Taxes

After I tell people about the win, people either ask how the car is or if I can bring it over (I then have to explain I don't actually have it yet), or they ask if I'm taking the car or the cash if they have a little better understanding of how raffles work.

If this were three years ago or even two years ago I probably would have taken the cash. But at this point in my life I'm in a position to be able to take the car. I did, after all, enter the raffle to win a car. I knew there would be a fair amount of taxes involved, but I wasn't sure of all the ins and outs of it. After speaking with an accountant and a financial advisor, there are more than I had thought - there is state sales tax (6% in PA), federal income tax, and if I understand it right state income tax. The vehicle luxury tax has been gone for a few years now, and local income tax is for earned income only, so those are non-issues. The sales tax and an initial federal withholding (25% according to the PCA Raffle rules) will be due up front upon taking delivery of the car, and then the remainder of the federal income tax and all of the state income tax will all be worked out when I file next year.

The car as configured for the raffle is worth in the neighborhood of $92,000 - $93,000. That amount will show as income for me this tax year, which will also push me into the next bracket. All said and done it looks like I'm looking at a minimum of $30,000 in taxes and probably closer to $40,000 worse case. Still not a bad deal overall though - buying a new 911 for 40 cents on the dollar - so don't mistake this as complaining :) The only thing that really gets me is that it seems like the state is double-dipping, I have to pay income and sales tax on the same thing - about 9% in total.

After working some spreadsheets to figure out all of these costs I also did a comparison to the cash prize just to convince myself that the car is the right decision. It seems that after all the taxes are accounted for I'm still ahead by taking the car by $12,000 - $14,000. Of course I know the car is a depreciating asset and the cash is appreciating (theoretically anyway, if it's invested). But still, that's enough of a difference to satisfy me.