I won 2 roundtrip First Class flights JFK-Shanghai on China Eastern. How can I sell?
Nov 21, 2014, 3:24 pm
#31
A FlyerTalk Posting Legend
Join Date: Jul 2002
Location: MCI
Programs: AA Gold 1MM, AS MVP, UA Silver, WN A-List, Marriott LT Titanium, HH Diamond
Posts: 52,570
Would he have a case to pay taxes on something less than the mythical $40k that very few, if any, people would ever pay for two F tickets on this route?
If there's a revenue passenger sitting in a JFK-PVG F seat as I type this (and that's a big IF), I'd bet a beer that his company likely paid about $6,000 R/T for the seat, coded in revenue J.
There are probably a bunch of ways to ferret out what people really pay to fly F on that route, none of which will lead to $20k per person. The question is, if the airline 1099's you for an amount, can you make a case to counter with a different amount and have the IRS agree.
If there's a revenue passenger sitting in a JFK-PVG F seat as I type this (and that's a big IF), I'd bet a beer that his company likely paid about $6,000 R/T for the seat, coded in revenue J.
There are probably a bunch of ways to ferret out what people really pay to fly F on that route, none of which will lead to $20k per person. The question is, if the airline 1099's you for an amount, can you make a case to counter with a different amount and have the IRS agree.
Nov 21, 2014, 3:31 pm
#32
Join Date: Jan 2013
Posts: 743
Would he have a case to pay taxes on something less than the mythical $40k that very few, if any, people would ever pay for two F tickets on this route?
If there's a revenue passenger sitting in a JFK-PVG F seat as I type this (and that's a big IF), I'd bet a beer that his company likely paid about $6,000 R/T for the seat, coded in revenue J.
There are probably a bunch of ways to ferret out what people really pay to fly F on that route, none of which will lead to $20k per person. The question is, if the airline 1099's you for an amount, can you make a case to counter with a different amount and have the IRS agree.
If there's a revenue passenger sitting in a JFK-PVG F seat as I type this (and that's a big IF), I'd bet a beer that his company likely paid about $6,000 R/T for the seat, coded in revenue J.
There are probably a bunch of ways to ferret out what people really pay to fly F on that route, none of which will lead to $20k per person. The question is, if the airline 1099's you for an amount, can you make a case to counter with a different amount and have the IRS agree.
Nov 21, 2014, 7:48 pm
#33
FlyerTalk Evangelist
Join Date: May 2012
Location: Sydney Australia
Programs: No programs & No Points!!!
Posts: 14,222
Nov 21, 2014, 8:15 pm
#34
FlyerTalk Evangelist
Join Date: Nov 2006
Location: Bangkok or San Francisco
Programs: United 1k, Marriott Lifetime PE, Former DL Gold, Former SQ Solitaire, HH Gold
Posts: 11,886
Would he have a case to pay taxes on something less than the mythical $40k that very few, if any, people would ever pay for two F tickets on this route?
If there's a revenue passenger sitting in a JFK-PVG F seat as I type this (and that's a big IF), I'd bet a beer that his company likely paid about $6,000 R/T for the seat, coded in revenue J.
There are probably a bunch of ways to ferret out what people really pay to fly F on that route, none of which will lead to $20k per person. The question is, if the airline 1099's you for an amount, can you make a case to counter with a different amount and have the IRS agree.
If there's a revenue passenger sitting in a JFK-PVG F seat as I type this (and that's a big IF), I'd bet a beer that his company likely paid about $6,000 R/T for the seat, coded in revenue J.
There are probably a bunch of ways to ferret out what people really pay to fly F on that route, none of which will lead to $20k per person. The question is, if the airline 1099's you for an amount, can you make a case to counter with a different amount and have the IRS agree.
Nov 21, 2014, 10:09 pm
#35
Senior Moderator
Join Date: Oct 2001
Location: San Francisco, CA
Programs: UA Plat/2MM [23-yr. 1K, now emeritus] clawing way back to WN-A List; MR LT Titanium; HY Whateverist.
Posts: 12,396
There are several issues here:
Two of the most important ones are:
1) Can the tickets be validly sold or transferred? That is the airline's decision and a proper-level employee of the airline should be contacted for the answer to this question and that answer should be documented by the OP. As far as FlyerTalk is concerned, no discussion promoting sale of airline tickets may be had on the forums. It runs afoul of the long-existing rule that FlyerTalk is not a market place for the buying, selling or barter of airline tickets. (FT, Rule 10.)
2) What are the tax consequences of the winning tickets to the OP?
Here, I agree with the advice that was given upthread to work with an experienced tax professional, including as to the valuation assigned by the airline on the 1099 or related tax forms.
Ocn Vw 1K, Moderator (esp. as to point 1, above.)
Two of the most important ones are:
1) Can the tickets be validly sold or transferred? That is the airline's decision and a proper-level employee of the airline should be contacted for the answer to this question and that answer should be documented by the OP. As far as FlyerTalk is concerned, no discussion promoting sale of airline tickets may be had on the forums. It runs afoul of the long-existing rule that FlyerTalk is not a market place for the buying, selling or barter of airline tickets. (FT, Rule 10.)
2) What are the tax consequences of the winning tickets to the OP?
Here, I agree with the advice that was given upthread to work with an experienced tax professional, including as to the valuation assigned by the airline on the 1099 or related tax forms.
Ocn Vw 1K, Moderator (esp. as to point 1, above.)
Nov 22, 2014, 4:55 am
#36
Formerly known as FTRox87
Join Date: Sep 2012
Location: TX
Programs: AA/US 1M, AS, BA, CX, EK, EY, JL, KE, LH, NH, OS, QF, QR, TG, UA/CO | *$G
Posts: 1,428
What he said. Get to a good CPA and have them explain it to you. There are special IRS rules for prizes and awards.
You cannot rely on the "advice" of a friend of a friend who allegedly works at the IRS. For all you know, the alleged IRS person does not have any real expertise in this area. The IRS has lots of people working for them and many of them do not have any real expertise in this area of tax. (think clerical staff, engineers, collections officers, etc.) Neither can you rely on the person at the airline. The trip has value, by your own admission. Why else would someone want to pay you for it?
The only person you can relay on for advice on this matter is a CPA that you actually pay to give you an answer. If the 1099 comes in with a $20,000 value, you may end up paying as much as $6-7,000 in income taxes for your "free flight."
You cannot rely on the "advice" of a friend of a friend who allegedly works at the IRS. For all you know, the alleged IRS person does not have any real expertise in this area. The IRS has lots of people working for them and many of them do not have any real expertise in this area of tax. (think clerical staff, engineers, collections officers, etc.) Neither can you rely on the person at the airline. The trip has value, by your own admission. Why else would someone want to pay you for it?
The only person you can relay on for advice on this matter is a CPA that you actually pay to give you an answer. If the 1099 comes in with a $20,000 value, you may end up paying as much as $6-7,000 in income taxes for your "free flight."
why do you all assume his tax rate is an effective 30%? you're a sucker if that's how much you're paying. not to mention: why would this be considered income? its 'phantom' and only has utilitarian value and is most certainly not cash or cash-like. and lets not even get into lowering rates with classifying this as capital gains at the minimum or deferred taxes at the max, minus whatever his deductible entry fee for this competition was. at the end of the day all the OP has is a piece of paper (intangible asset at best) which again by itself has no 'value.'
but lets put all that aside, you guys realize he DOES pay taxes amounting to $505 to use these tix. why would he have to pay tax on the backend as well, that'd be double taxation.
I dont think so. unless its straight cash (not even cash equivalents) that'd make no sense. the 'value' is arbitrary, and I'd say cant be quantified for income tax purposes, much like airline miles or award tickets.
Nov 22, 2014, 5:09 am
#37
FlyerTalk Evangelist
Join Date: Nov 2006
Location: Bangkok or San Francisco
Programs: United 1k, Marriott Lifetime PE, Former DL Gold, Former SQ Solitaire, HH Gold
Posts: 11,886
engineers at the IRS??
why do you all assume his tax rate is an effective 30%? you're a sucker if that's how much you're paying. not to mention: why would this be considered income? its 'phantom' and only has utilitarian value and is most certainly not cash or cash-like. and lets not even get into lowering rates with classifying this as capital gains at the minimum or deferred taxes at the max, minus whatever his deductible entry fee for this competition was. at the end of the day all the OP has is a piece of paper (intangible asset at best) which again by itself has no 'value.'
but lets put all that aside, you guys realize he DOES pay taxes amounting to $505 to use these tix. why would he have to pay tax on the backend as well, that'd be double taxation.
I dont think so. unless its straight cash (not even cash equivalents) that'd make no sense. the 'value' is arbitrary, and I'd say cant be quantified for income tax purposes, much like airline miles or award tickets.
why do you all assume his tax rate is an effective 30%? you're a sucker if that's how much you're paying. not to mention: why would this be considered income? its 'phantom' and only has utilitarian value and is most certainly not cash or cash-like. and lets not even get into lowering rates with classifying this as capital gains at the minimum or deferred taxes at the max, minus whatever his deductible entry fee for this competition was. at the end of the day all the OP has is a piece of paper (intangible asset at best) which again by itself has no 'value.'
but lets put all that aside, you guys realize he DOES pay taxes amounting to $505 to use these tix. why would he have to pay tax on the backend as well, that'd be double taxation.
I dont think so. unless its straight cash (not even cash equivalents) that'd make no sense. the 'value' is arbitrary, and I'd say cant be quantified for income tax purposes, much like airline miles or award tickets.
The $505 in taxes is comparable to the amount you pay in taxes for some award tickets. This is airport taxes, etc. Not income tax.
It can't be classified as Capital Gains. Simply doesn't qualify.
I agree it makes no sense. But very little of the US tax code makes sense, IMO.
Nov 22, 2014, 5:53 am
#38
Formerly known as FTRox87
Join Date: Sep 2012
Location: TX
Programs: AA/US 1M, AS, BA, CX, EK, EY, JL, KE, LH, NH, OS, QF, QR, TG, UA/CO | *$G
Posts: 1,428
like I said, this isnt a car or a physical object. its not a tangible asset. its a piece of paper and not even a check -- thus not income.
you guys are saying if you win 100k miles thru some promo you owe taxes for the value of those miles as declared by whoever (not based in reality because once again they dont have actual value.) however when you sign up for a US CC that has a signup bonus for 100k, no taxes are owed because its an intangible asset and the IRS doesnt consider it income. which is in contrast to say a cash bonus of even $25 for opening a new checking account for which you do get a 1099, however negligible it may be simply because its *new* cash that you acquired and can be considered income.
you guys are saying if you win 100k miles thru some promo you owe taxes for the value of those miles as declared by whoever (not based in reality because once again they dont have actual value.) however when you sign up for a US CC that has a signup bonus for 100k, no taxes are owed because its an intangible asset and the IRS doesnt consider it income. which is in contrast to say a cash bonus of even $25 for opening a new checking account for which you do get a 1099, however negligible it may be simply because its *new* cash that you acquired and can be considered income.
Nov 22, 2014, 6:54 am
#39
Join Date: May 2009
Location: South Park, CO
Programs: Tegridy Elite
Posts: 5,678
like I said, this isnt a car or a physical object. its not a tangible asset. its a piece of paper and not even a check -- thus not income.
you guys are saying if you win 100k miles thru some promo you owe taxes for the value of those miles as declared by whoever (not based in reality because once again they dont have actual value.) however when you sign up for a US CC that has a signup bonus for 100k, no taxes are owed because its an intangible asset and the IRS doesnt consider it income. which is in contrast to say a cash bonus of even $25 for opening a new checking account for which you do get a 1099, however negligible it may be simply because its *new* cash that you acquired and can be considered income.
you guys are saying if you win 100k miles thru some promo you owe taxes for the value of those miles as declared by whoever (not based in reality because once again they dont have actual value.) however when you sign up for a US CC that has a signup bonus for 100k, no taxes are owed because its an intangible asset and the IRS doesnt consider it income. which is in contrast to say a cash bonus of even $25 for opening a new checking account for which you do get a 1099, however negligible it may be simply because its *new* cash that you acquired and can be considered income.
http://www.law.cornell.edu/uscode/text/26/74
Except as otherwise provided in this section or in section 117 (relating to qualified scholarships), gross income includes amounts received as prizes and awards.
The entity awarding the prize must send the 1099, and must include the value. As noted above, often the issuer's "value" may not be one the recipient agrees with, but the dispute process is not necessarily easy.
Even a sweepstakes win of FF miles is taxable.
The IRS doesn't consider the CC bonus miles as income, but rather as a rebate of what you purchased on the CC.
There are multiple threads here on FT with much more detail about all of the above, including members' experiences with such...and plenty more resources and references can be found via Google.
Whether the above tax rules make sense, or are good/bad, are another matter, but it is what it is.
Nov 22, 2014, 7:23 am
#40
Formerly known as FTRox87
Join Date: Sep 2012
Location: TX
Programs: AA/US 1M, AS, BA, CX, EK, EY, JL, KE, LH, NH, OS, QF, QR, TG, UA/CO | *$G
Posts: 1,428
everything you're talking about and giving examples of relate to actual, physical objects aka tangible assets which have a fixed value. this isnt the case here.
also its not a rebate, CB is a rebate for ongoing basis as an example and is thus not taxed... signup bonuses are exactly that, bonuses.... lets breakdown the 100k CC bonus. the CC required $10k in spend. even if the interchange fees were 3% for that World Elite MC, that'd net the bank $300 that they made off you. the 100k miles if liquidated via AA at the lowest denom for GCs etc could get you $1k in cash equivalents. how can you call a bonus payout, at the very least 3 times the magnitude of the money the bank made off you to fulfill the requirements (with no further obligation to use the card or bring business over to the bank,) a 'rebate?' ... its simply not.
OPs case too is akin to a bonus as well, not income.
also its not a rebate, CB is a rebate for ongoing basis as an example and is thus not taxed... signup bonuses are exactly that, bonuses.... lets breakdown the 100k CC bonus. the CC required $10k in spend. even if the interchange fees were 3% for that World Elite MC, that'd net the bank $300 that they made off you. the 100k miles if liquidated via AA at the lowest denom for GCs etc could get you $1k in cash equivalents. how can you call a bonus payout, at the very least 3 times the magnitude of the money the bank made off you to fulfill the requirements (with no further obligation to use the card or bring business over to the bank,) a 'rebate?' ... its simply not.
OPs case too is akin to a bonus as well, not income.
Nov 22, 2014, 8:15 am
#41
FlyerTalk Evangelist
Join Date: Nov 2006
Location: Bangkok or San Francisco
Programs: United 1k, Marriott Lifetime PE, Former DL Gold, Former SQ Solitaire, HH Gold
Posts: 11,886
everything you're talking about and giving examples of relate to actual, physical objects aka tangible assets which have a fixed value. this isnt the case here.
also its not a rebate, CB is a rebate for ongoing basis as an example and is thus not taxed... signup bonuses are exactly that, bonuses.... lets breakdown the 100k CC bonus. the CC required $10k in spend. even if the interchange fees were 3% for that World Elite MC, that'd net the bank $300 that they made off you. the 100k miles if liquidated via AA at the lowest denom for GCs etc could get you $1k in cash equivalents. how can you call a bonus payout, at the very least 3 times the magnitude of the money the bank made off you to fulfill the requirements (with no further obligation to use the card or bring business over to the bank,) a 'rebate?' ... its simply not.
OPs case too is akin to a bonus as well, not income.
also its not a rebate, CB is a rebate for ongoing basis as an example and is thus not taxed... signup bonuses are exactly that, bonuses.... lets breakdown the 100k CC bonus. the CC required $10k in spend. even if the interchange fees were 3% for that World Elite MC, that'd net the bank $300 that they made off you. the 100k miles if liquidated via AA at the lowest denom for GCs etc could get you $1k in cash equivalents. how can you call a bonus payout, at the very least 3 times the magnitude of the money the bank made off you to fulfill the requirements (with no further obligation to use the card or bring business over to the bank,) a 'rebate?' ... its simply not.
OPs case too is akin to a bonus as well, not income.
Another example: If you win a free vacation to Bermuda on Wheel of Fortune, you are subject to income tax on everything, including the value of the plane tickets, value of the room, etc.
"The following rules apply to casual gamblers. Gambling winnings are fully taxable and must be reported on your tax return. Gambling income includes, but is not limited to, winnings from lotteries, raffles, horse races, and casinos. It includes cash winnings and also the fair market value of prizes such as cars and trips. For additional information, refer to Publication 525, Taxable and Nontaxable Income."
(I added the bold)
Source: http://www.irs.gov/taxtopics/tc419.html
"Winnings from lotteries and raffles are gambling winnings. In addition to cash winnings, you must include in your income the fair market value of bonds, cars, houses, and other noncash prizes.
(I added the bold)
http://www.irs.gov/publications/p525...link1000229492
Nov 22, 2014, 8:51 am
#42
Formerly known as FTRox87
Join Date: Sep 2012
Location: TX
Programs: AA/US 1M, AS, BA, CX, EK, EY, JL, KE, LH, NH, OS, QF, QR, TG, UA/CO | *$G
Posts: 1,428
does a promo == gambling? nope. its akin to a bonus and/or a gift, which are non-taxable
in any case I've not known anyone to pay taxes on non-lottery, non-cash winnings.
another example: say you're at a grocery store, a new company is getting folks to try out their product by offering samples with a chance to win that product. do you get taxed for the sample offered to you? say it was something pricey like caviar. do you get taxed if you win that product? nope, not at all. you walk out of the store with the box, dont even pay sales tax on it. why? cause its akin to a bonus/gift not a gamble.
AA and other programs often run promos where anywhere from a 1k to 100k to 500k miles are up for grabs or can be won. I've won a couple of em promos and never had to pay any taxes nor was I sent a 1099. I've won other things as well from other companies promos (at a timeshare presentation no less) including trips and never had to pay taxes or was sent a 1099.
another example: many companies at Christmas time either give out bonuses or hold Secret Santas. do you file taxes on those? do you get a 1099 for your Xmas bonus (paid in the form of a GC so not cash?) nope, never, atleast not me. do you file taxes for anything you rcvd as part of Secret Santa, say it was something fancy like a weekend getaway? I've never known anyone to file taxes for that.
or how about when your office holds a promo for an iPad (or promo for most sales etc?) I won an iPad in my dept (not sales,) and didnt have to pay any taxes.
last example I'll give: the MCR program. you can win many things by collecting points and using those to enter sweepstakes to win things you'd like. now MCR even publishes ARVs (actual retail value) on those prizes, I've won a cpl of em and never had to pay any taxes, nor did Coca Cola ever send me a 1099.
I've made my point plenty already in this thread so I will leave it at that instead of going around in circles.
in any case I've not known anyone to pay taxes on non-lottery, non-cash winnings.
another example: say you're at a grocery store, a new company is getting folks to try out their product by offering samples with a chance to win that product. do you get taxed for the sample offered to you? say it was something pricey like caviar. do you get taxed if you win that product? nope, not at all. you walk out of the store with the box, dont even pay sales tax on it. why? cause its akin to a bonus/gift not a gamble.
AA and other programs often run promos where anywhere from a 1k to 100k to 500k miles are up for grabs or can be won. I've won a couple of em promos and never had to pay any taxes nor was I sent a 1099. I've won other things as well from other companies promos (at a timeshare presentation no less) including trips and never had to pay taxes or was sent a 1099.
another example: many companies at Christmas time either give out bonuses or hold Secret Santas. do you file taxes on those? do you get a 1099 for your Xmas bonus (paid in the form of a GC so not cash?) nope, never, atleast not me. do you file taxes for anything you rcvd as part of Secret Santa, say it was something fancy like a weekend getaway? I've never known anyone to file taxes for that.
or how about when your office holds a promo for an iPad (or promo for most sales etc?) I won an iPad in my dept (not sales,) and didnt have to pay any taxes.
last example I'll give: the MCR program. you can win many things by collecting points and using those to enter sweepstakes to win things you'd like. now MCR even publishes ARVs (actual retail value) on those prizes, I've won a cpl of em and never had to pay any taxes, nor did Coca Cola ever send me a 1099.
I've made my point plenty already in this thread so I will leave it at that instead of going around in circles.
Last edited by FTR 787; Nov 22, 2014 at 9:05 am
Nov 22, 2014, 9:51 am
#43
Join Date: Mar 2012
Location: EWR
Programs: Marriott Platinum, HHonors Diamond, United Plat
Posts: 128
A few years ago, I won $10,000 worth of electronics in a contest. When I decided to accept the prize, the contest organizers told me that I would be given a W-9 for said amount. The $10,000 was for the retail value of the items I was given, not the price I would pay if I bought them on sale at Best Buy or Amazon. I filed the $10,000 as lottery, winnings, prizes - whatever the category is - on my 1040 and consequently was taxed accordingly.
I would suppose that OP would be taxed at the retail value of tickets, should they choose to exercise it. Though I am not sure how the IRS would determine the taxable value since as of a certain travel date, an unrestricted FC may cost $10,000/tix and a restricted ticket may be $6,000/tix. Of course the value of the ticket will also change based on the travel date.
I would suppose that OP would be taxed at the retail value of tickets, should they choose to exercise it. Though I am not sure how the IRS would determine the taxable value since as of a certain travel date, an unrestricted FC may cost $10,000/tix and a restricted ticket may be $6,000/tix. Of course the value of the ticket will also change based on the travel date.
Nov 22, 2014, 9:57 am
#44
Join Date: Mar 2012
Location: EWR
Programs: Marriott Platinum, HHonors Diamond, United Plat
Posts: 128
another example: many companies at Christmas time either give out bonuses or hold Secret Santas. do you file taxes on those? do you get a 1099 for your Xmas bonus (paid in the form of a GC so not cash?) nope, never, atleast not me. do you file taxes for anything you rcvd as part of Secret Santa, say it was something fancy like a weekend getaway? I've never known anyone to file taxes for that.
or how about when your office holds a promo for an iPad (or promo for most sales etc?) I won an iPad in my dept (not sales,) and didnt have to pay any taxes.
or how about when your office holds a promo for an iPad (or promo for most sales etc?) I won an iPad in my dept (not sales,) and didnt have to pay any taxes.
Nov 22, 2014, 11:33 am
#45
FlyerTalk Evangelist
Join Date: Nov 2006
Location: Bangkok or San Francisco
Programs: United 1k, Marriott Lifetime PE, Former DL Gold, Former SQ Solitaire, HH Gold
Posts: 11,886
Well, at least in my firm we sometimes have promos for say filling up an internal survey, where say three random survey fillers get a $100 Amex GC each. If I won one of these GCs, payroll would consider this taxable and automatically deduct the applicable tax on my next paycheck. This is a big tax and audit firm so I am sure they are doing it right.