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Lottery Taxes

Topic closed. 78 replies. Last post 8 years ago by paulkbarnes.

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DC81's avatar - batman39
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Posted: July 18, 2008, 10:08 pm - IP Logged

Meh, I just keep it simple and assume that I'd still have to pay the extra 10% at tax time so I'd stick with having to pay out at least 40% (rounded up and including MI state income tax) so then at tax time I'd be ready to pay whatever I may have to pay. Obviously during the time in between I'd be looking to reduce the taxes but I'd still made sure that extra 10+% would be covered if I do have to pay it. Also, that 10% would be on the original amount, not what was left over from the taxes already taken out wouldn't it?

You can't predict random.

    Todd's avatar - Cylon 2.gif
    Chief Bottle Washer
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    Posted: July 18, 2008, 10:32 pm - IP Logged

    Meh, I just keep it simple and assume that I'd still have to pay the extra 10% at tax time so I'd stick with having to pay out at least 40% (rounded up and including MI state income tax) so then at tax time I'd be ready to pay whatever I may have to pay. Obviously during the time in between I'd be looking to reduce the taxes but I'd still made sure that extra 10+% would be covered if I do have to pay it. Also, that 10% would be on the original amount, not what was left over from the taxes already taken out wouldn't it?

    You can't tell them to withhold an amount other than 25%.  It's either a law or regulation.  But I'm sure the IRS wouldn't mind getting an advance tax payment from you after the money is in your hands.  Not sure what the wisdom in that is though.

    If you win the jackpot, please don't do anything before getting a top-flight tax attorney.  They will save you from yourself! Smile

     

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      DC81's avatar - batman39
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      Posted: July 18, 2008, 10:47 pm - IP Logged

      Of course, but I mean that I would expect to pay the other 10% at tax time, not up front. Wink But yeah, I'd certainly be consulting a tax attorney or two to figure out the best way to legally keep as much of it out of the incompetent hands of Uncle Sam.

      You can't predict random.

        sirbrad's avatar - Lottery-062.jpg
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        Posted: July 19, 2008, 12:37 am - IP Logged

        If you already paid all the taxes on the $1 million, the answer is no. If you invest the same $1 million, you will be taxed on whatever income you get from the investments. A 5% yearly interest rate will make you $50,000 and you will owe taxes on the $50,000.

        Thanks that is what I initially suspected as it makes sense. So they would just tax the interest as I also thought. What percentage would they tax it at? So would I owe more taxes the next year on the original million after the 25% witheld? I would not mind the interest taxes as you would still make a lot of money. But all this tax crap just puts a damper on winning the lottery. Everytime someone's wins the IRS does too, which is crap.

          sirbrad's avatar - Lottery-062.jpg
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          Posted: July 19, 2008, 12:42 am - IP Logged

          If you win, and pay the initial tax on the winnings and then turn it into cash in a safe, no you will not be taxed on it the following year(after the year you have won)....if you do not work for the entire year and still have 1 million dollars sitting in your safe, your earned income will be zero....No taxes paid to any government agency and no tax refund back to you....(the Government is betting that you can't do that and still have 1 million in your safe). 

          What if I have other income? Then I could just let the million sit pretty. They could only tax me on my "income" from a regular job right? Of course I personally would invest in interest bearing accounts, I am just hypothetically speaking and seeing what the options are tax-wise. I could easily live off of one million in principle, but would prefer to grow and sustain more wealth.

            sirbrad's avatar - Lottery-062.jpg
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            Posted: July 19, 2008, 12:45 am - IP Logged

            It's not really too complex.

            The first year you get taxed on the jackpot that you "earned".

            In following years you would get taxed on any interest you earned on the prize, but obviously the prize money itself is not re-taxed. 

            Again, all this stuff is exactly like any income earned in a paycheck, nothing special, and not rocket science.

            BTW, that 25% withholding is not a magic number that cannot be breached.  If you give a lot to charity in the first year or do something else that would be a tax shelter, you could possibly lower your total taxes to less than 25% and get some of it back as a refund.

            Or, you could do nothing to shelter your jackpot (like just sticking it in a regular bank account) and you will pay another 10% or so in taxes.

            As a side note, there seems to be generally a lot of mis-infomation about taxes.  You don't "get back money" like a rebate if you get a refund when you fill out your taxes.  You get refund because your employer withheld too much of your money.  It means you did not specify a realistic number of deductions when you filled out the initial tax form when you were hired.  It's YOUR money, and the IRS has been holding on to it.

            If you're getting a huge refund every year, that means you should contact your employer and ask them to adjust your withholding amount.  You would be much better off to get the money in your check, rather than having the IRS hold it.  You could be earning interest on that money.

            Yeah I prefer to have my money now as opposed to later. If it were up to me I would not even give them it, unless of course the interest was good and I had enough already.

              Clairvoyance's avatar - eye storm.jpg

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              Posted: July 19, 2008, 1:03 am - IP Logged

              I asked this question long ago but still never got a definite answer. Say you win $1,000,000 and the 25% is already paid, (PA) would you still be taxed on this income year after year? I don't see how you could, as it would not be income anymore after the first year and taxes already taken out. I keep hearing some say taxed at 35% or something like that, what does this mean exactly?

              The will take 35% of your money each year? I don't think so, if that was the case you would have nothing pretty quickly. Say you cleect interest at 5% with a CD, how much would tax be on that? I heard 10% but I guess it depends on the bank. Also I heard Municipal Bonds pay like 20%, are they risky? I also read they were tax exempt. I would most likely go half and half on CD's and Munis.

              I know this not the place to ask for tax advice, but just wanted to see if anyone had any idea how it all works. I emailed the IRS, but you have to call and I am not going to go through all of that with them until I win. So if anyone can explain more thoroughly it would be appreciated, and informative for other members seeking the same answers in the future.

              After the initial taxes are taken from the winnings, buy a good safe and have it put into the wall of your home, hidden of course and get a good alarm system. The money can sit there forever and never be taxed again!!! What do you think a lot of rich folks do to avoid paying taxes on that kind of money? If you don’t want to pay taxes on interest then keep the money OUT OF THE SYSTEM! Its that simple. If its not in the system it cant be taxed again.

              If you put the money into the system then yah its going to be taxed again, not the money itself but the interest it draws will be! When you keep it out of the system ………Then you can say WHAT MONEY? That type of money leaves no trails.

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                Posted: July 19, 2008, 1:09 am - IP Logged

                People who try to avoid paying taxes by  keeping their money in a safe instead of investing it are stupid, even if they do happen to be rich. How much tax do you think the IRS would expect on the interest your money earns from sitting in a safe?

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                  Posted: July 19, 2008, 1:09 am - IP Logged

                  Thanks that is what I initially suspected as it makes sense. So they would just tax the interest as I also thought. What percentage would they tax it at? So would I owe more taxes the next year on the original million after the 25% witheld? I would not mind the interest taxes as you would still make a lot of money. But all this tax crap just puts a damper on winning the lottery. Everytime someone's wins the IRS does too, which is crap.

                  What percentage do they tax the rest of your income at?

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                    Houston
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                    Posted: July 19, 2008, 1:46 am - IP Logged

                    It's not really too complex.

                    The first year you get taxed on the jackpot that you "earned".

                    In following years you would get taxed on any interest you earned on the prize, but obviously the prize money itself is not re-taxed. 

                    Again, all this stuff is exactly like any income earned in a paycheck, nothing special, and not rocket science.

                    BTW, that 25% withholding is not a magic number that cannot be breached.  If you give a lot to charity in the first year or do something else that would be a tax shelter, you could possibly lower your total taxes to less than 25% and get some of it back as a refund.

                    Or, you could do nothing to shelter your jackpot (like just sticking it in a regular bank account) and you will pay another 10% or so in taxes.

                    As a side note, there seems to be generally a lot of mis-infomation about taxes.  You don't "get back money" like a rebate if you get a refund when you fill out your taxes.  You get refund because your employer withheld too much of your money.  It means you did not specify a realistic number of deductions when you filled out the initial tax form when you were hired.  It's YOUR money, and the IRS has been holding on to it.

                    If you're getting a huge refund every year, that means you should contact your employer and ask them to adjust your withholding amount.  You would be much better off to get the money in your check, rather than having the IRS hold it.  You could be earning interest on that money.

                    Todd,

                    Your first 4 paragraphs is exactly as I was saying in my first thread. I don't want to confuse Sirbad but if he's reading this, you're only taxed ONCE by the lottery. What you earn on interests after investing your winnings, is SEPARATED from "another lottery taxation." There is no more taxation from the Lottery after they take out the initial taxes to claim your prize.

                    You can hold all that money in your house and will never be taxed on it again. If you invest it, you're right (Sirbad), you will NOT be taxed on the PRINCIPLE but you will be taxed on the interests depending on your investment and the "maturity" periods.

                    Now, if you get a team of Financial Advisors ( and the lottery officials will strongly recommend that you do as well as your lawyer that may accompany you to claim your prize) -- these people specialize in crafting your investment to fit the lifestyle you want. How they do it? I don't know (and this to answer STACK47).... those team of financial experts will get you a diversify portfolio with a mixture of high, low risk in stock, bonds, munis, CD's, T-Bills ( that main investment by Mega Million Lottery), Coupon Slips (so its' called), and other lucrative investment to get you living of the interests of your earnings.

                    I'm not even sure how much if cost to get a team of people like that to look out for you but with a jackpot prize, you wouldn't even worry about the cost. I notice most millionaires have people like that managing their money. You can get your entire team from one financial institution like A.I.G. or investment firms like that.

                    The story I read on the guy that did this --- he sort of handpicked his team of advisor and was able to live off $400,000.00 (interest money) a year. I forgot how much he actually won but I remember the interest he lives off and that's a nice little payout for a yearly income.

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                      Houston
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                      Posted: July 19, 2008, 1:50 am - IP Logged

                      People who try to avoid paying taxes by  keeping their money in a safe instead of investing it are stupid, even if they do happen to be rich. How much tax do you think the IRS would expect on the interest your money earns from sitting in a safe?

                      There is no tax on the purchase of a safebox, dude. You know upfront what you paying for on a safebox to park your money. You can convert your winning into several Cashier Check and park it in a safebox in the bank and pay a small measly fee for it and not a DAMN THING THE IRS CAN DO ABOUT IT.

                        sirbrad's avatar - Lottery-062.jpg
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                        Posted: July 19, 2008, 2:02 am - IP Logged


                        Yeah I would most likely have a diversified portfolio, I just heard a lot of ridiculous statements about being taxed at 35% each year on one lottery jackpot win, which as I said sounded ridiculous. Not that I would put anything past the IRS. Heck I could live great on a 5% CD over several years from $600,000 up, and compound interest from the scraps.

                        Thanks to all for clearing most of this up. I was only using the money in a safe as an example, but I know some people who do that. I prefer a book or other hidden type of safe, as that is the last place someone would look. Too bad they don't make a book that big lol. I hope to get a lot more helpful advice from the two books I bought about what to do after winning the lottery, when I get time to read them.

                        "Lottery Winner's Guide: When it happens to you, A must for every lottery-playing household."

                        "Infinite Financial Freedom: What to do before and after you win the lottery."

                                   

                        Cheers

                          CCHS13's avatar - chi jpeg.jpg
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                          Posted: July 19, 2008, 2:04 am - IP Logged

                          Informative thread, can someone shed some light on the dreadful "gift tax" for me.  How is it that they know what and who you gave money too.  Do they check withdrawls and deposits.  I heard its something like 10,000 or 13,000 is the max a gift can be then a tax has to be paid on it.  Is it just on cash or if I were to purchase things for someone else would the gift tax apply.  Thanks in advance

                          Men Lie Women Lie Numbers Dont

                            sirbrad's avatar - Lottery-062.jpg
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                            Posted: July 19, 2008, 2:07 am - IP Logged

                            Yeah also the dreadful 50% estate tax, or inheritance tax? That is another thing I can't stand about the IRS, you won the money so you should be able to spend or give as much of it to whoever you want. They are just mad and greedy and don't want anyone else getting the money but them. How can they take 50% of what they already taxed at 35%?!

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                              Posted: July 19, 2008, 6:08 am - IP Logged

                              Todd,

                              Your first 4 paragraphs is exactly as I was saying in my first thread. I don't want to confuse Sirbad but if he's reading this, you're only taxed ONCE by the lottery. What you earn on interests after investing your winnings, is SEPARATED from "another lottery taxation." There is no more taxation from the Lottery after they take out the initial taxes to claim your prize.

                              You can hold all that money in your house and will never be taxed on it again. If you invest it, you're right (Sirbad), you will NOT be taxed on the PRINCIPLE but you will be taxed on the interests depending on your investment and the "maturity" periods.

                              Now, if you get a team of Financial Advisors ( and the lottery officials will strongly recommend that you do as well as your lawyer that may accompany you to claim your prize) -- these people specialize in crafting your investment to fit the lifestyle you want. How they do it? I don't know (and this to answer STACK47).... those team of financial experts will get you a diversify portfolio with a mixture of high, low risk in stock, bonds, munis, CD's, T-Bills ( that main investment by Mega Million Lottery), Coupon Slips (so its' called), and other lucrative investment to get you living of the interests of your earnings.

                              I'm not even sure how much if cost to get a team of people like that to look out for you but with a jackpot prize, you wouldn't even worry about the cost. I notice most millionaires have people like that managing their money. You can get your entire team from one financial institution like A.I.G. or investment firms like that.

                              The story I read on the guy that did this --- he sort of handpicked his team of advisor and was able to live off $400,000.00 (interest money) a year. I forgot how much he actually won but I remember the interest he lives off and that's a nice little payout for a yearly income.

                              "I don't want to confuse Sirbad but if he's reading this, you're only taxed ONCE by the lottery."

                              How many times do you have to be told the lotteries WITHHOLD federal and state taxes the same way your employer WITHHOLDS federal state taxes from your paycheck?

                              There is no lottery tax in my state.

                              "I don't know (and this to answer STACK47).... those team of financial experts will get you a diversify portfolio with a mixture of high, low risk in stock, bonds, munis, CD's, T-Bills ( that main investment by Mega Million Lottery), Coupon Slips (so its' called), and other lucrative investment to get you living of the interests of your earnings."

                              We were talking about winning a $1 million not a multi-million MM jackpot. Yeah, if you had $150 million to invest, Warren Buffet might help you find a team, but it's going to cost you. For the $650,000 you net after taxes, one financial planner would probably recommend a variety of mutual funds that do exactly the same thing.

                              "The story I read on the guy that did this --- he sort of handpicked his team of advisor and was able to live off $400,000.00 (interest money) a year. I forgot how much he actually won but I remember the interest he lives off and that's a nice little payout for a yearly income."

                              $400,000 is 1% of $40 million and if I handpicked a team of advisers and that's all I got, I would fire them. If he invested $3 million and got that return with the way the market has been going, they are worth every penny.