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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."
It may have been a dream dashed for Brian Emmett, but it most certainly was a dream come true for headline writers. They leave no cliche unturned:
... the final frontier for space rides
* There are no free rides to outer space
* Dream free trip to space brings black hole in wallet
* Win a free ticket to space? Read the fine print
* Taxes
* Space tourism yet to take off
* Free trips to space pose some taxing dilemmas
etc etc etc.
There are shills on slashdot. Apparently, I'm one of them.
...all things considered.
I mean, we're talking about a trip into space. Considering the normally prohibitive cost of recreational spaceflight, $25k almost seems like a bargain. I've seen people blow that much on timeshares for goodness sake. If nothing else he could write a book about the experience and recoup some of the expense.
The Slashdot Limerick
What if instead of giving him a free trip they gave him the chance of take a discounted trip, only charging him $1?
"In Soviet America, Passport Stamps You!"
"Some contest sponsors provide a check to cover taxes, but that income is also taxable."
Last line from the summary.
If they award him the prize while he's in space, do US tax laws still apply?
Seth
$5 / month hosted VPS on linux = awesome!
I find it unbelievable that a 'software consultant' cannot stomach a $25'000 fee for something he wanted so badly. TFA even says he would have a strong case not to pay until he receives his flight, and could pay in installments.
If the guy is worth his salt, and with the publicity he would get from winning the Oracle competition, I see no reason why a decent consultant could not have that paid off in a year.
(Disclaimer: I'm not an accountant or a tax geek so I don't know whether that would really work out).
So am I. Is the consolation prize a sheet of acid tabs and a DVD of 2001? It always works for me.
Yeah, I'm sure he had a problem affording it... but I'd have gone even though that's a substantial portion of my yearly salary. The only thing I can think of is that he might have been in the middle of a divorce - and if his salary was reported to be 138k higher per year, then his soon to be ex might have a much higher alimony. One that he couldn't afford to pay.
Your sig(k) has been stolen. There is a puff of smoke!
Some contest sponsors provide a check to cover taxes, but that income is also taxable.
Fortunately, this series eventually converges to values small enough to lose it amid the rounding error on your taxes.
If you'd been following the recent story regarding China's lil' missile they used to destroy an old weather satellite, and then saw US's reaction and statement about it you'll know that America owns space, and possibly everything. :)
Besides, they are already floating lawyers floating in space, waiting.
I call BS. I don't think he wanted to go in the first place. Nobody with a dream of space flight would pass this up. I'm a freaking grocery/dept store clerk and I could put 31k on a credit card. Sure that is really dumb thing to do, but man, this is for space. While working my butt off for the next billion years to pay it off, I could have one heck of a story to tell.
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%.
And did you exchange a walk on part in the war for a lead role in a cage? - Pink Floyd.
FTA: ...report the $138,000 galactic joy ride as income...
I heard American's don't have to pay income taxes, in this documentary, America - Freedom to Fascism.
It's got an interview with a lady who was on a jury and neither the prosecutor or judge could state the law that says a person has to pay income tax. So the jury found 'not guilty'. America - Freedom to Fascism
Disclosure: I'm Australian, I don't pay American taxes anyway.
Boy, would I love to have just 10% sales tax. In Germany, they just cranked it up to 19% this January.
I fail to see how a free trip to space equates to income. Yes, the trip ordinarily costs $138,000, but this paticular trip was priced at "Win this competition". That doesn't have any monetary value. X% of "Win this competition" is not equal to $25,000. As others have mentioned, the company could also have priced that paticular seat at $1 and been well withing their rights. This story seems bogus.
This kind of reminds me of property taxes, where someone walks up to your house, says "I reckons she's worth about this much, so you pay me that much", despite the fact that your house is earning you no income and will be taxed anyway when sold or inherited. It doesn't make much sense.
I'm a believer in financing the state through taxes. But I'm also of the opinion that there should be some kind of logic to tax. Charging people money for something when they haven't actually made any money, or indeed materially benefited in any way, as in this case is like something out of a one dimensional folk tale. When tax is levied, there should always be a question, why is it being levied?
We need taxes. But we also need to remember that the government is not our landlord. It is wrong to have a tax on simply being alive. Tax should be avoidable, if you have no money to pay any.
May the Maths Be with you!
You sound like one of those (indicted) CEOs that goes public with messages about 'people making normal living wages, you know, like 100,000.00 or so, per year'. 25K is a lot of money to just have lying around, especially if you have a family.
Religion is what happens when nature strikes and groupthink goes wrong.
2) there's no way that under the Dutch tax system a higher gross pay results in less net income. There used to be one threshold where that effect occurred: when you had to switch from the state health insurance to private insurance because of a pay rise, but these days it's all one insurance.
With that said.... $25000 would definitely put this software consultant in debt. But for a trip into space I'd still be able to come up with the money.
If construction was anything like programming, an incorrectly fitted lock would bring down the entire building...
...he wouldn't have had to pay a dime, Up North. Gifts or prizes are _not_ taxable.
At least in Germany (or in the rest of the world for that matter), the sales tax is part of the price of the item.
When you travel in the US you never know how much it is until you pay. And if you ask beforehand how much the local tax is, they give you nasty looks like you were insulting their dear mothers.
It's a completely braindead system.
May contain traces of nut.
Made from the freshest electrons.
Saw it referenced several times in the article, but the address was never quoted.
The entry in question is the top one on that page.
Personally, I think it is more about how fucked up taxes are. I agree on taxing cash prices but taxing these kind of prices is stupid. It is similar to what happens in countries like the Netherlands (or other nordic countries) where people *avoid* pay rises because sometimes having a rise of 10% they have to pay more taxes and end earning less than what they earned before the "raise".
Care to point to a specific example?
You do know that the Dutch income tax works with income brackets right? you only pay the higher tariff over the income above a certain threshold. So if the pay rise bumps your income into a higher tariff group, then the higher tariff will only apply to the excess income. Since the highest tariff is 52%, there is no way that you can end up earning less.
A quick example: You earn 49,000 euros. You get a pay rise that bumps your income to 51,000. the 52% tax bracket starts at 50,000, while you pay 42% up to the 50,000 limit. You'll pay 42% over the first 1,000 and then 52% over the next 1,000. So the 2,000 pay rise will cost you 420+520 euros in tax (47% of the pay rise). After taxes you have 1060 euros more to spend.
I think there is a very good reason to tax these kind of prices. Quite simply if you would not tax prize money, then people would set up fake lotteries and awards to cheat the income tax.
It is similar to what happens in countries like the Netherlands (or other nordic countries) where people *avoid* pay rises because sometimes having a rise of 10% they have to pay more taxes and end earning less than what they earned before the "raise".
In the 6 years that I've been in the Netherlands (3 as a manager), I've never known anyone to turn down a pay raise. (If you know such people, please let me know... we might want to hire them.) The system does not work as you describe. Making more money always gives you more money.
There may be other reasons to worry about a high income, such as being forced to leave rent controlled housing, but this is not tax related.
"It is similar to what happens in countries like the Netherlands (or other nordic countries) where people *avoid* pay rises because sometimes having a rise of 10% they have to pay more taxes and end earning less than what they earned before the "raise"."
That's an urban myth for people who employ other people who don't understand tax brackets. You can never lose money by increasing your pay unless the higher bracket is taxed at greater than 100%. I seriously doubt that is the case, anywhere!
And did you exchange a walk on part in the war for a lead role in a cage? - Pink Floyd.
Trip to space: $138,000 Taxes on trip to space: $25,000 Making a spelling error when complaining about someone else's grammar: Priceless
I'm sure the Porn industry would pay 25K for the only video in existance of someone whackin in space.
Wanna fight ? Bend over, stick your head up your ass, and fight for air.
I want a list of atrocities done in your name - Recoil
The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.
Ratified 02/13/1913
Therefore, Zeno might say, the swiftest accountant can never overtake the tax man. Thus, while common sense and common experience would hold that a company can pay its taxes, according to the above argument, it cannot; this is the paradox.
Reduce, reuse, cycle
That would be considered income, because no "arms-length" transaction would have resulted in a sale of a trip into space for $1. Accordingly, the difference between the fair market value and the $1 was a gift to you. Gifts are income. You can even give someone money by not taking money away from them! Observe: I extend my neighbor Bob a loan this year for $5,000. Next year, I say "You know, forget about that loan". BLAM. He has to declare an extra $5,000 (plus fair interest!) in income, and I have to fill out a Form 1099-C attesting to that amount (which, naturally, tips the IRS off to the fact that if Bob doesn't disclose the value of the loan was forgiven to go after him).
All sorts of things are income, although many aren't routinely claimed as such. Ever won a soda at McDs during that Monopoly promotion? Income. Found a $10 bill on the sidewalk? Income. Taken a pen home from work? Income, unless you returned it. The difference between these and the space trip is that if you had somehow neglected pay $25,000 worth of taxes because of your income, as opposed to a few cents, the IRS *will* hit you like a ton of bricks.
Help poke pirates in the eyepatch, arr.
This guy either had very bad tax advice or is using the tax code as an excuse to wimp out of a somewhat dangerous experience.
As the article and any decent tax account would tell him, he would not be responsible for any tax unless and until he actually accepted the ride into space. This means he could have put off on any decision on whether to accept the prize until the very last minute. At least as far as the tax man is concerned.
The only craft that matches the specs of those announced in the contest press release are those of the Virgin Galactic SpaceShip 2. And since Virgin Galactic's commercial craft is a minimum of 2 years from sending customers into space, he had at least that much time to defer his decision. His financial situation could be much improved by then. Since space craft are rarely delivered on schedule, he would likely have had even more time to defer his decision.
Then there's the possibility that he could have worked his way out of paying much of any tax at all. As others have suggested, if he could have taken some on professional duties in the form of writing about his voyage, he could have partially or wholly written off his tax burden.
So why did this guy refuse the prize two or more years before it would have had any financial impact on him? Why didn't he look into any professional options for writing off the tax? Good question. My guess is either very bad tax advice or sheer lack of courage.
If he had moved to Canada just before the drawing, and won the contest while living and working there, the contest would not be taxable, since Canada does not tax lottery or gambling winnings, unless they are your "primary source of income" (i.e. unless you're a professional gambler / poker player / etc).
I mean, after all, how often do you get to go into space?
Does it really work like this? Where I live (Portugal), whoever offers the prize is responsible for all the taxes associated with it. Think of the lottery, the announced prize is always "exempt" of taxes for the winner. And I said "exempt" because taxes are still paid by the contest maker.
It's not a myth...
There are plenty of examples where earning more money, means you end up having less to spend. For instance college expenses, over a certain income level you no longer qualify for need based aid, that means you are footing the entire bill yourself.
Retirement contributions decrease or eliminated over a certain income level. Making more money can throw you into a higher tax bracket, or worse get you caught up in the AMT (believe me, you don't want to go there).
Or more generally, for a tax rate of R and a prize value of P, you would need to award RP/(1-R) in cash to cover the taxes on both the prize and the cash.
I would have thought a sponsorship deal would have been easy to come by. if he had covered himself in logos he would have had the money in no time.
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?
Ho ho ho, very clever. I did not say that any person has the right to limit what any other person does with any property. As an example, it is illegal for me to hit you over the head with my computer. It is illegal to put child porn on my computer. It is illegal to smuggle drugs in my computer. It is illegal to sell my computer as somethign it isn't.
The more societal force it takes to protect something, the more society has a right to regulate that thing. It takes much less societal force to protect personal posessions than it does to protect real property, so society has more of an interest in regulating real property than it does personal posession.
It is also about right to ownership. Only through working on a thing, mingling your labor with that thing, can you call it your own. Yet real property and natural resources must be claimed BEFORE they are worked. Thus, there is no justuification for the intiial taking of the resource. Until a private individual claims a resource, that resource can be shared by all. Therefore, absent any valid claim, and taking into account the vested interest society has in all unclaimed reources, all claims to real property amount to theft.
- None can love freedom heartily, but good men; the rest love not freedom, but license. -- John Milton