A: Congratulations on the win of the car. The fair market value of the vehicle will be ordinary income to you. There really isn’t too much you can do to reduce the tax consequences.
The following are some of the items involved:
- You will want to watch the fair market value of the vehicle that is reported on the 1099. Sometimes the value reported on the 1099 is considerably higher than the actual fair market value. This is especially true in the case of a vehicle where the sticker price is considerably higher than the real value. I would consider comparing the 1099 value to the Bluebook value. If there is a big difference, we might want to re-discuss this.
- You do not need to worry about any penalty for underpayment of estimates as long as the amount that you have withheld from your paychecks is greater than last year’s tax liability. If this is the case, you should not have to worry about underpayment penalties.
- If you are not in alternative minimum tax (AMT) and itemize deductions, you might want to consider paying your state income tax prior to the end of the year. This will allow you to have that itemized deduction in the 2012 year as opposed to 2013. In addition to this, there is some discussion of changing the tax code and eliminating the state income tax deduction. If this should happen, it would be best if you could pay that this year. It’s hard for me to give advice without seeing your actual tax situation regarding the AMT.
- This is considered gambling winnings so, therefore; should you have any gambling losses you should keep track, in that, they would be deductible. Keep documentation of your losses. There is a court case where tickets were disallowed because there were foot prints on the tickets. You will need to show that you actually had cash withdrawals to support the deduction.
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