HomeLatest ThreadsGreatest ThreadsForums & GroupsMy SubscriptionsMy Posts
DU Home » Latest Threads » Forums & Groups » Main » General Discussion (Forum) » Lottery tax questions
Introducing Discussionist: A new forum by the creators of DU

Sat Dec 1, 2012, 09:41 AM

Lottery tax questions


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

---

28 replies, 2211 views

Reply to this thread

Back to top Alert abuse

Always highlight: 10 newest replies | Replies posted after I mark a forum
Replies to this discussion thread
Arrow 28 replies Author Time Post
Reply Lottery tax questions (Original post)
SHRED Dec 2012 OP
former-republican Dec 2012 #1
SHRED Dec 2012 #2
unblock Dec 2012 #3
dipsydoodle Dec 2012 #4
Earth_First Dec 2012 #5
dipsydoodle Dec 2012 #7
enlightenment Dec 2012 #8
dipsydoodle Dec 2012 #12
enlightenment Dec 2012 #27
A HERETIC I AM Dec 2012 #13
enlightenment Dec 2012 #28
AnotherMcIntosh Dec 2012 #6
A HERETIC I AM Dec 2012 #10
AnotherMcIntosh Dec 2012 #14
A HERETIC I AM Dec 2012 #19
marybourg Dec 2012 #26
RomneyLies Dec 2012 #9
AnotherMcIntosh Dec 2012 #15
A HERETIC I AM Dec 2012 #18
RomneyLies Dec 2012 #21
AnotherMcIntosh Dec 2012 #22
RomneyLies Dec 2012 #23
AnotherMcIntosh Dec 2012 #24
AnotherMcIntosh Dec 2012 #25
slackmaster Dec 2012 #11
AnotherMcIntosh Dec 2012 #17
robinlynne Dec 2012 #16
A HERETIC I AM Dec 2012 #20

Response to SHRED (Original post)

Sat Dec 1, 2012, 09:44 AM

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

 

Reply to this post

Back to top Alert abuse Link here Permalink


Response to former-republican (Reply #1)

Sat Dec 1, 2012, 09:44 AM

2. I wish

Reply to this post

Back to top Alert abuse Link here Permalink


Response to SHRED (Original post)

Sat Dec 1, 2012, 09:46 AM

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

Reply to this post

Back to top Alert abuse Link here Permalink


Response to SHRED (Original post)

Sat Dec 1, 2012, 09:46 AM

4. How come

such winnings are taxable in the US but not elsewhere ?

Reply to this post

Back to top Alert abuse Link here Permalink


Response to dipsydoodle (Reply #4)

Sat Dec 1, 2012, 09:48 AM

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.

Reply to this post

Back to top Alert abuse Link here Permalink


Response to Earth_First (Reply #5)

Sat Dec 1, 2012, 09:50 AM

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.

Reply to this post

Back to top Alert abuse Link here Permalink


Response to dipsydoodle (Reply #7)

Sat Dec 1, 2012, 10:24 AM

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?

Reply to this post

Back to top Alert abuse Link here Permalink


Response to enlightenment (Reply #8)

Sat Dec 1, 2012, 10:31 AM

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.

Reply to this post

Back to top Alert abuse Link here Permalink


Response to dipsydoodle (Reply #12)

Sat Dec 1, 2012, 06:06 PM

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!

Reply to this post

Back to top Alert abuse Link here Permalink


Response to enlightenment (Reply #8)

Sat Dec 1, 2012, 10:32 AM

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

Reply to this post

Back to top Alert abuse Link here Permalink


Response to A HERETIC I AM (Reply #13)

Sat Dec 1, 2012, 06:07 PM

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!

Reply to this post

Back to top Alert abuse Link here Permalink


Response to SHRED (Original post)


Response to AnotherMcIntosh (Reply #6)

Sat Dec 1, 2012, 10:30 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.

Reply to this post

Back to top Alert abuse Link here Permalink


Response to A HERETIC I AM (Reply #10)


Response to AnotherMcIntosh (Reply #14)

Sat Dec 1, 2012, 11:27 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.

Reply to this post

Back to top Alert abuse Link here Permalink


Response to A HERETIC I AM (Reply #19)

Sat Dec 1, 2012, 03:42 PM

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?

Reply to this post

Back to top Alert abuse Link here Permalink


Response to SHRED (Original post)

Sat Dec 1, 2012, 10:27 AM

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.

Reply to this post

Back to top Alert abuse Link here Permalink


Response to RomneyLies (Reply #9)


Response to AnotherMcIntosh (Reply #15)

Sat Dec 1, 2012, 11:07 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.

Reply to this post

Back to top Alert abuse Link here Permalink


Response to AnotherMcIntosh (Reply #15)

Sat Dec 1, 2012, 02:21 PM

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.

Reply to this post

Back to top Alert abuse Link here Permalink


Response to RomneyLies (Reply #21)


Response to AnotherMcIntosh (Reply #22)

Sat Dec 1, 2012, 02:50 PM

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.

Reply to this post

Back to top Alert abuse Link here Permalink


Response to RomneyLies (Reply #23)


Response to RomneyLies (Reply #23)


Response to SHRED (Original post)

Sat Dec 1, 2012, 10:31 AM

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.

Reply to this post

Back to top Alert abuse Link here Permalink


Response to slackmaster (Reply #11)


Response to SHRED (Original post)

Sat Dec 1, 2012, 10:58 AM

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.

Reply to this post

Back to top Alert abuse Link here Permalink


Response to robinlynne (Reply #16)

Sat Dec 1, 2012, 12:10 PM

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

Reply to this post

Back to top Alert abuse Link here Permalink

Reply to this thread