Uncle Sam Spoils Dream Trip To Space

gollum123 writes about a dream come true and a dream dashed. Brian Emmett, a software consultant from the San Francisco Bay area, entered a contest sponsored by Oracle in 2005. He answered some questions on Java coding, won a free trip into space, and then reluctantly gave it up. The latter decision came once he had computed the taxes he would have to pay on the $138,000 prize — roughly $25,000. From the article: "Since the Internal Revenue Service requires winnings from lottery drawings, TV game shows, and other contests to be reported as taxable income, tax experts contend there's no such thing as a free spaceflight. Some contest sponsors provide a check to cover taxes, but that income is also taxable."

Comments

Discount

[T-Bone_142]

What if instead of giving him a free trip they gave him the chance of take a discounted trip, only charging him $1?

Re:Discount

[jamesh]

I think someone already probably thought of that loophole. Couldn't they hire him in some capacity though? Even if it was just to blog about the experience or something.

Worst case they could hire him for an amount such that it was $25000 after tax, which would then give him enough to pay the tax bill with.

possible loophole

[SethJohnson]

If they award him the prize while he's in space, do US tax laws still apply?

Seth

Tax the organiser

[TapeCutter]

They attack this problem in Australia (and other places) by taxing the organiser of the lottery, all advertised prizes are for the "after tax" value, if it says "First prize: $1M" and you win, you get $1M. The taxman doesn't hassle you because he took his cut before you got your cheque. Not sure how you would go if you won a foriegn lottery?

OTOH: Get a $50K reward from Loyds of London for bravery (of the "are you insane" variety) that saved an oil tanker from sliming the costline near Perth and you will have to pay tax as if it was additional income for that year, ie: the taxman will take 30-50%.

Re:Tax the organiser

[zCyl]

They attack this problem in Australia (and other places) by taxing the organiser of the lottery, all advertised prizes are for the "after tax" value, if it says "First prize: $1M" and you win, you get $1M. The taxman doesn't hassle you because he took his cut before you got your cheque.

That's funny. In the U.S. it's almost exactly the opposite. First, the lottery says "Jackpot prize $15 million" when it is actually $7 million, because they give you the option of taking the $7 million and putting it a fund which pays out 30 annual payments of half a million each. Then the tax comes on top of that. Counting only the federal income taxes and inflated advertising, that means that a jackpot advertised as $15 million comes out to a lump sum of about $4.6 million.

Hiring the winner for one flight?

[beh]

There might be another alternative - what about they hire him for the duration of the flight, say, as research for the company doing the rides -- they hire him for minimum wage for one day, and give him some special questionnaire to fill out after the flight. In this case, his ride would be work (gather information on the "end user experience")...

He might have to tax the minimum wage, but the company could completely write off the money spent to send him to space in the first place, as it's a work requirement. (i.e. treat the space ride as a "business trip")...

(oh - and yes, if he researches the 'experience' of the offered flights, it should well be possible for him to completely (and determinedly) "enjoy" the flight - so as to be in a better position to say what the company might want to improve for future customers...

Shouldn't that be possible?

Re:A dream come true?

[hjf]

I live in a country (Argentina) where you have to pay a 21% tax for almost everything you buy (the Value Added Tax, or VAT, just like in the UK). Some items (Such as milk, or curiously, computer parts, have 10,5% VAT, while most others, like TV sets or CAT5 cable, have 10,5% Tax. Finally, Telephone has 27% VAT). That's when you buy something.

When you sell something, you have to pay the VAT, but only for what you're earning (that is, buy for $100 and sell for $120, you pay the tax for $20, not for $120). That means, if you're a "computer tech" like me, you don't "buy-and-sell", you just sell. That is, if I charge someone $ 300, I have to pay the tax for $300. Also, besides that tax there's the Gross Income tax, 3,5% (yes PERCENT) of EVERYTHING you earn, whether you have made profit of it, or not. The VAT is for national government, and the Gross Income is for the province.

As if that wasn't enough, we have a plethora of taxes you could never dream of, such as the Check (UK: Cheque) Tax, the Money Transfer tax, the "sending money offshore" tax, etc. Whenever someone deposits a check in your account, the government just goes and grabs the tax for it out of your bank account (that's right, they just go and grab it). You can write that off your Gross Income tax, but if you, for some reason, got a big check, more than what you declared in Gross Income, all you get is fiscal credit, not money back from the government.

Oh and don't let me get started on the 'Rich' tax ("Impuesto a la riqueza"). If you're "rich", you pay more. Rich, was someone with $100.000 or more in their bank accounts. Before devaluation, people who had $50.000 pesos (= US $50.000), didn't pay for the tax. Then devaluation came, and people had $50.000 pesos (= $16.000 USD). They sued their banks (the banks, prior to the devaluation, and with the help of the government, didn't let you take out more than $1000 a day on cash). Most people got their original money (USD 50.000), but now it was $150.000. So, people had to pay the "rich tax". That means most citizens here in Argentina are rich. Because not only your cash counts: your car, house, boat, whatever, counts for the rich tax. And a house and a car are worth more than $100.000 pesos, so you pay the tax.

Also, the tax is higher for new cars than for old cars. So people have no reason to "upgrade" their cars, and you see a lot of cars from over 10 years ago.

With all these taxes, you'd think we would have streets covered in gold, Xenon street lights, and public employees that welcome you with a big smile and don't make you wait. Not to mention, some of the best colleges and schools in the world.

But no, we get a terrible education system (the Systems Engineering career hasn't been updated since 1995, and a law project that will allow 1st graders to pass whether they have had good grads or not, because repeating a grade will hurt them psychologically. Also there's no punishment system in the schools. Previously you had points, and when you had too many, you got expelled. Now there's no such thing. You can't even expell a student. My mom was the substitute principal at a school, in her last day as principal, a kid (about 16) shot another kid in the leg. None of them got expelled, or anything. They even tried to blame it on my mom (wtf?). In another school, an 11 year old boy was trying to rape a 6 year girl. The teacher kicked the door down, found both of them half naked, the girl crying. The boy tried to run away, she slapped him so hard, he passed out. They tried to let the kid stay at school and SEND THE TEACHER TO JAIL for hitting him. They managed to get the kid out of that school, and let the teacher stay. All of this because the girl's father was a military general or something, who pulled some strings. If it wasn't for that.. you could imagine.

Also, there's a lot of "insecurity". In some parts of the Great Buenos Aires area, you could get killed (they kill you first and then they rob you). Streets aren't clean, and a pothole could take years to be fixed