OK, here's a thing I don't understand.
Why does the HO have to pay taxes on what the designer/carpenters would charge for labor?
Wouldn't this be part of their salaries, which is paid by TLC/Banyon?

[QUOTE]Originally posted by ilovethewest:
OK, here's a thing I don't understand.
Why does the HO have to pay taxes on what the designer/carpenters would charge for labor?
Wouldn't this be part of their salaries, which is paid by TLC/Banyon?[/QUOTE]

That's my thought exactly. If they are employees of Banyan then shouldn't Banyan be paying taxes on their wages? Or, if they are considered self-employed then the designers and carpenters should be paying it. Right?

Labor is not taxable. So are we paying payroll taxes? Workman's comp? I have no idea and this is absurd. We can be taxed for supplies such as nails, hardware, etc. but not labor. When billing design clients I separate the goods from the labor on their statement. Goods are taxable, labor is not. So what definition of "time" is taxed? I can't imagine Discovery Channel would do something sneaky. There's obviously an explantation we are all missing. They really should have a letter from an accountant attached to the 1099 and an itemized list so that it's all clear. At least a contact number of someone who can articulately explain the issue. Hopefully one of us will hear back from a CPA soon. What a mess.

Okay everyone - I have the answer. I just talked with a CPA in my office. Fair Market Value is what you would have paid had you hired a designer and carpenter yourself to perform the same services. I still don't like it, but at least I understand a little better.

Does that help?

So then we should pay tax for the goods (paint, furniture, hardware - in our case - sand and styrofoam) but no taxes no the labor for a designer and carpenter. I do a lot of consulting where I shop with a customer to help them pick out furnishings or redesign a room with items they already have. I do not, can not, tax for my time. If I have a customer who I design a room, use my resale tax I.D. number to purchase goods, I charge my client for my time (hourly rate), I mark -up the goods and charge tax on them. I frequently shop at Home Depot, Target, etc. for clients. They receive an invoice for me hourly design rate and then reimbersement for the goods purchased. I pay the tax when I purchase the items so no tax is charged to the client. I can understand being charged for tax on the goods that were purchased with the understanding that the designers purchase them tax exempt due to some arrangement Banyan has with Home Depot and Target. I am contacting my CPA on Monday to see what the response is. Thank you Mommy1. I think it's good we're all here to help each other out.

From the website...

Disclaimer: Applicant agrees to pay all federal, state, and local taxes, including income, use or sales taxes or any other governmental charges imposed on prizes, including the value of any goods or services received and cash gifts, if any, given to me or received by me by reason of my participation in the program and I release and indemnify producer from any liability therefor. I also authorize producer to deduct or withhold any such taxes or charges that require a payment prior to delivery of said prizes, cash or gifts.

Thank you for pointing out the disclaimer Tori162. Unfortunately for season 1 families, Banyan did not know that taxes would be involved; the disclaimer is new. Most of us did not apply via the website, but to local newspaper advertisements looking for families, no disclaimer. That is why so many families are posting on this board, no one knew. Families are told upfront now, during their phone interview, about their responsibility for taxes which is good. We filmed our show a year ago, aired in May 2004.We were notified about the 1099 this past fall and it was new news to Banyan as well. The representative from Banyan was very appologetic and said the IRS had recently contacted Discover Channel to notify them that all participants had to be taxed. It's not a Banyan issue either. Just an unfortunate situation.

Now I see how we are taxed for labor. The entire cost of the room, including labor, is considered a "gift" / or a "prize" (which it is!). So we are paying taxes on the entire "gift". I got it now. I knew no one was taking advantage and there had to be some logical explanation. Sorry if everyone else understood this and it just took me a while.

[QUOTE]Originally posted by dsrtshel:
Thank you for pointing out the disclaimer Tori162. Unfortunately for season 1 families, Banyan did not know that taxes would be involved; the disclaimer is new. Most of us did not apply via the website, but to local newspaper advertisements looking for families, no disclaimer. That is why so many families are posting on this board, no one knew. Families are told upfront now, during their phone interview, about their responsibility for taxes which is good. We filmed our show a year ago, aired in May 2004.We were notified about the 1099 this past fall and it was new news to Banyan as well. The representative from Banyan was very appologetic and said the IRS had recently contacted Discover Channel to notify them that all participants had to be taxed. It's not a Banyan issue either. Just an unfortunate situation.

Now I see how we are taxed for labor. The entire cost of the room, including labor, is considered a "gift" / or a "prize" (which it is!). So we are paying taxes on the entire "gift". I got it now. I knew no one was taking advantage and there had to be some logical explanation. Sorry if everyone else understood this and it just took me a while.[/QUOTE]

I wasn't meaning to quote the disclaimer to upset you or offend you in anyway. If you took it that way, I'm sorry. I just quoted it because people were asking about taxes on labor etc.

To be completely honest with you, I do not think what TS does to a room would make me want to go on their show and end up paying taxes for the unprofessional job they do. But, that's JMHO.

No offense was taken at all. I just want to appropriately represent the homeowners situation for anyone who may be in question or reading this thread, not necessarily directed at you. I am sincerely thankful that you pointed out the disclaimer because when I checked, and read it, a light bulb came on and I understood the situation.

Okay, I have yet another question. Some HOs have said they have to sign a disclaimer stating they can't re-sell any items for profit that were made for them by designers/carpenters.
If it is a 'gift' and I paid taxes on it, then don't I 'own' it and why can't I do what I darned well please with the item?
FYI: I have not been on the show, nor would I go on TS, I'm just a fan with questions.

ilovethewest (me too!) - I believe the selling item issue is in the context of taking an item (such as my poker table Carter built) and selling it as a "TS product" to make a profit off the name instead of selling the poker table just as a very cool poker table. I understand I'm just not sure if I'm explaining it properly. We couldn't list the poker table on EBAY as a " TS poker table". Just a legality, not a big deal.

As unfortunate as it is, the labor is considered 'value received' with no price paid. The information you may have heard about labor not being taxable is most likely in the sales tax area --- most states do not assess SALES tax on labor. That is unrelated to the value determined for miscellaneous income received for income tax purposes. Hence the excess of the 1099 amounts over $1,000.

Wish I could give you better news!

I used to work for the IRS and one thing, and one thing only is true - they will get you coming and they will get you going.

Death and taxes is a reality. You get taxed, someday you will die and then your estate will be taxed.

As far as the IRS is concerned anything you gain that can have a dollar value assigned to it is fair game to be taxed.

EM:HE exploits a loophole (until it's closed) so the HO doesn't have to pay a huge lump in taxes. I can guarantee you that when it's time to pay a property tax (if your state levies property tax) they will take it up the shorts. They may not pay so much in federal income tax because of gift tax laws and other loopholes but they will have to pay on some level or another.

Sad, but true. Sorry to be the bearer of bad news. You can try to fight the taxes on your 1099, but you more than likely will not win. If you choose to fight it, good luck to you.

I don't think anyone is trying to "fight" anything; just trying to understand since no thorough explanation came with the notices. Thanks to this thread I beleive the intent of this homeowner discussion has been accomplished. I am so appreciative of the opportunity to be able to discuss questions those who have participated with this production may have. I am equally grateful for those of you who have posted with IRS information to clear it all up for us. Again, it has been said that Banyan is being very clear with applicants for season 2 and 3 the details involved with taxation. I've wondered if anyone has thought twice about applying for the show because of it. I hope not, but can certainly appreciate the financial hardship it could create in certain situations. However, it's better to think of it as a family experience, like a vacation. It's an experience of a lifetime. So, for all potential homeowners who are reading this thread. I highly recommend this incredible experience. Nothing compares to it.

True that the experience and meeting the TS folks is well worth the $ for most; as well as having the work accomplished.
The big tax problems are emerging for the big buck show homeowners, and car/truck owners.
Such as Extreme Makeover & Overhaulin'.
Here is one article:

http://64.233.179.104/search?q=cache:kqK_Im601PEJ:www.realitytvworld.com/index/articles/story.php%3Fs%3D2552+%22trading+spaces%22+%2Birs&hl=en

one excerpt: "...We also note that the IRS is in a no-win situation. If it takes no action, it permits individuals to get away with a dubious tax dodge. If it audits the show's winners, though, it will receive negative publicity for targeting people, such as the person profiled by Newsweek, who served in Iraq and have no savings -- since, after all, the tax burden is borne by the contestants..."

Is it unfair to tax folks at the value estimated or realized?
For instance,as for Overhaulin', I read in a recent mag that Jim H. (an Overh' assoc. producer) said (he is quoted as saying) he est. the value of each vehicle to be around $150,000. So, will the IRS get to each car owner & go through the records?
And is it fair that others pay taxes on cash "incentives" to leave their jobs when their is an impending lay-off or plant closing? - while others go through the window of the tax shelter?

Bless All Who Serve

Just finished taping TS in Connecticut on 5/15/05. Just an FYI, in CT, not only are the items taxable, but the SERVICE provided by carpenters & designer is taxable. Any "free" service, whether or not salary is paid by employer, is subject to taxes by recipient as it is deemed as a taxable gift. We own a service business & people always ask us to donate our services because they think that services are tax deductable. They aren't . Not only are services (ie: lawyer fees, acountant fees, delivery fees, etc) not tax deductable when donated, but they are then taxed to the recipient, as a gift.
Taxes or no taxes, it was the most unbelievable experience ever! And I would work with all of these people again in a heartbeat!
The show staff is awesome!
Rock on Trading Spaces
"Y'all Rock!!!!!!"

I haven't had my home done by Trading Spaces or car done by Overhaulin' due to the issues brought forth in this forum. You also have to think of those who got more than the $1000 to do their rooms (wasn't there a $100k episode split between the 2 homes?) and end up paying more taxes than the $2800 listed in some replies here. I can't imagine having to open my eyes and hating the room and still having to pay for it at tax time. I almost signed my husband up for Overhaulin' until I read the disclaimer on the taxes on the website. I would have hated for my husband to lose his jeep after they rebuilt it to pay the taxes on it.

ethelfred,
The amount that the HO responsible Federal/state taxes (deductibles could whittle the amount down, of course) is not that much on a TS or WYWO, etc. program; but I see your point in paying anything for something that you would not enjoy.
The larger taxes come with the big sweepstakes & home make-overs such as the HGTV Dream Home & ABC's program, 'Extreme Makeover: Home Edition'

The issue has risen due to citizen complaints & Congressional inquires to/of the IRS; some feel it it unfair to receive considerable items & related services and not paying the taxes on the fair market value (item + services such as labor); whie others pay FULL taxes on plant closing-layoff settlements or awards (for discontinuation of medical benefits).

I placed the Dream Home & Extreme makeover tax problems story Links here:
http://community.discovery.com/eve/forums?a=tpc&s=6941912904&f=50710425&m=415107026&r=7541957108#7541957108
Be well,

Bless All Who Serve

Can you imagine having to pay taxes on the hay room that Hildi did or the flower bathroom?

I have not been on TS, but wanted to post some information to this thread.

If the company sends you a 1099 after being on TS, you need to look at which box the amount is listed under. If the value is listed in box 3, you record that amount under Misc. Income on the 1040 and describe it as a prize. You would only have to worry about SE taxes if the value was listed in box 7.

There are 2 prevailing concepts that would dictate how the 1099 would work for tax purposes.

1. The entire design is a gift/prize. You would be taxed on the entire value including all materials, labor, and donated items. If you think about the room as a finished product instead of itemizing or breaking down the cost, it makes a lot more sense. The same would be true if you were to win a new car. You would be taxed on the MSRP of the vehicle and you would not be able to deduct the labor cost of the Engineers, Designers, Model Makers, or Factory Workers who touched it.

2. It might be considered that by being on trading spaces, the HO is trading their labor for their room. Many people don't realize it, but if you were to host a direct sales party and receive host gifts, you are supposed to claim those gifts as income. The company has paid you for your labor of hosting the party, or in this case, being on the show, but instead of being paid money, you are paid with materials and designer's time.

I know this doesn't make the tax implications suck any less, but maybe it will help you understand the reasons.