A NEW INCOME

A New Income Q&A

Q: How Do I Pay Taxes On A Vehicle Prize I've Won In California?

I entered a raffle last year in California, where I live, and won a new $30,000 custom motorcycle two weeks ago. We do not have a cash option, but probably will sell the bike shortly after picking it up. How do we pay the taxes on this vehicle? I've read that the dealer sends us a 1099 form for our federal tax returns, but what about state income taxes? Is there a similar state form used to declare this vehicle as "income?" On a $30,000 vehicle, how much cash will we have to present to the dealer for other expenses like registration, doc fees, title, etc... in California? Are there any legal loopholes we can use to minimize our tax liability on this prize? The proceeds of this raffle did go to a bonafide 501(c), non-profit organization.

A: The Form 1099 value is what you'll pay the tax on, both to the Feds and CA. You'll show that amount on the "Other Income" line on your tax returns. It would probably be a good idea to make an estimated tax payment as soon as you sell it so you don't pull up short on tax day. Use Form 1040-ES for the Federal tax. CA has a similar form, I don't recall the number but you can get a copy on the FTB website. The amount of the payment would be based upon your marginal tax rate but 25% of the Form 1099 amount should be safe for most folks plus another 8% to CA. You won't pay the dealer anything for registration fees or sales tax but you will pay those if you register the vehicle. You probably will have to register it in order to title it in your name in order to sell it so there may not be any way out of that. The sales tax will be whatever it is in your home city or county, up to around 8.25%. About the only thing you can use to minimize the tax burden is the cost of the raffle ticket. Congrats on the win. I think...

A New Income Q&A A New Income