Uncle Sam spoils dream trip to space

LadyT

LadyT

JPP Modarater
Contributor
http://www.cnn.com/2007/TECH/space/01/28/free.ride.ap/index.html

"LOS ANGELES, California (AP) -- Brian Emmett's childhood fantasy came true when he won a free trip to outer space....Then reality hit. After some number-crunching, Emmett realized he would have to report the $138,000 galactic joy ride as income and owe $25,000 in taxes. "

That sucks big time. You'd think there would be some way around it, some sort of one time exemption for service or game winnings.
 
i just posted that on fp.com

thats sad, i feel bad for him,

send him some money lady t we all know you aren't no po' dem.
 
Well If I won the powerball I would not complain about paying taxes. Of course this guy got no cash only a ticket to ride, pretty tough.
 
Well, while it does suck for the man, at least he realized the tax liability before accepting the prize. Many people who win cars/trips or other prizes accept them without realizing the tax implications.... until they have Uncle Ripoff digging in their pockets.
 
Superfreak said:
Well, while it does suck for the man, at least he realized the tax liability before accepting the prize. Many people who win cars/trips or other prizes accept them without realizing the tax implications.... until they have Uncle Ripoff digging in their pockets.
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the tax money from the trip if he went of 25000 would probably go to some welfare crack addict who's a trailor dem!
 
That really does suck. I'm surprised the company didn't just price it much lower for him. IT wouldn't have been anything for them.
 
Two reasons the company does it...

1) they can deduct it as a promotional or marketing expense

2) Uncle Sam gets very twitchy if you do not show fair market value on prizes/gifts etc....
 
I'd find a way to get the 25K. A dream trip to space is far too rare an experience to give up that easily.
 
Superfreak said:
Two reasons the company does it...

1) they can deduct it as a promotional or marketing expense

2) Uncle Sam gets very twitchy if you do not show fair market value on prizes/gifts etc....
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You pay taxes on your net income. Whether they price at $10 or$1M dollars, you're net income on the deal will be the same and there for taxed accordingly. There would be no difference in what they are taxed.
 
LadyT said:
You pay taxes on your net income. Whether they price at $10 or$1M dollars, you're net income on the deal will be the same and there for taxed accordingly. There would be no difference in what they are taxed.
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Except the fact that it can be shown to be a promotional expense and hence not earnings. The taxes can be lowered for the "cost" of such a promotion.
 
"Except the fact that it can be shown to be a promotional expense and hence not earnings. The taxes can be lowered for the "cost" of such a promotion."

Which is what I thought I said quite clearly, but apparently not clear enough for our jersey girl.
 
No. You're both wrong. Write offs are taken above the line with earnings and you're taxed on your net income. Whether or not you show it as a "write off" on your P&L or you show a lower price and high G&A expense the end result will be the same. There is no tax benefit or liability either way.
 
No, I am not wrong..

Money spent to sell your company's product or service, or to develop goodwill in the community, can be deducted from business income. Advertising costs, like other ordinary and necessary business expenses, are generally deductible so long as the advertising expense is reasonably related to your trade or business. There are a few caveats, however, depending on the type of advertising and its expected usefulness. Take stock of your business advertising expenditures to maximize the benefits for your bottom line.
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Link

Direct advertising costs for ads targeted to a specific customer group are generally deductible. Certain indirect advertising costs are deductible as well. For example, business owners can deduct amounts paid to a merchant association, so long as the money is ultimately used for an advertising campaign within a certain geographic area. Promotional expenses incurred in developing goodwill for your business are deductible, just like money spent in gaining immediate sales. Even the cost of designing the advertising can be deducted.
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Anyway, the "cost" of the ticket would be deductible if it can be shown that it relates to the business at hand. If they are selling tickets to space they can deduct the cost of the advertising as well as the promotion. Therefore they get the best of both worlds, they deduct the actual money spent as well as the "cost" of the ticket they cannot sell because it was given away...
 
Lady T.... ummm WRONG. If I have 100k in revenue it makes a BIG difference if I have $100k in expenses vs. $10k in expenses. One results in $0 taxable income and the other in 90k in taxable income.
 
Also... you are forgetting the part that Uncle Sam requires a fair market value on all gifts/prizes. There is no way around that.
 
You two are getting caught up in language and catch frases like deduction without understanding the P&L mechanics.

A deduction is not the same as a tax credit. A deduction in this case would only serve to mirror actual earnings depending on the type of accounting they practice. Some companies are on accrual accounting others are on a cash basis.

If they booked his flight on the revenue side and incurred the expenses, on their cash-in and cash out not reflect the loss. They are being allowed to deduct the lost revenue or revenue not receieved from their bottom line. Their earnings are still going to be taxed at the same rate no matter how its stated.

Sorry you two are dead a$$ed wrong on this one. It won't make a difference unless they've funny accounting going on.

You are however right SF about uncle sam and FV though.
 
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