Whenever I watch a game show (Jeopardy and Minute to Win It are popular at our house) or see how much the latest lottery winner has won, I always cut the winning amount in half -- that's basically what they'll end up with after the taxman takes his cut.
SmartMoney recently detailed all the things game shows don't tell you, including the fact that the IRS sometimes ends up just as big of a winner as the winner does. WalletPop hunted down some game show winners and asked them about their experience and if they could offer any financial advice. Here's what they had to say and what aspiring game show contestants should expect:State Taxes
New York resident Ann Middleman placed second on Jeopardy and won $2,000 in 2008. But when she received her check, she found it was considerably smaller than she expected. Middleman says she didn't realize that the show would take out California state income tax (the show is taped in Los Angeles) because she doesn't live in California. She tried to file with the state to get back the $113, but after being unable to get through that bureaucratic maze, she bought TurboTax for $43 and got back most of the withholding, but it still cost her about $75.
The IRS Wants Its Money First
The IRS takes its cut right off the top of any winnings, says Kathleen Burns Kingsbury, who trains money coaches. Winning $1 million is really winning 60% of $1 million. Well, the actual tax rate depends on your tax bracket, but a big windfall could push you into a higher tax bracket that can easily mean that half of any winnings goes straight to Uncle Sam.
Prizes Are Taxed as Income
Winning a motor home worth $50,000 on Wheel of Fortune 10 years ago sounded great at the time to Andrea Carla Michaels. In total, she left the show believing she had won $68,000 in cash and prizes -- a $50,000 motor home, $11,000 in cash, and a trip down the Amazon river valued at $7,000. She ended up selling the motor home for $30,000 and then had to pay the state of California taxes on that $30,000 as unearned income because she never took possession of the motor home.
Everyone's Now Your Friend
When Paulara Hawkins won $740,000 in 2006 on the game show Show Me the Money, it changed her life. She bought a new home, a new car, and she now had the financial freedom to write. It also brought requests from family and friends for money, which Hawkins says she fulfilled. She says gave away about $25,000 and while she didn't get a penny back, she says she'd do it again because she considers it a blessing. Her money lesson: Expect to give away some of your winnings to family and friends, or at least be ready to be asked for money.
Have a Financial Plan
Before even going on a game show, Wheel of Fortune winner Stephanie Burns recommends knowing what you'll do with any money you win so that you're less anxious and feel more grounded if you do win. Burns won $20,000 last year in 20 minutes on the show, and knew ahead of time that she was going to start a business. She had expected to use credit cards and savings to start her business, but her winnings allowed her to start it without any debt.
Prize Values Are Often Inflated
As Michaels discovered with her motor home and Amazon trip, non-cash game show prizes aren't just considered income but they're often overvalued at that. And taxes will have to be paid on that inflated valuation. The MSRP of a 2011 Chevrolet Traverse is $29,999 -- which is what the game show will use to value it -- but Edmunds.com values it at $29,076 for most buyers. That's an extra $231 in taxes for someone in the 25% federal tax bracket.
If you don't have the cash to pay taxes on the prize you just won, it isn't really much of a prize. Winners can also decline to accept a prize they don't want, as Michaels did with the trip.
Saving the money and not going on wild spending sprees are some of the most common advice from game show winners. What advice would you give them? Tell us in the comments section below.
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