Lottery tax questions

[SHRED]

The latest Powerball winners:
"The Hills won $293,750,000 before taxes. But they will take it in a lump sum of about $193 million"

Are these winnings taxed as "short term capital gains"? By both the Fed and the State?


just curious

---

[former-republican]

1. Is there something you're not telling us?

[SHRED]

2. I wish

[unblock]

3. every time i've won millions in the lottery it's been treated as ordinary income.

[dipsydoodle]

4. How come

such winnings are taxable in the US but not elsewhere ?

[Earth_First]

5. Even state to state there are different taxable income guidelines...

there are seven states where one would pay no state income tax on lottery winnings.

[dipsydoodle]

7. Local issue then.

Thanks for the expo.

Definately not taxable in the UK in shape or form until it starts earning interest which is different.

[enlightenment]

8. Not just state taxes -

the Feds take their cut off the top.

I didn't realize that lottery winnings are not treated as income. Is the tax only on the interest?

[dipsydoodle]

12. I referred to here in the UK when I mentioned interest.

Actuak lottery winnings here are free of income tax and exempt from capital gains tax. As far as I can make out the same applies to Canada.

[enlightenment]

27. I knew that you were talking about the UK

Apparently, I was unclear that I was also referring to the UK when mentioning that I wasn't aware they weren't taxed as income. Poorly written post on my part . . . to clarify:

US lottery winnings are taxed on both and federal and the state level (if the state has a state income tax - not all do).

Sorry!

[A HERETIC I AM]

13. Lottery winnings ARE treated as income. See below. n/t

[enlightenment]

28. I was unclear in my post to dipsydoodle -

I was commenting on UK lottery winnings as not taxable as income.

Apologies for the confusion!

[A HERETIC I AM]

10. Exactly right.

One way to think about it is lottery winnings are taxed as if you had gotten a hundred million dollar (or whatever the cash option figure is) raise for one year.

FWIW, those people in Missouri did EVERYTHING wrong.

http://www.democraticunderground.com/?com=view_post&forum=1002&pid=1896815

Since they've been on TV and anyone who cares can find all they want to about them, they'll be hounded for money from complete strangers for years.

Dumb.

[A HERETIC I AM]

19. Yup, and the IRS sued that "Survivor" winner (whiner?) 3 ways to Sunday if memory serves.

As was stated in another post above, the state will do the Feds a favor by withholding 25% at the time of settlement. However, the winner is now in the 35% bracket and will owe that other 10% by April 15th.

There is a way to pay no further income tax at all on those winnings;

If you took the money and had it deposited in a non-interest bearing account and simply drew off it to live, the money would make no more money, so there wouldn't be any further "income" and therefore no income tax to pay in coming years.

You could also purchase Municipal Bonds and live off the interest they pay. That interest is tax free, so as long as you didn't have any capital gains (buying a bond for less than it's face value and selling at a higher value) you wouldn't pay any further taxes in that case either.

As soon as you have investment income, either by taxable interest, dividends from stocks or capital gains, you're liable for further taxes.

Winning large sums like that is a good reason to move to one of the 7 states that have no state income tax.

[marybourg]

26. Not contributing to the society

in which you live and which has made it possible for you to become rich is a goal to be pursed?

[RomneyLies]

9. Lottery winnings are straight up income. They are not short term capital gains.

They are taxed at the income tax rate.

Now, tax attorneys can do things depending upon state laws regarding lottery winnings. For example, an LLC may be able to claim the prize as opposed to an actual person and tax advantages can be gained by going that route.

Regardless, federal law requires lottery officials withhold 25% for federal taxes before paying out. So the maximum they will get is maybe $145 million.

[A HERETIC I AM]

18. Yup. Beat me to it.

Even if the LLC was established beforehand and you could prove you bought it for and by the LLC, isn't it true that if a corporation has gambling winnings they are still taxed as ordinary income?

The way I understand it, if the CEO of General Electric bought a ticket and claimed it was for GE, he is still required to pay the taxes on the winnings, just like a private citizen.

Ditto the pastor of a church, for instance.

[RomneyLies]

21. The use of an LLC is actually REQUIRED in Illinois if multiple people share the prize.

SENd are still collected and the LLC is dissolved after the prize is divided.

The primary use for an LLC is to remain anonymous which is why most states do mot allow it.

[RomneyLies]

23. www.illinoislottery.com

Go to the page about claiming prizes. It explains what to do when multiple people are sharing the same winning ticket over $1 million there. That was necessary information when I ran am office pool for several years.

[slackmaster]

11. Ordinary income, and money spent on losing tickets can be deducted...

...to the extent that they offset winnings. IOW if you spend $75 on tickets and win a total of $100, you are liable for tax on the $25 net that you earned. That's why people who play a lot should hold on to all of their losing tickets.

[robinlynne]

16. I think this is income, and has nothng to do wth the stock market or capital gains.

Capital gains are the profit made from selling stocks.

[A HERETIC I AM]

20. Or homes or any other asset. n/t