Larry Edema

There are a couple issues to look at when examining the Larry Edema tax-free vacation of a lifetime. In the United States a person cannot receive winnings and get away tax free, its just not possible. According to TMZ, Edema was informed that the taxes “would be handled by the Opera show”, not that there wouldn’t be taxes. Under the tax code 26 USC § 74 Larry Edemas is required to report the cost of the trip as income on his Tax Return. Prizes with a value over $600, which this one was, must be reported on form 1099. Depending on Edemas income there is also a possibility he will jump to a higher tax bracket. If that were the case would Opera offer to pay those taxes as well?

When I asked the CFO of the company my dad works for about this scenario he assured me it is not possible avoid the taxes on to prize winnings. He did however talk to me about golden parachutes, which is a severance agreement for managers of companies. He said a lot of times in order to avoid the taxes on the severance the company would balloon the amount agreed upon to equal what they would receive if taxes didn’t exist. His example was if they agreed on $10,000 then the employee would be paid $14,000 or somewhere around there so after taxes it equaled out to be $10,000. I ran some numbers in excel and could see this working in Edemas situation. Lets say the cost of the trip was $10,000 with a 15% tax rate. The tax Edema would be liable for is $1,500 in taxes. If Opera gave him an additional $1,500 to pay for the taxes he would then be liable for the taxes on the $1,500 as it is additional income. Taxes on the $1,500 would be $225. Taxes on that would be $33.75 and so on until the amount becomes de minimis.