Unusual Income Can Complicate Taxes
BOSTON (TheStreet) -- IRS agents must be big fans of Oprah Winfrey. Over the years, the talk show queen has certainly done her part to push her fans into their arms.
Every time the soon-to-be-moving-on host surprises her studio audience with a new car or trip to Australia, the taxman at the Treasury Department gets his due.
|Oprah giveth -- cars, trips to Australia and televisions -- and the taxman taketh away. After an early fumble on this front, though, the beloved talk show host made she sure waved goodbye to her own tax money instead of putting the obligation on her fans.|
For most, tallying up income each tax season is relatively straightforward -- collecting W-2s and 1099s, itemizing assets and subtracting deductions. Windfalls from out-of-the-ordinary sources such as Oprah's largess, game-show prizes and even criminal activity can complicate how federal and state tax collectors eyeball your cash flow.An annual tradition for Oprah's audiences has been her annual "Favorite Things" episodes, where a throng of audience members, so excited they're nearly speaking in tongues, collect a variety of (likely donated) luxury items, electronics and big-ticket items. Digital cameras, large-screen TVs, Blu-ray players and even cars have been given out en masse. Back in 2004, Oprah became embroiled in what has been dubbed "Cargate" after giving away a minifleet of brand-new Pontiacs. Thrilled as audience members may have been at the time, the roughly $7,000 in gift taxes they were soon hit with must have been a hardship and unhappy surprise. Oprah has changed her game plan, basically adjusting her prize packages so she and her company absorb the tax hit. Otherwise, a recent trip to Australia with about 300 fans would have cost them plenty. "Most of [these shows] have now made a practice of grossing up the money and holding the taxpayer revenue-neutral on those gifts," says Mark Steber, chief tax officer for Jackson Hewitt Tax Service (JTX). "There is actually an IRS equation on how to treat that so you don't get into, 'Well, I'm going to give you $10,000, but here's $15,000, and now it's $15,000, so I'll have to give you $17,000, and so on.' The equation is very specific on how you do it and what you fold into it. You can get more elaborate with the Social Security, Medicare and state elements, but the IRS has the federal element pretty much tied down in terms of how you compute that." Oprah's employees have been in the same bind as her studio guests. This month, Oprah's media company gave all staffers a $10,000 bonus and Apple (AAPL) iPads in monogrammed leather cases. Alas, gifts from employers need to be counted as income and are subject to income and FICA taxes -- a hit that could detract upward of a third of the perk package's value.
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