The Cost of Winning

It’s been said death and taxes are the only things to be sure about in life. It’s easy to reason that Gabrielle Douglas wasn’t thinking of either of those things on the Olympic podium earlier this month, especially at the age of 16. But like any other American teen with a part time job (well, career) she has to pay taxes on her earnings. And how! According to yahoo.finance.com, a gold medal with a cash prize of $25,000 is taxed at 35%. This means the taxes on each gold medal is $9,000. According to Yahoo, Gabby, with her 2 gold medals, owes Uncle Sam around $18,000, while Michael Phelps, who over the course of his career has won 18 gold medals, has paid $162,000 to Uncle Sam in the past 8 years. Yahoo’s report on this matter has created uproar against taxation across the nation, with Florida Senator Marco Rubio proposing an amendment to the tax code to make Olympians, and their winnings, tax exempt.

The issue with Yahoo’s reporting is that they report the tax rate for a gold medal at 35%, which would mean that the individual being taxed would have to earn over $388,500 a year. Certainly, with the endorsement deals that follow an Olympic victory, Gabby and Michael will likely qualify for that tax bracket. But what about the winners who won’t cash in on that kind of fame?

Prize winnings, Olympics or otherwise, have to be reported on tax returns and sometimes the taxes end up costing you more than the winnings. But it’s not just cash prizes that qualify either; you’ve got to pay the taxes on the fair market value of any property you win.

Ever hear of the HGTV Dream Home giveaway? Every year, Home and Garden Television networks has a drawing where one lucky winner wins a mansion, a cash prize of over $100,000, and a new hybrid car. The sweepstakes is entered by thousands every year and can be a life changer for the winner.

What many don’t realize is that a lot of winners can’t afford to pay the taxes on their prize. Take, for example, Don and Shelley Cruz who won the 2005 HGTV Dream Home giveaway. The home they won was located in Tyler, Texas and came with 6,000 square foot lake front mansion, a guest house located on the lake, a brand new hybrid SUV, and a cash prize of $250,000. The cash value of the prize was nearly $2 million dollars. Mr. Cruz was a stay at home dad while his wife, Shelly, was an administrative assistant who had gone back to school to become an accountant. Within 2 years, the home they won and the prizes had to be sold at auction, by that time the Cruz’ were reportedly nearly bankrupt.

In an interview given with about.com columnist, Sandra Grauschopf, Don Cruz admits that, even though he and his family auctioned off the million dollar dream home, he still enters the sweepstakes every year hoping to win again. He called the experience life changing, and for many winners, Olympians included, winning a prize of such caliber can be life changing indeed.