Free Travel Contests and Sweepstakes - winning huge contests and taxes

I just had a curiosity question. I often see contests for say like 1 million airline miles. Now the airlines of course value these as quite a bit, like 3.5 cents a mile.
I know from reading posts about the CITI checking situation with people having to pay taxes on the bonus miles , etc.

Well what would happen if someone won one of these huge contests giving 1 million miles !? Would it be way way more of a curse/nightmare than a "win"

I mean you would be on the hook for 35000 in taxable income right ? That would be quite a bit in taxes yes ?

I just had a curiosity question. I often see contests for say like 1 million airline miles. Now the airlines of course value these as quite a bit, like 3.5 cents a mile.
I know from reading posts about the CITI checking situation with people having to pay taxes on the bonus miles , etc.

Well what would happen if someone won one of these huge contests giving 1 million miles !? Would it be way way more of a curse/nightmare than a "win"

I mean you would be on the hook for 3.5 MILLION DOLLARS in taxable income right ? That would bankrupt about any normal person. So is it stupid to even enter contests like that ? Just wondering.

Oh, how I worry about public education, these days. 1 million miles at even a stated value of 3.5 cpm, is not 3.5 million dollars. Try $35,000.

And as this has been discussed on other threads, they will often issue you a tax document giving their value. You can contest these, and show that you only got XXXX out of it, or whatever the ACV of the trip you'd be booking is.

yeah sorry I kinda typed without thinking, I did mean 35000

A quick search of this forum would have given you your answer -- if you are subject to US income taxes, then you must pay taxes on your winnings.

The sponsors who offer such large prizes will report your winnings to the IRS, so there is no getting around the reality. If you believe you cannot pay taxes on a large win, then you have the option of not entering, or declining the prize.

The sponsors who offer such large prizes will report your winnings to the IRS, so there is no getting around the reality. If you believe you cannot pay taxes on a large win, then you have the option of not entering, or declining the prize.

I think you're doing a bit of a disservice to the OP with this response.

I won a Wheel of Fortune roadshow prize in the 90's, that valued a "Deluxe Hollywood Trip", valued at $5000. In fact, it was two UA coach seats, a 3 star hotel for a couple of nights, tour of a studio, and seats at a Wheel of Fortune show.

In reality, they probably spent $300 for both people to go. I certainly would have argued that the ACV was not even close to $5k. Luckily they never issued any tax documents.

Telling someone just not to take the award is shortsighted.

Now you've aroused my curiosity....

1,000,000 FF miles? That's worth a question to a skilled tax accountant. Could they be rendered for taxes incrementally in the year of their actual use, since for practical purposes, you have nothing until you use them?

Now you've aroused my curiosity....

1,000,000 FF miles? That's worth a question to a skilled tax accountant. Could they be rendered for taxes incrementally in the year of their actual use, since for practical purposes, you have nothing until you use them?

I somewhat recall the other threads on this. I believe it would be the same as if you had won a car. Even if the car stays in the garage, you're taxed on the whole value the first year, not just when you drive it.

I think you're doing a bit of a disservice to the OP with this response.

I won a Wheel of Fortune roadshow prize in the 90's, that valued a "Deluxe Hollywood Trip", valued at $5000. In fact, it was two UA coach seats, a 3 star hotel for a couple of nights, tour of a studio, and seats at a Wheel of Fortune show.

In reality, they probably spent $300 for both people to go. I certainly would have argued that the ACV was not even close to $5k. Luckily they never issued any tax documents.

Telling someone just not to take the award is shortsighted.

I did NOT tell anyone not to take an award.

The OP was asking about a prize with a fixed value --- in this case miles. Not about a trip with a potentially variable value.

Not to mention there are plenty of threads on this forum advising folks to value out a trip win in order to have documention to present to the IRS in the event there is disagreement over the value. That is available via search, too.

Now you've aroused my curiosity....

1,000,000 FF miles? That's worth a question to a skilled tax accountant. Could they be rendered for taxes incrementally in the year of their actual use, since for practical purposes, you have nothing until you use them?

Your taxes would be due for whatever year they 1099 you for the winnings.

I think you're doing a bit of a disservice to the OP with this response.

I won a Wheel of Fortune roadshow prize in the 90's, that valued a "Deluxe Hollywood Trip", valued at $5000. In fact, it was two UA coach seats, a 3 star hotel for a couple of nights, tour of a studio, and seats at a Wheel of Fortune show.

In reality, they probably spent $300 for both people to go. I certainly would have argued that the ACV was not even close to $5k. Luckily they never issued any tax documents.

Telling someone just not to take the award is shortsighted.

Not short sided at all...if you won the same trip today you WOULD receive a Form 1099 that 5 grand of income would cost between 500 and 1500 in cash out of your pocket in taxes...If you knew the prize you did win would cost 1500 out of pocket would you have taken prize? At least it would be something to consider?

There's a lot more discussion of taxes and frequent flyer miles elsewhere in the forum, but as mentioned above, any taxes due are base on the actual value, not the value put on the gift by the giver.

So while someone may advertise an award as worth $5,000, all you have to claim less is have some evidence it's worth less, which you are often able to do by showing actual flights and hotel pricing for the same days.

The OP was asking about a prize with a fixed value --- in this case miles. Not about a trip with a potentially variable value.

Well, the airline may present the prize as a fixed value, but it is not. They may sell something for 3.5 cents per mile, but that doesn't mean it's worth that amount.

Say you win 1 million DL miles. They value them at $30.000, or so.

You want to take the whole family to Japan and Europe. Of course you can only go in the summer, so now it ends up costing you 500k miles each. Well, you can always leave the kids home alone. Value of buying the tickets outright $2000 each. Certainly not a $30k value.

Well, the airline may present the prize as a fixed value, but it is not. They may sell something for 3.5 cents per mile, but that doesn't mean it's worth that amount.

Say you win 1 million DL miles. They value them at $30.000, or so.

You want to take the whole family to Japan and Europe. Of course you can only go in the summer, so now it ends up costing you 500k miles each. Well, you can always leave the kids home alone. Value of buying the tickets outright $2000 each. Certainly not a $30k value.

Huh? I don't understand what you're getting at. Are you trying to say you would be required to use the whole 1 million miles on one trip?

Huh? I don't understand what you're getting at. Are you trying to say you would be required to use the whole 1 million miles on one trip?

You said that the 1 million miles referenced by the OP was of a fixed dollar value. It's not.

I was using the DL example, since we know they often come up with crazy amount of miles for awards. :)

You said that the 1 million miles referenced by the OP was of a fixed dollar value. It's not.

I was using the DL example, since we know they often come up with crazy amount of miles for awards. :)

I suppose we can discuss this back and forth until everyone else screams enough already! - lol. But the value of the miles as a prize is fixed - it is fixed by the airline that reports that value amount to the IRS. How you use those miles once you've won them has nothing to do with the amount of taxes owed on winning those miles. So, again, it is up to each individual to decide whether the tax bite is worth it to him/her to enter a sweeps or to decline the prize. It's simple common sense.

You said that the 1 million miles referenced by the OP was of a fixed dollar value. It's not.

I was using the DL example, since we know they often come up with crazy amount of miles for awards. :)

Actually flyingmama is correct in one way & you in another - or you're both in agreement ;).

The 1099 will be for the amount valued by the airline.

If you use all the miles in one year & can prove that the tickets/miles were less if you had actually paid for tickets for the equivalent amount of miles it would have cost, then the variable kicks in & you'll be able to put in for the value of what the tickets were worth, not the airline value (of course being able to show documentation of your claim of the lesser value).

If you don't use the miles in one year, then it's a heck of a lot trickier & you potentially could get stuck w/ the entire 1099 value since you're taxed in one year for the 1099, not over several years, even if it takes you more than 1 year to use up the miles. So in that case, the fixed value stays.

This happened a few years back to someone who won a AA award for several free US economy tickets. He tried to get the value of the 1099 changed by AA because he couldn't take that many trips in the timeframe in which the tickets were valid, and thus the actual value of the prize would be less. AA wouldn't budge, so he ended up declining the prize.

I'm not familiar with DL, but I'd be very surprised even at a standard award rate that int'l economy tickets go for 500,000 miles - aka, your $2K value.

Whenever anyone enters a sweepstakes, whether it be for miles or for a trip, they need to sort out whether they think they can afford the taxes if they do win, or whether the taxes would be less $$ than if they tried to book the entire trip on their own.

As always, one should check with your accountant when in doubt vs. taking tax advice on an internet bulletin board.

Cheers.

There's a lot more discussion of taxes and frequent flyer miles elsewhere in the forum, but as mentioned above, any taxes due are base on the actual value, not the value put on the gift by the giver.

So while someone may advertise an award as worth $5,000, all you have to claim less is have some evidence it's worth less, which you are often able to do by showing actual flights and hotel pricing for the same days.

I did this. I actually submitted to the evidence to the company I won the prize from, and they issued my 1099 with that value.

I did this. I actually submitted to the evidence to the company I won the prize from, and they issued my 1099 with that value.

Some will adjust before issuing the 1099 if you can provide them documentation showing the value is less. But others will just issue the 1099 & expect you to do the adjustment on your tax return.

Cheers.

I suppose we can discuss this back and forth until everyone else screams enough already! - lol. But the value of the miles as a prize is fixed - it is fixed by the airline that reports that value amount to the IRS. How you use those miles once you've won them has nothing to do with the amount of taxes owed on winning those miles. So, again, it is up to each individual to decide whether the tax bite is worth it to him/her to enter a sweeps or to decline the prize. It's simple common sense.

Common sense and the law rarely intersect. You can dispute the value of a prize to the IRS, and if you provide evidence, they will likely agree with your valuation.

I won a $2000 travel voucher a few years ago, and used it to fly to Italy. Hard to dispute since it was basically spendable like cash. I paid taxes on $2000.

Iif I had won 200,000 miles, valued at 3.5 cpm, the sponsor would have 1099ed me for $7000. But if I priced airfare and hotels for the same dates as the awards and printed them up, then I could demonstrate that the value of those flights and nights were really only $2000.

Between the nebulous 3.5 figure airlines throw around and hard receipts for those flights and hotel nights, I'd bet the IRS would go with my valuation of the award.

I don't know that you & flyingmamma are actually disagreeing. And given she's won lots of prizes over the years, I'm pretty sure she knows how it all works. ;)

FWIW - I don't think ANYONE should use tax advice & hypotheticals on a bulletin board as the final say on something but instead should consult their tax provider.

I think this thread (and ones before it) have basically covered all the variables of winning prizes, taxes owed, and whether it makes sense to accept or decline, etc, etc.

Time to move on to entering sweeps :)

Cheers.

If you don't want them, I'll take them. You can go a lot of places with a million miles;)

i wish i had this problem ive entered so many contests and i havent won jack lol