For many sweepstakes enthusiasts, winning a new car is a dream come true. However, if you aren't prepared for the consequences, your dream could turn into a nightmare.
Sweepstakes winners in the United States are expected to pay taxes on their prizes, which are classified as income for tax purposes. Before you turn down a car because of the taxes you'll have to pay, consider these four ways to make your car more affordable.
Seek advice from a tax expert
Consult a tax professional as soon as you get the winning email. That way, you can begin planning for your taxes as soon as possible. Your CPA or accountant will provide you with guidance that is tailored to your situation and is critical for being adequately prepared.
Check the market value of your prize
The fair market value (FMV) of any sweepstakes prize, even a new vehicle, must be taxed in the United States. The FMV may be lower than the sweepstakes' approximate retail value (ARV). You can dispute the amount on your sweepstakes taxes if you see a discrepancy between the market value and the ARV.
Maximize your deductibles
Assess your finances to see whether you qualify for any tax deductions or exemptions that may lower your total taxes. To further help offset some of the costs, you can make a charity donation. Your tax advisor may be able to help you identify additional deductions.
Consider a secured car loan
You can consider a secured loan to cover your taxes after you've taken possession of the vehicle. When you have a brand-new vehicle, you can get a very low interest rate on a new car loan. You don’t have to take out a loan on the whole purchase price of the car because you're just looking to get enough to pay off the taxes you owe. You can make smaller monthly payments and pay off your loan faster.
