Carnival Cruise offers teen $5,000 trip for Snapchat handle

[laumicmah]

I won the free cruise bingo a few years ago. We made sure to use it on a cruise where the cost was less than the threshold where we'd have to pay taxes. It was a 5 day Canada cruise and, even though we could get an OV, we chose an inside cabin. I think it was like $1100 and below the threshold so no paying taxes on it, woo hoo. But I'd take the $5000 cruise, if that included airfare (I think he went on the Europe inaugural Horizon, right?) since airfare to Europe is crazy expensive.

[Pellaz]

Regardless, we're only talking about a hypothetical prize, so no more from me on the subject. I would wager if we asked you and 999 other people on these boards if they would take a $5000 cruise if they won it, you would be the only one who said no. Any rational person would take it. But as I said, it takes all kinds,

 

You'd be incorrect on that. I would decline an expensive non-cash prize if it would cause me to owe a substantial amount in additional taxes. A $5k cruise would be right on that threshold for me.

 

As another example, there's a sweepstakes currently running where the prize includes a fully furnished house, valued at a little over a million dollars. Would you accept that prize? You're talking about a tax bill in the hundreds of thousands of dollars. Sure, you could probably sell the house and make enough to pay the tax bill, but that's a lot of work for a relatively small reward. Remember, you'd be in a much higher tax bracket than 22%...and the house probably wouldn't sell for quite as much as the advertised value.

 

Now, I actually DO enter that sweepstakes, but only because a pure cash option is also offered as a prize. :)

 

I won the free cruise bingo a few years ago. We made sure to use it on a cruise where the cost was less than the threshold where we'd have to pay taxes. It was a 5 day Canada cruise and, even though we could get an OV, we chose an inside cabin. I think it was like $1100 and below the threshold so no paying taxes on it, woo hoo.

 

Yeah, actually that's not below the tax reporting threshold. You just got lucky....or the IRS' underreporter department didn't care enough to pursue the matter.

[DCLCrazy]

The Carnival representative was in the midst of saying, "We'd like to offer you one free cruise every year for the next five years." But just as they told Darian, "We'd like to offer you one free cruise..," Darian screamed, "I'll take it!" When Carnival execs got the news, it looked a little something like this...

 

 

 

 

 

 

You’ve been watching too much Seinfeld. [emoji23]

 

 

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[Tiger0613]

I won the free cruise bingo a few years ago. We made sure to use it on a cruise where the cost was less than the threshold where we'd have to pay taxes. It was a 5 day Canada cruise and, even though we could get an OV, we chose an inside cabin. I think it was like $1100 and below the threshold so no paying taxes on it, woo hoo. But I'd take the $5000 cruise, if that included airfare (I think he went on the Europe inaugural Horizon, right?) since airfare to Europe is crazy expensive.

 

The threshold for a 1099-MISC to be issued for a prize is $600 or more. Also, you pay taxes on the entire prize, not just the amount over $599.99.

[laumicmah]

You'd be incorrect on that. I would decline an expensive non-cash prize if it would cause me to owe a substantial amount in additional taxes. A $5k cruise would be right on that threshold for me.

 

As another example, there's a sweepstakes currently running where the prize includes a fully furnished house, valued at a little over a million dollars. Would you accept that prize? You're talking about a tax bill in the hundreds of thousands of dollars. Sure, you could probably sell the house and make enough to pay the tax bill, but that's a lot of work for a relatively small reward. Remember, you'd be in a much higher tax bracket than 22%...and the house probably wouldn't sell for quite as much as the advertised value.

 

Now, I actually DO enter that sweepstakes, but only because a pure cash option is also offered as a prize. :)

 

 

 

Yeah, actually that's not below the tax reporting threshold. You just got lucky....or the IRS' underreporter department didn't care enough to pursue the matter.

It was 2011 and it may have been more like $800-900. Whatever it was, it was under the prize cost threshold at that time...2011.

Edited April 24, 2018 by laumicmah

[dsotm73]

You'd be incorrect on that. I would decline an expensive non-cash prize if it would cause me to owe a substantial amount in additional taxes. A $5k cruise would be right on that threshold for me.

So I underestimated the number of CC members who make irrational financial decisions. Sue me. :cool:

 

As another example, there's a sweepstakes currently running where the prize includes a fully furnished house, valued at a little over a million dollars. Would you accept that prize? You're talking about a tax bill in the hundreds of thousands of dollars. Sure, you could probably sell the house and make enough to pay the tax bill, but that's a lot of work for a relatively small reward. Remember, you'd be in a much higher tax bracket than 22%...and the house probably wouldn't sell for quite as much as the advertised value.

OK, so let's do the math:

• $1,000,000 house, assume that we get a valuation that is acceptable to the IRS that says as much,
  
• Highest marginal Federal tax rate is 35%, highest state rate is California at 13.3%, so yes, your tax bill would be "hundreds of thousands of dollars. About $483K.
  
• So let's sell the house to pay the taxes. Let's allow a 10% discount for market conditions and other contingencies, so we sell the house for $900K, rather than $1million.
  
• We engage a broker to sell the house and she takes a 6% ($54K) commission. Your gross proceeds from the house are then $846K.
  
• After paying the aforementioned taxes, you are left with a "measly" $363K.
  

In my opinion, this is neither "a lot of work" nor "a relatively small reward." YMMV

[Tiger0613]

So I underestimated the number of CC members who make irrational financial decisions. Sue me. :cool:

 

OK, so let's do the math:

• $1,000,000 house, assume that we get a valuation that is acceptable to the IRS that says as much,
  
• Highest marginal Federal tax rate is 35%, highest state rate is California at 13.3%, so yes, your tax bill would be "hundreds of thousands of dollars. About $483K.
  
• So let's sell the house to pay the taxes. Let's allow a 10% discount for market conditions and other contingencies, so we sell the house for $900K, rather than $1million.
  
• We engage a broker to sell the house and she takes a 6% ($54K) commission. Your gross proceeds from the house are then $846K.
  
• After paying the aforementioned taxes, you are left with a "measly" $363K.
  

In my opinion, this is neither "a lot of work" nor "a relatively small reward." YMMV

 

The top federal bracket is 37%. You would pay taxes on the entire $1,000,000. You will net less money if you take the house and sell it due to the commission, property taxes up until the point of sale, other closing costs, and capital gains taxes. An all cash prize is only subject to income taxes.

 

You are responsible for the house and its upkeep until you sell it. If you sell the house immediately, you will be subject to capital gains taxes since you didn't meet the ownership and use test. You have to own the house for at least two years and use it for at least two out of the past five years for the sale to not be subject to capital gains. If you did meet the test, you will also be paying utility bills, high property taxes, high home insurance premiums, and high flood insurance premiums. The house is in South Carolina near Hilton Head Island. You also might have to deal with hurricanes.

 

There is also the opportunity cost of having to spend time focusing on selling the house instead of being able to do other things. An all cash prize doesn't have that opportunity cost. You don't have to go through the sales process to be able to get the money. An all cash prize gives you the money faster. You can do what you want with it sooner than if you accepted the house.

 

Deciding whether or not to accept the prize is an emotional decision. You have to decide if higher taxes and higher opportunity costs are worth it.

 

Not everything is about money, so please get off of your high horse.

[dsotm73]

 

The top federal bracket is 37%. You would pay taxes on the entire $1,000,000. You will net less money if you take the house and sell it due to the commission, property taxes up until the point of sale, other closing costs, and capital gains taxes. An all cash prize is only subject to income taxes. An additional 2% is on amounts above $500K, but conservatively let's say an additional $20K in taxes. You still net >$320K.

 

You are responsible for the house and its upkeep until you sell it. If you sell the house immediately, you will be subject to capital gains taxes since you didn't meet the ownership and use test. You're paying tax as income on the $1million prize. No cap gains unless you sell the house for more than your $1million cost basis.You have to own the house for at least two years and use it for at least two out of the past five years for the sale to not be subject to capital gains. If you did meet the test, you will also be paying utility bills, high property taxes, high home insurance premiums, and high flood insurance premiums. The house is in South Carolina near Hilton Head Island. You also might have to deal with hurricanes. Covered in my 10% contingency allowance, but sure, let's add another $20K to that allowance. You're still netting >$300K. Also if you live in South Carolina the tax rate is 7% ratehr than the 13.3% California rate I used. So another $63K for contingencies, or added to the net.

There is also the opportunity cost of having to spend time focusing on selling the house instead of being able to do other things. An all cash prize doesn't have that opportunity cost. You don't have to go through the sales process to be able to get the money. An all cash prize gives you the money faster. You can do what you want with it sooner than if you accepted the house. Very little opportunity cost or time spent having an agent handle the sale for you. If your time is worth >$300K then you shouldn't be wasting it on Cruise Critic. Sure the cash is better, but I'm discussing the rationality of declining the house if won.

 

Deciding whether or not to accept the prize is an emotional decision. You have to decide if higher taxes and higher opportunity costs are worth it. Agreed, I'm only arguing the rationality of the financial decision. Emotions do cause us to do irrational things.

 

Not everything is about money, so please get off of your high horse. Nah, I kind of like the view up here. :cool:

 

 

:cool::cool::cool:

Edited April 24, 2018 by dsotm73

[Techycruiser]

I know him and his family. They had a great time.

He also received a scholarship and an internship.

 

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