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Lottery Taxation

Topic closed. 41 replies. Last post 11 years ago by Chewie.

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New Mexico
United States
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March 10, 2005
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Posted: August 14, 2005, 11:01 pm - IP Logged

I believe the quote is, 'Oh the tangled webs we weave when first we practice to deceive'.

In this instance we're deceiving no one but ourselves, and God din't have a lot to do with our getting into the position we're in.  Likely as not, if we want to get out of it we'll have to drag ourselves out by our own strength.

Jack

Absorb the good, ignore the bad, weigh the ugly.

It's about number behavior.

Egos don't count.

 

Dedicated to the memory of Big Loooser

 


    United States
    Member #17555
    June 22, 2005
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    Posted: August 14, 2005, 11:47 pm - IP Logged

    Yeah!!! Something like that!!!

      dvdiva's avatar - 8ball

      United States
      Member #2338
      September 17, 2003
      2063 Posts
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      Posted: August 15, 2005, 12:43 am - IP Logged

      [quote]Because the average rich person's revenue didn't come from a tax to begin with. Lotteries are a form of self taxation. This is why in Europe which is hardly known for low taxes doesn't tax lottery income.[/quote]

      Since the lotteries are primarily paid by the poor who pay little or no income taxes, the revenue is often being subjected to tax for the first time.  The lowest two quintiles (the bottom 40%) actually receive a tax refund from the federal government exceeding the income taxes withheld during the year.

       

      http://www.taxpolicycenter.org/TaxFacts/TFDB/TFTemplate.cfm?Docid=224


      Taxing the winnings doesn't constitute double taxation in these cases.  There's no such thing as self-taxation  since although the law refers to the taxes as contributions they're in fact mandatory.

      So what? Who cares that the poor play the lottery I'm well below the median for Seattle and I play (although rarely since the prizes have been so low). Taxing the winnings is poor judgement for sales. Since state games exist for the benefit of the state and to add to the tax coffers they need an added bonus to compete against indian and online gambling offerings.

      I really don't see where you get off on this poor people routine. Poor people spend more money on toilet paper and beer also relative to rich people. So what. The difference is that the rich executive has an annual income not a windfall. Winning a lottery is hardly an average event in someone's live. Income from several sources including dividents, tax-free muni bonds and life insurance payouts are tax free. State lotteries should also be there since most of the money raised by such lotteries goes to the state.

      As far as self-taxation what is a lottery? Its a voluntary tax. There is nothing manditory about playing a lottery. If you can't figure out that it is in fact a tax maybe a course in Government finance would help. 


        United States
        Member #5565
        July 11, 2004
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        Posted: August 15, 2005, 10:30 am - IP Logged

        "I really don't see where you get off on this poor people routine. Poor people spend more money on toilet paper and beer also relative to rich people. So what. The difference is that the rich executive has an annual income not a windfall. Winning a lottery is hardly an average event in someone's live. Income from several sources including dividents, tax-free muni bonds and life insurance payouts are tax free. State lotteries should also be there since most of the money raised by such lotteries goes to the state."

         
        The fact is that the lotteries are a vehicle for the states to raise money and hence the federal government has no incentive to exempt the windfall from federal income taxes.  Dividends and capital gains enjoy reduced tax rates since federal government wants to incentivize the raising of capital by private business.  Municipal bonds are tax-free at both the federal and state level because the states and localities want a way to raise funds at a much lower interest rate.  There is a trade-off for the buyer of munis of reduced income for lower taxes. Life insurance policies are often taken out as a means to settle end of life expenses, including the 55% federal estate tax. 

        I don't see an exemption from federal state income taxes unless the states first eliminate their tax on lotteries and/or the feds operate a nationwide  of their own.  As it is, a relative few win the large lottery prizes and I just don't see a groundswell of opposition of taxing these windfalls (except by dreamers).  If anything, windfalls have a history of being taxed at a higher rate than regular income.
          konane's avatar - wallace
          Atlanta, GA
          United States
          Member #1265
          March 13, 2003
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          Posted: August 15, 2005, 10:49 am - IP Logged

          It's been my understanding that gambling/lottery winnings are taxed as ordinary income and fica is not deducted.

          Do not believe windfall designation applies but sure welcome input from anyone who can clarify.

          Found this on a quick search:

           

          Tax Trails - Miscellaneous / Other Income

           

          You must include your gambling winnings as income.

          If you itemize your deductions on Form 1040, Schedule A, you may deduct gambling losses you had UP TO the amount of your winnings.

          http://www.irs.gov/individuals/article/0,,id=140251,00.html

          Good luck to everyone!

            Todd's avatar - Cylon 2.gif
            Chief Bottle Washer
            New Jersey
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            Posted: August 15, 2005, 11:02 am - IP Logged

            This thread certainly has taken a life of its own, but I'll try to add my simple comments, as they relate to the original post.

            I think the federal government has a right to tax lottery winnings, just as they have a right to tax any other form of income.

            Would I want to get my jackpot prize without any taxes taken out?  Of course!  Just like I wish that the government did not tax my regular income!

            The reality is that with our system of government, taxes are required in order to do things like funding the best military in the world.  (I am not going to get into all the give-away money that the government wastes money on, because that's a little too OT.)

            However, state taxes are a different matter.

            As far as I'm concerned, the state has already gotten their tax money when I bought the ticket itself.  Taxing lottery winnings at a state level is double-taxation, in my view.

            There are some states, like New Jersey and California, that realize this, and do not add the additional tax on prize money.

            Bottom line: I can live with federal taxes, but state taxes on prize money is unfair, because they already got their "voluntary tax" when I bought the ticket.

             

            Check the State Lottery Report Card
            What grade did your lottery earn?

             

            Sign the Petition for True Lottery Drawings
            Help eliminate computerized drawings!

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              Amarillo/Austin
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              April 25, 2003
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              Posted: August 15, 2005, 11:14 am - IP Logged

              Texas has no state income tax but Austin makes it up with property and sales taxes that are through the roof.  The state and local governments get it somehow.  It either comes out of one pocket or the other.

              Orangeman                          Crying       

                Badger's avatar - adu50016 NorthAmericanBadger.jpg
                Wisconsin
                United States
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                March 27, 2003
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                Posted: August 15, 2005, 8:07 pm - IP Logged

                There are about three countries that do not tax their lottery winnings...and excuse the English -- it ain't the United States.  Wow, what a shame!  Now, you would think our Uncle would give us a tax break...about twice a year, Thanksgiving and Christmas, by not taxing our lottery winnings: your actual take home pay would be the amount won!

                What can the US learn from those tax free lottery countries?  Is the US government willing to listen?

                Finally, I agree we all (no exceptions) should pay our taxes -- but taxing lottery winnings...is a bit too much.

                 

                 

                 

                 

                 

                Yeah it's crummy. But that's our wonderful politicians at work. WHen you think about it, all the money that is bet to buy the tickets is money that was already taxed when earned. Supposedly that is money that makes up the jackpots. So it's taxed again.

                Why do the pols tax us? Because they can.

                ============

                How can you tell if a politician is lying?

                Answer: His lips are moving.

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                  New Mexico
                  United States
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                  March 10, 2005
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                  Posted: August 15, 2005, 8:11 pm - IP Logged

                  Texas has no state income tax but Austin makes it up with property and sales taxes that are through the roof.  The state and local governments get it somehow.  It either comes out of one pocket or the other.

                  Orangeman                          Crying       

                  So there's no State tax on lottery winnings in Texas, other than the usual sales and property taxes everyone pays?

                  Wonder if that's also true in WA State.  I think they don't have a State income tax.

                  Jack

                  Absorb the good, ignore the bad, weigh the ugly.

                  It's about number behavior.

                  Egos don't count.

                   

                  Dedicated to the memory of Big Loooser

                   

                    dvdiva's avatar - 8ball

                    United States
                    Member #2338
                    September 17, 2003
                    2063 Posts
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                    Posted: August 15, 2005, 11:55 pm - IP Logged

                    "I really don't see where you get off on this poor people routine. Poor people spend more money on toilet paper and beer also relative to rich people. So what. The difference is that the rich executive has an annual income not a windfall. Winning a lottery is hardly an average event in someone's live. Income from several sources including dividents, tax-free muni bonds and life insurance payouts are tax free. State lotteries should also be there since most of the money raised by such lotteries goes to the state."

                     
                    The fact is that the lotteries are a vehicle for the states to raise money and hence the federal government has no incentive to exempt the windfall from federal income taxes.  Dividends and capital gains enjoy reduced tax rates since federal government wants to incentivize the raising of capital by private business.  Municipal bonds are tax-free at both the federal and state level because the states and localities want a way to raise funds at a much lower interest rate.  There is a trade-off for the buyer of munis of reduced income for lower taxes. Life insurance policies are often taken out as a means to settle end of life expenses, including the 55% federal estate tax. 

                    I don't see an exemption from federal state income taxes unless the states first eliminate their tax on lotteries and/or the feds operate a nationwide  of their own.  As it is, a relative few win the large lottery prizes and I just don't see a groundswell of opposition of taxing these windfalls (except by dreamers).  If anything, windfalls have a history of being taxed at a higher rate than regular income.

                    Life insurance is primarily taken to pay for burial, cover medical expenses and provide something to survivors. There is no 55% rate for federal death tax any more and the current rate being descussed for happening after 2010 is 15%.

                    As far as reducing or eleminating taxes on state lotteries I agree it's very unlikely but states need an added bonus akin to the tax-free muni bonds for their state lotteries. Sales in state lotteries has dropped especially for jackpot style games while sales have soared in indian and online casinos. By having a better insentive to play state games vs. private games the state gets more money. True it's not the federal government but the federal government is composed of state representatives and senators representing a state. The amount collected federally from state sponsored gambling is miniscule compared to other sources. The main reason why is that lotteries aren't buying the time of federal represenatives like the families of the rich that had their death tax reduced to next to nothing. 

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                      Amarillo/Austin
                      United States
                      Member #1424
                      April 25, 2003
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                      Posted: August 16, 2005, 12:00 am - IP Logged

                      There is no state income tax in Texas, therefore no state tax on lottery winnings.

                      Orangeman                        Hurray!

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                        Sparta, NJ
                        United States
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                        July 9, 2005
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                        Posted: August 16, 2005, 9:41 am - IP Logged

                        An interesting article on (federal) taxes against the lottery winnings is found here:

                        http://www.williamsmullen.com/news/articles_detail/019.htm

                        There are many great issues discussed. Think of it as part of your preparation work. When you win, you will be too excited to think about it then.

                        Cheers

                        |||::> *'`*:-.,_,.-:*''*:--->>> Chewie  <<<---.*''*:-.,_,.-:*''* <:::|||

                        I only trust myself - and that's a questionable choice