While Ravens Quarterback Joe Flacco is celebrating the Superbowl win and his MVP award, he will have to remember that there is another group that will be eager to celebrate his win—the IRS. A recent Forbes article discusses the tax issues at hand for the NFL champion.
As MVP of the Superbowl, Flacco was awarded a 2014 Chevrolet Corvette Stingray. The car, worth an estimated $60,000, has tax implications that depend on whether or not Flacco keeps the sporty vehicle. If Flacco decides to keep the car, he will owe around $26,000 in income taxes. On the other hand, if Flacco decides to donate the car, the tax questions become a little more complicated.
If he were to decide to donate the car to charity, there are two options that he may select with differing tax implications. He could either accept the car and donate it to charity, or he may direct Chevrolet to donate the car directly without first receiving the vehicle. While it may seem like the options are the same, they do have subtle distinctions that could mean several thousand dollars difference for Flacco.
If Flacco elects to have Chevrolet donate the car directly, then the IRS will view the car as not existing, which means it will not have to be reported as income. The IRS website details four rules that must be met in order for an award not to be reported as income. Below is a direct list from the Forbes article:
“1. The prize or award was made primarily in recognition of religious, charitable, scientific, educational, artistic, literary or civic achievement;
2. The recipient was selected without any action on his part to enter the contest or proceeding;
3. The recipient is not required to render substantial future services as a condition to receive the prize or award; and
4. The prize or award is transferred by the payor to a government unit or [charitable organization] pursuant to a designation made by recipient.”
Flacco’s award qualifies because the MVP award is designated as a civic achievement that a player receives for doing his job, and that does not tie the recipient to the sponsor in the future (in this case, Chevrolet). The fourth rule is where the distinction between the first option and the second option is clear. If Flacco does not receive the car and instead asks that the car be transferred directly to the charity, the quarterback would be able to exclude the income from his tax return. On the other hand, if Flacco receives the keys and then donates the vehicle, it will cost him.
If he does receive the keys, he will have to report the $60,000 car on his tax return, which will be added to his adjusted gross income, limiting the amount that can be deducted to $1,800 as an itemized deduction. There are other calculations that would go into how much exactly could be deducted, as the outcome depends on whether the charity retains the car or sells it.
In the meantime, Flacco can appreciate the victory and make his tax decisions a little later.Segal, Cohen & Landis 9100 Wilshire Blvd. Ste. 601E Beverly Hills, CA 90212 (310) 285-3999