a way to pay the taxes, but that just raised the winners income again. So they owed even more.
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I didn't know that Nate, people who have no money can't pay taxes on a won asset, who woulda thunk?;)

As far as raising taxes, the Laffer curve suggests that there is basically a sweet spot where if you go beyond it, raising taxes will actually result in less taxes being collected. We see this each pretty much each time tax cuts have been implemented, despite all the whining, collected revenues actually increased after the cuts.

When we had a business going, we used to run into this issue occasionally. A valued employee would need money for some life emergency, we would give them the money plus the additional tax they would pay. It was pretty easy to keep them out of tax trouble as we could deduct the additional tax from their pay check. As far as the Oprah solution, you can't fix stupid. About half the population has below average intelligence and will spend any money given to them to pay taxes on trivial things rather than save it for the impending bill, while it does raise income and subsequent taxes, all the money isn't owed in taxes on the income and it can be in a way where the recipient ends up at break even. Oprah should have made each recipient do an estimated payment for taxes and cut the checks to the treasury in their names.
 
deonb said:
Yes but you have $60k that you wouldn’t have had otherwise. You’re not worse off. Even if the tax rate you pay on the $60k is 50% - you’re still $30k better off - nothing happens to the rest of your income or taxes you pay.

It just sucks to write a big check to the IRS, but pocketing the rest of it should make up for it.
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If you can't afford the taxes, then chances are very good you can't afford the airplane.
 
nrpetersen said:
Fortunately the cost for the rest of us of buying raffle tickets is deductibleo_O

I never could figure out the tax planner's logic where if two people put money into a pile and one takes it all thru some action that it becomes a taxable transaction for income but not for a corresponding deduction.
Click to expand...

Only because of the "wink wink" view of the Foundation that you actually don't have to PAY ANYTHING for the tickets. Any money you give with your ticket is purely a donation.

On the other hand, if you HAVE to pay money to get the ticket (like, let's say with the WOH raffle), the deduction is ABSOLUTELY NOT DEDUCTIBLE. Any benefit (even the chance to win something) negates it being a charitable contribution.
 
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