Starwood Preferred Guest - I Won the World - But can't afford it!!!

I won the Weekly First Prize of an eight-day/seven night International trip for two adults to the Westin Regina Resort, Puerto Vallarta and 120,000 United airline miles. That sounded great until I discovered that the trip is supposedly valued at $4330.00 and I would be taxed on that amount. According to my accountant, state and federal taxes would be about $1428!!!! He told me that it would be possible to deduct any gambling losses that I have incurred throughout the year, but I don't really gamble and therefore don't have any!!!

If you factor in meals, entertainment, airport transfers and parking, and drinks, I am sure my free trip will cost me $1700 - $2000.

I called and asked if I could just take the miles, as there are no substitutions allowed for the hotel. I was informed that the miles would be deposited in my account and I could do whatever I liked with them. Unfortunately, I would still be taxed on the whole package.

It looks like I will be declining the prize as I already have enough expenses. That means that someone else will have a chance to win this free trip.

I hope I didn't use up all of my good luck on this sweepstakes, as I would love to win something later down the road when I am (hopefully) a little more financially stable.

I have a few more days until I have to let them know what I am going to do. Any suggestions???

Deleted by SAPMAN

[This message has been edited by SAPMAN (edited 11-20-2000).]

[This message has been edited by SAPMAN (edited 11-20-2000).]

I would be interested to know if this is transferable. Please let me know, maybe we can work something out.

I left out one important detail. The trip is non-transferable... they will not even consider immediate family members. I must check into the hotel with my SPG card, and the miles must be deposited into a United Plus account in the same name.

I'm looking at my award notification right now. "Please note that the prize destination/hotel accomodations are non-transferable and are valid only at the property indicated".

Taxes do apply. sigh.

birdstrike

Let me win!!!!!!!!!!!!!

Please..... http://www.flyertalk.com/forum/smile.gif

I believe some recent IRS rulings stated goodies of this type should be valued as the nicer "fair market" value rather than a sum of the "y" fares, the hotel rack rate values etc that is easier to do (and also loudly advertise). Do the math and ask a good tax accountant for a (re)evaluation as to your proper tax liability.

You might want to talk to your accountant again (or get another accountant).

I've heard of cases like this where the taxability on something like this would be based not on the stated value of a prize, but rather the "real world value" (there's probably an official term for that), which is what a reasonably prudent person would be willing to pay.

$4000+ value sounds pretty high, so they must be using some pretty high valuations for the miles and hotel. I just took a weeklong trip to that same hotel just last month and it cost nothing near that.

The Westin PV is currently offering a special rate of $89 per night (with double points). My SFO-PVR coach airfare cost us around $260 apiece.

So my total air/hotel costs for the two of us was under $1200. Obviously, your airfare would differ from MA, but you could use Travelocity to find the lowest airfare available and use that as the tax basis.

By the way, the hotel is really very nice. But don't let me sway you, since I'd love to have a chance to win in the second-chance drawing. http://www.flyertalk.com/forum/smile.gif

This just makes us non-Americans feel superior (and I'm not talking about 'democracy' in action in Fla).

In the UK, we wouldn't be taxed on a prize like this. Such a pity that those in control won't let us odd types who happen to live outside the US enter the competition!

yes, when they do the Hotel Stay, its the Rack Rate of the hotel. If you are taxed at the "value" its the Rack rate. If its at fair market value, you will be able to get a much lower rate.

Maybe you could get a date for the trip and go to travelocity or some other site and price the trip there. Print out the prices and save it as evidence as to the value of the prize. It has to be lower than the stated value.

Good Luck
Jay

Originally posted by JayBrian:
Maybe you could get a date for the trip and go to travelocity or some other site and price the trip there. Print out the prices and save it as evidence as to the value of the prize. It has to be lower than the stated value.

Good Luck
Jay

This seems like a very valuable and most viable suggestion. I will keep this in mind when I win the big one.



------------------
I fly therefore I am!

Another sujestion.

Air miles are valued at 2 or 3 cents a mile you can see what UA charges for them.
Take the miles and then donate some to charity as a tax write off.

If they can tax you on them then you should be able to use donated air miles as a tax write off. You then keep 65% of the miles with no tax liability!

Got to love the IRS, worse than the Gastapo ever was. The unfortunate thing is that with the IRS the average US Citizen thinks they live in the freest country in the world http://www.flyertalk.com/forum/biggrin.gif

edited

[This message has been edited by cigarman (edited 11-20-2000).]

"Air miles are valued at 2 or 3 cents a mile you can see what UA charges for them. Take the miles and then donate some to charity as a tax write off."

Nope. IRS does not allow that.

Of course not, when has the IRS ever used the same standard for themselves as they use for others!

Seriously, get an accountant who knows that

1) You only have to be taxed at fair market value on winnings no matter what the prize operator tells you about the value of the gift.

2) You can deduct the lower of your cost basis or fair market value for charitable contributions (but unless you are filing schedule A it will not count).

Don't just knuckle under and pay tax you don't owe!

Thank you all for your great advice. I got a new accountant who told me about how to document the “real world value” of the trip. I checked out every major airline’s airfares, and checked the hotel for various dates. I also research almost every vacation package dealer around. The package prices I came up with varied from $3400 (northwest vacations) to $1400 (continental airlines vacations) for various dates.

The airfares I came up with varied from $420 - $1100pp depending on dates and carriers. The Hotel ranged from $85 - $300. I gave all of this documentation to the accountant who came up with $1650 as the “real world value”. He then figured my tax to be $561.

I then looked my travel budget for 2001. Before “winning” this trip I planned on $6000 for airfares and hotels. This includes an already paid for 7 day all-inclusive trip to Beaches Turks and Caicos ($999 x 2), 4 trips to Las Vegas with air and hotel ($1000 x 2), and four trips to Seattle to visit family ($1000 x 2). Each year I also make at least Silver Elite Status on an airline mainly to reap the first class benefits. The last few years, I have been Gold on Continental, and with my current travel plans/budget will obtain it again this year. I never pay more than $220 per round trip ticket, and if I am forced to go when this fare is not available I use my miles.

Currently my frequently flyer accounts contain a combined total of over 250,000 miles, and I consider the Gold Elite status to be far more valuable than a seven day vacation.

After considering this information I have decided that the benefits would not outweigh the liabilities and that someone else would be far more excited to win this prize from the Win the World Sweepstakes.

As of tomorrow the trip goes into the Second Chance Drawing and I sincerely hope that someone from Flyertalk wins. Thank you all for your advice. If it were not for Flyertalk I would still be going away maybe twice a year, and probably would never have experienced 1st class in my lifetime. Now I fly up front about 80% of the time.

I wrote this post to give you an idea of the decision I was faced with, I would be interested in hearing if you believe that I made the right decision. It was not an easy one to make.


[This message has been edited by twapaul (edited 11-26-2000).]

if your tax liability is $561 then at least for $561 you can have 120000 UA miles...that is almost 5 freebies domestic or an international first. So your 5 domestic freebies cost $113 each after you pay the tax...this is even if you don't show up in Mexico. I would take the prize, pay the tax, and use at least the miles, get to mexico if it pans out that way.

Of course, it is generous towards others to put the prize back in the pot...nothing wrong with that...but if the idea is to make a value decision I would most definitely take the miles

The problem with taking the miles is that miles do not earn miles, and I would lose elite status for next year. Of course I could increase my budget, but at 8% of my base salery for just air and hotel, I am already pushing it as it is.

twapaul- Did you by chance also consider the "ticket offset" approach I'd emailed you about as well? http://www.flyertalk.com/forum/smile.gif No good?

twapaul- Did you by chance also consider the "ticket offset" approach I'd emailed you about as well? http://www.flyertalk.com/forum/smile.gif No good?

Doc,

Thanks for the ticket off set approach; it is a great idea and one that my new accountant also suggested. Unfortunately, I file a joint return and my better half was not so enthused by the scenario. Also, the accountant also advised me after looking at last year’s return that the fewer flags on my return the better at this point.

but those ua miles are good at least three years, and an extension only takes one flight in those three years.....bank the miles on UA still sounds like a winner, dribble them into your use...life may change as well over those years, also you could use them for family or friends without affecting elite status for yourself

As an absolute last recourse, is there any chance that you could at least have the satisfaction of donating the prize to an appropriate tax exempt charity of your choice, so that they could raise some much needed funds via a raffle or something, perhaps even in your name as an "honor."

Starwood has seemingly been pretty community/charity oriented in the past! After all, you won it "fair and square" and it truly seems like such shame to give it back! You have to be "well off" to win? http://www.flyertalk.com/forum/frown.gif

Wishing you the best! http://www.flyertalk.com/forum/smile.gif

-Mark

It's not exactly in my area of expertise, but I'm not sure the "donating it to a charity to be raffled off" is a viable (i.e., cost-free) solution.

Unless Starwood would let you do it informally (i.e., by simple suggestion that they award the prize to the home for indignant cats, for instance), which may be what doc's suggesting, you'd have to accept the prize in order to designate it, so you'd still have to pay the tax, say $561.

You can't deduct the fair market value of the prize as a charitable deduction, so at best you might be able to somehow deduct the amount you paid in taxes (i.e., the $561).

You could deduct it only if you forego the standard deduction (assume wife only, married filing jointly = $8050). So, it makes sense only if you already have lots of deductions.

However, if you have a high income, (over $126,600, I believe), you begin losing full value of the deductions. So you effectively cannot deduct the full $561.

But, let's assume you have enough other deductions to go over the $8050 bar, and don't have so high an Adjusted Gross Income that you begin to lose the value of the deductions. You get to take the full $561 and have it count. What does it count? As a deduction from taxable income, not as a credit. Assuming you're in the 31% bracket, that means it reduces your income tax by only $174. That means you're still $387 out of pocket.

(Of course, you still have a warm and fuzzy feeling for donating the prize to yoiur favorite charity, and that can't be monetized.)

[This message has been edited by Counsellor (edited 11-26-2000).]

I also explored the donation path with the accountant. My tax would not be based on my "real world value" estimates because I would not be taking the trip. The tax would be based on the "Win the World" 1099 value of the trip ($3430). The 120,000 frequent flyer miles are valued in the Win The World rules at .0215 cents a mile. This would only bring the value of the 120,000 mile donation to $2580. That would mean that I would still be paying $289 in taxes, without gaining any benefits (except that warm feeling of making the donation).

Yes, Counsellor, that was my essentially my thought, that Starwood would/could perhaps "redirect" the prize/award to where there would be no tax due to twapaul - or for that matter to the charity selected!

First of all, congratulations! Maybe this is the start of a winning streak for you!
I was faced with a similar situation when I won a grand prize travel trip I did not want to take. In my case I donated the entire trip to the Make a Wish Foundation who raffled it off and used the proceeds to send kids on their "wishes". I came out even.
I know how you feel. Knowing the my "prize" did some good for others was a consolation. And keep looking on the bright side that the "sweepstakes travel godess" has smiled on you and more upgrades and winning might be in your future http://www.flyertalk.com/forum/smile.gif

I'm pretty sure that if you donate the trip to charity, you get to deduct your basis. That's the amount of income you recognized (the "real world value"), not the tax you paid on said income. (Similar to if you donate $1,000 cash you get to deduct the full $1,000 not just the $280 you paid in taxes on said cash.)

But otherwise Counselor is correct: if your (combined) income is high enough, you may lose some of the value of the deduction even though you have to recognize the full amount as income.

OMNI, for Counsellor who writes...

Unless Starwood would let you do it informally (i.e., by simple suggestion that they award the prize to the home for indignant cats, for instance...)

That makes me purr!!! Those poor shelter workers could use a vacation for saving hundreds if not thousands of lives.

Good luck on your prizes, whatever you do with them.

(Sadly, I only won a rock! http://www.flyertalk.com/forum/frown.gif )

The Westin Club Regina in PV is an awesome resort. Stayed there two years ago on a timeshare exchange (they have a hotel side and a condo side). Only bummer was they only have one-bedroom accommodations :-(