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After the Sochi Olympics, many of our athletes came home with glittering medals — and cash prizes, of $25,000 (gold), $15,000 (silver) and $10,000 (bronze), awarded by the U.S. Olympic Committee — along with some hefty endorsement contracts. Currently, the IRS assesses taxes on the athlete’s winnings.

One piece of legislation was introduced just before the 2014 games, proposing tax exemptions to American athletes who win medals in the Olympics. But at this point, the bill is still sitting in the House Ways and Means Committee. Reuters Winner of the men's snowboard slopestyle Sage Kotsenburg of the U.S. Holds up his country's national flag at the 2014 Sochi Olympic Games in Rosa Khutor, Feb. Of course, our Olympic athletes aren’t the only ones who must pay taxes on their prizes. Other Americans face taxes on prizes and winnings too.

And sometimes, the taxes are quite a surprise. In fact, the taxes can cause the winners an unexpected hardship. Just how expensive is free? Ask Dona Marie Baker, president of a dog-training service in North Carolina. She pressed an OnStar button in a car at a dealership several years ago — and found herself the winner of a GMC Rendevous worth about $33,000. She was very excited until she learned how much it would cost her out-of-pocket to get the free car out the door. How much would these things cost in your neck of the woods?

Anders Pocket Tax Guide

Sales taxes on $33,000, plus vehicle registration and licensing fees? And don’t forget, you must have insurance coverage before you can take it off the lot. By the time you’re done, in the average state, you would need to cough up about $3,000 or more, on the spot. And that’s before the income taxes. Adding an extra $30,000 or so to your adjusted gross income will probably push you into a higher tax bracket. By April 15 of the following year, you’d need to pull together about $10,000. All in all, that ‘free’ car has now cost you about $13,000 within the first year.

Dona Marie practically had to borrow the money to pay the taxes. Even more expensive: free home remodeling A couple years ago, Orly Telisman, founder of a public relations firm in Chicago, auditioned for a chance to get a complete kitchen makeover.

Although this project would require Orly and her husband to pay $13,000 up front, that was far cheaper than the roughly $40,000 it would have cost them to get it done on their own. Their existing kitchen was very tight and cramped. For example, to put dishes away, they had to take the dishes out of the dishwasher, place them on the counter, close the dishwasher — and then put the dishes into the cabinet. The dishwasher and cabinet could not be open at the same time.

They won the makeover — to their utter joy. They knew that to pay the up-front money and the taxes, they would have to draw from college savings and tap all of their resources. But they were ready. The family was expelled from the kitchen and living room area for about three weeks, while the makeover took place. New appliances were bought and installed. A wall was torn down.

A circuit-breaker and power was added, since their existing junction box didn’t have sufficient amperage. The show installed a convection oven and Corian countertops, vented the stove downward, added slate tile and traded in their old appliances. Everything was done to code, with inspections and all. When it was all over, they had a larger, expanded family room. They use it all the time, to live in, to entertain, to cook, and to enjoy.

The 1099-MISC they received from the show based the value of their new remodel on the increase in appraised value of home, rather than on hard costs — about $20,000. This made good sense — and the before-and-after appraisals were documented and saved by the taxpayers. The taxes on the improvement added about $6,000 to their down payment. So a $40,000 kitchen ended up costing them less than half — about $19,000. What to do if you win OK, we know that winning things can be fun. And we’ve just seen two different reactions to the related tax issues. What should you do if you win something other than money — and get a 1099-MISC for the fair market value (FMV) or manufacturer’s suggested retail price (MSRP)?

We turned to Greg Rosica, contributing author to the Ernst & Young Tax Guide 2014, for advice. Rosica says that you don’t have to pay taxes on the retail value.

He recommends that you find data on the real selling price of your prize. With the magic of the Internet, you can find all kinds of sites where trips, cars, and other high-ticket items are sold. Print out the page that has a product similar to yours and a price that an objective buyer would be willing to pay to an unrelated seller. Use that as the amount on which to pay the taxes.

Rosica suggests that you contact the issuer of the 1099-MISC to get a corrected 1099 issued. In real life, you’re unlikely to get that. After all, they want to write off the higher amount. Rosica says that you can call the IRS’s customer service line and have them use an internal form (Form 4598) to get a corrected 1099-MISC for the actual value. According to IRS spokesman Bruce Friedland, that form is now obsolete. So, what are you to do?

Friedland refers us to page 32 of Publication 525. However, that will only have you paying too much tax. So here’s what to do: 1. On line 21 of your tax return, report the full amount as shown on the Form 1099-MISC as Other Income, since the IRS computers will be looking to match that on your tax return.

With your tax return, include a worksheet with a detailed note and a copy of your proof of the actual cost for the item. And, also on line 21, include an amount to reduce the FMV or MSRP to the actual price.

File your tax return on paper and include the attachments. Incidentally, if you sell the prize in an arm’s-length transaction, it’s really easy to prove its value, right? It’s the amount you sold it for. So use that information to replace the printout from the Internet. This may sound like overkill, but it will prevent your return from being audited.