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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.
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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!"
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!
(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.
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.
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.
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!
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.
Trip to space: $138,000 Taxes on trip to space: $25,000 Making a spelling error when complaining about someone else's grammar: Priceless
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.
In the US, taxes are unconstitutional for any reasonable interpretation of the constitution.
Prior to 1913 you would be correct; however, quoting the 16th amendment to the US Constituition, "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."
I laughed at the weak who considered themselves good because they lacked claws.
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?