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The Gift That Keeps on Giving - Gift Bags

7/18/2013

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By | Jonathan Nehring | Disclaimer
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Last night, athletes across the globe took center stage in ESPN's award show, The ESPY's. Similar to any other awards shows, various guests received gift bags at the event. The ESPY's gift bag has become such a staple to the show that it has its own webpage detailing all the contents inside.

Not to be outdone by the kind hearted folks at ESPN, the IRS will also be so kind as to give a gift to all of these gift bag recipients – a large tax bill. According to the IRS, a gift bag is considered taxable income. The dollar amount that is taxable is the fair market value of all the contents of the bag. In respect to the ESPY's gift bag, the fair market value is estimated between $25,000 - $30,000. This means that professional athletes making over $400,000 are members of the elite 39.6% marginal tax bracket club and will owe the IRS around $11,800 for the gift bag alone. In addition, the ESPY's were held in Los Angeles, CA, home of a marginal tax bracket of 13.3% for any income over $1,000,000. Therefore, any millionaire athlete will also receive a California tax bill for the income they “earned” via the ESPY's gift bag for approximately $4,000. 

In total, the "gift" from the ESPY's will also include a tax "gift" of approximately $15,800! 
Still want that gift? 

Check out the list of items inside the gift bag here and see if it’s still worth taking. If it isn’t, there are some options.
  1. You can donate the gift to charity. The IRS will give you a tax deduction if you donate the gift bag to a qualified charitable organization. 
  2. You can decide to not redeem many of the vouchers and gift certificates inside the bag. According to the IRS, a person accepting AND redeeming a gift certificate or voucher has “earned” taxable income. Therefore, if you don’t redeem that gift certificate, it could be argued that you never earned that income. If you look again at the list of gifts given in the ESPY's gift bag, many of them are in the form of a gift certificate or voucher. I would suspect this isn’t by accident.

For all the massages, flights, and hotels provided by teams, would you take a free wooden bowtie, scalp shaver, Keurig, and sailing lessons for a $15,000 tax bill? Comment below!


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