Tax is weird. There's a recent-ish news story in which Oprah Winfrey gave away cars, but the recipients ended up having to pay $7000 in taxes or forfeit the cars. That's not very nice, obviously, to win something and be unable to keep it. But then, I thought, if the prize people were nice they could cover the tax too. But they couldn't, could they? Because if they also gave you the $7000 to cover the prize tax, you'd have to pay another $1750 or so in tax. And if they gave you that too, you'd have to pay another $450ish. And if they gave you that as well, it'd be another hundred and a bit. All very Zeno's paradox.
The article also suggests that you could sell the car and pay for the tax with the profits. Surely that's not the correct way to model what happened? If you sell the $28000 car and only get $12000 for it, then your 'stock' of the car has earned less than expected - your total profit is then only $12000, meaning you should be paying tax on that amount, not on the $28000. If you bought the car for $28000 to sell, and sold it for $12000, you'd certainly be able to write that off as a $16000 loss, so 'buying' it for $0 and selling it for $12000 must surely leave only $12000 taxable. (Or maybe you pay the $7000 original tax and write off the $16000 loss later?)
[10:37]
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