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a "tax" question for those in the know

Topic closed. 22 replies. Last post 8 years ago by psykomo.

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AlecWest's avatar - alec
Vader, Washington
United States
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January 5, 2006
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Posted: August 12, 2008, 6:12 am - IP Logged

Let's say someone bought a lottery ticket just after Christmas this year but just put it away in a drawer, not checking it.  Then in May next year, before the 180-day redemption deadline was reached, they discovered the ticket while cleaning out their drawer - found out it was a winner - and redeemed it.

Question - Does the lottery winner declare the winnings on his 2009 tax return ... or does he have to go back and do an amended return for 2008?  In short, do taxes on lottery winnings accrue on the date of the drawing or on the date of ticket redemption?

    numbergirly's avatar - 0002009C
    Dover, Delaware
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    November 25, 2005
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    Posted: August 12, 2008, 6:40 am - IP Logged

    Let's say someone bought a lottery ticket just after Christmas this year but just put it away in a drawer, not checking it.  Then in May next year, before the 180-day redemption deadline was reached, they discovered the ticket while cleaning out their drawer - found out it was a winner - and redeemed it.

    Question - Does the lottery winner declare the winnings on his 2009 tax return ... or does he have to go back and do an amended return for 2008?  In short, do taxes on lottery winnings accrue on the date of the drawing or on the date of ticket redemption?

    Hi AlecWest....If i'm not mistaking you declare the winnings when you cash in. In other words you would file it on your 2009 taxes. It only counts when you get the money in your hand. The I.R.S only look at the date the ticket was claimed not when it was purchased. That's just my opinion....I could be wrong and I'm sure other LP members will either post their opinions or facts. Just wait for other LP post and compare answers to come up with your own conclusion  or, contact your lottery office.... That would be the safe thing to do.Smile

    WHEN LIFE GIVES YOU LEMONS   Ice Water 





      DC81's avatar - batman39
      MI
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      Posted: August 12, 2008, 6:54 am - IP Logged

      Wow, I was thinking of this exact thing yesterday.... I'm sure I'd be whenever you received the money.

      You can't predict random.

        Avatar
        Kentucky
        United States
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        February 14, 2006
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        Posted: August 12, 2008, 12:26 pm - IP Logged

        Hi AlecWest....If i'm not mistaking you declare the winnings when you cash in. In other words you would file it on your 2009 taxes. It only counts when you get the money in your hand. The I.R.S only look at the date the ticket was claimed not when it was purchased. That's just my opinion....I could be wrong and I'm sure other LP members will either post their opinions or facts. Just wait for other LP post and compare answers to come up with your own conclusion  or, contact your lottery office.... That would be the safe thing to do.Smile

        I Agree!

        The check will be issued after the ticket is validated so the winner would have no lottery winnings as income for the tax year 2008. 

        It's possible a jackpot winner could validate the ticket in late December but not get the check until January. They will get a W-2G and it would say in which year the winning considered as income.

        "contact your lottery office...."

        That's the best advice because if it's a large jackpot, the winner will probably owe more in taxes and there is a difference between paying it by the next April 15 or having an extra year to collect interest.

          Avatar
          NY
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          Posted: August 13, 2008, 12:29 am - IP Logged

          Hi AlecWest....If i'm not mistaking you declare the winnings when you cash in. In other words you would file it on your 2009 taxes. It only counts when you get the money in your hand. The I.R.S only look at the date the ticket was claimed not when it was purchased. That's just my opinion....I could be wrong and I'm sure other LP members will either post their opinions or facts. Just wait for other LP post and compare answers to come up with your own conclusion  or, contact your lottery office.... That would be the safe thing to do.Smile

          "The I.R.S only look at the date the ticket was claimed not when it was purchased."

          What the IRS is interested in is "constructive receipt," which is when you become entitled to the money. You become entitled as soon as the drawing makes your ticket a winner, subject to the lottery's validation and check writing policies. In the case of a ticket purchased in late December it's possible that the lottery wouldn't write a check until after January 1st. If you could have had the money before then the IRS doesn't care that you chose to wait, and the tax would be due for 2007's taxes.

            hennybogan's avatar - DiscoBallGlowing
            McKinney/Texas
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            Posted: August 13, 2008, 12:47 am - IP Logged

            "The I.R.S only look at the date the ticket was claimed not when it was purchased."

            What the IRS is interested in is "constructive receipt," which is when you become entitled to the money. You become entitled as soon as the drawing makes your ticket a winner, subject to the lottery's validation and check writing policies. In the case of a ticket purchased in late December it's possible that the lottery wouldn't write a check until after January 1st. If you could have had the money before then the IRS doesn't care that you chose to wait, and the tax would be due for 2007's taxes.

            When the ticket is redeemed.

            Another thing to REMEMBER.

            If you win say $5,400 in a Pick 4, and you have tickets or scratch offs totaling $5,400 - IT IS A WASH IF YOU ITEMIZE!!! You must keep all of the tickets as receipts in case you are audited.

            I know - been there - done that. You can never write off more than what you win.

            People think I'm nuts for picking up scratch offs left behind. At tax time, I'm smiling. :-)

             

            p.s. When the lottery commission takes your picture and has you fill out an IRS form they

                   will casually ask you, "SO, WHAT SYSTEM DID YOU USE TO WIN?" For the good

                   of all players, just mumble something or say, "QUICK PICK!"

              Ephesians 3:20


              DC81's avatar - batman39
              MI
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              Posted: August 13, 2008, 4:24 am - IP Logged

              I'd tell them "time travel".

              You can't predict random.

                justxploring's avatar - villiarna
                Wandering Aimlessly
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                Posted: August 13, 2008, 4:31 am - IP Logged

                Well, I have to disagree with those who wrote "when you get paid."  You asked "for those in the know" and I know.  LOL   In this case, since the ticket was purchased in December, you would not have to claim the income for 2008.   You have a 60 day window, so it's not always when you claim the ticket.  If you won in Sept and claimed it in March, you would not benefit from waiting, since it would be considered 2008 income.  Sept does not fall into the 60 day window. 

                The IRS does this to allow you ample time to claim your prize and make financial decisions.  They also realize that at the end of the year it might take a few weeks to get your money from the Lottery.  The constructive receipt KY Floyd was talking about is explained this way by the IRS.

                When Paid

                A payment of winnings is considered made when it is paid, either actually or constructively, to the winner. Winnings are constructively paid when they are credited to, or set apart for, that person without any substantial limitation or restriction on the time, manner, or condition of payment. However, if not later than 60 days after the winner becomes entitled to the prize, the winner chooses the option of a lump sum or an annuity payable over at least 10 years, the payment of winnings is considered made when actually paid. If the winner chooses an annuity, file Form W-2G each year to report the annuity paid during that year.

                So, yes, you would be okay if you claimed the prize in Jan or Feb and paid taxes for next year and the Dec drawing would have no bearing on it. 

                  justxploring's avatar - villiarna
                  Wandering Aimlessly
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                  Posted: August 13, 2008, 5:09 am - IP Logged

                  Just to add:

                  Since you did not ask "if I wait until Jan or Feb" and May is beyond the 60 day period allowed by the IRS, a CPA or Tax Attorney might be able to help you file.  Whether or not the IRS would be reasonable and assume that, even if you came forward in Dec, the forms wouldn't be processed on time & you'd be paid in Jan 2009 anyway, isn't clear. My guess is that you would not be expected to claim it for 2008, but it isn't really black & white.

                  So the bottom line is -  never put a ticket in a drawer and forget about it for 6 months!  Smiley  Also, you'd be losing interest everyday you don't invest your money.  Just because you have new wealth, doesn't mean you don't want it to grow by thousands every month. 

                    RJOh's avatar - chipmunk
                    mid-Ohio
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                    Posted: August 13, 2008, 6:36 am - IP Logged

                    If your prize was over $600, the state will send you a W-2G form to be filed with your taxes which will have the tax year on it.

                     * you don't need to buy more tickets, just buy a winning ticket * 
                       
                                 Evil Looking       

                      Avatar
                      Kentucky
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                      Posted: August 13, 2008, 11:40 am - IP Logged

                      Well, I have to disagree with those who wrote "when you get paid."  You asked "for those in the know" and I know.  LOL   In this case, since the ticket was purchased in December, you would not have to claim the income for 2008.   You have a 60 day window, so it's not always when you claim the ticket.  If you won in Sept and claimed it in March, you would not benefit from waiting, since it would be considered 2008 income.  Sept does not fall into the 60 day window. 

                      The IRS does this to allow you ample time to claim your prize and make financial decisions.  They also realize that at the end of the year it might take a few weeks to get your money from the Lottery.  The constructive receipt KY Floyd was talking about is explained this way by the IRS.

                      When Paid

                      A payment of winnings is considered made when it is paid, either actually or constructively, to the winner. Winnings are constructively paid when they are credited to, or set apart for, that person without any substantial limitation or restriction on the time, manner, or condition of payment. However, if not later than 60 days after the winner becomes entitled to the prize, the winner chooses the option of a lump sum or an annuity payable over at least 10 years, the payment of winnings is considered made when actually paid. If the winner chooses an annuity, file Form W-2G each year to report the annuity paid during that year.

                      So, yes, you would be okay if you claimed the prize in Jan or Feb and paid taxes for next year and the Dec drawing would have no bearing on it. 

                      "Well, I have to disagree with those who wrote "when you get paid."  You asked "for those in the know" and I know.  LOL"

                      If what you showed in red is from the IRS, it can't be any clearer than "when you get paid" and not the drawing date. It could apply to when the ticket is validated but in this scenario the hasn't been validated.

                      "A payment of winnings is considered made when it is paid, either actually or constructively, to the winner.   Winnings are constructively paid when they are credited to, or set apart for, that person without any substantial limitation or restriction on the time, manner, or condition of payment."

                      "You have a 60 day window, so it's not always when you claim the ticket."

                      The 60 day window applies to choosing between cash option and the annuity after validating the ticket.

                      "However, if not later than 60 daysafter the winner becomes entitled to the prize, the winner chooses the option of a lump sum or an annuity payable over at least 10 years, the payment of winnings is considered made when actually paid."

                       

                      "If you won in Sept and claimed it in March, you would not benefit from waiting, since it would be considered 2008 income.  Sept does not fall into the 60 day window."

                      How could a player be entitled to or get payment before validating the ticket?

                      Lotteries offer advanced play and some even offer yearly subscriptions so it's possible a player could forget to check their ticket or just wait until the last drawing date before checking them. Can you imagine the outrage during an election year if the IRS added penalties and late charges for not filling on time because an 80 year-old jackpot winner waited until the advance play or subscription was up before checking their tickets?

                      "So, yes, you would be okay if you claimed the prize in Jan or Feb and paid taxes for next year and the Dec drawing would have no bearing on it."

                      On my ticket where it says I have up to 180 days to claim the winnings and not 60 days. Is there even smaller print that I can't see saying I might be subject to IRS penalties if I wait that long? 

                      Do lotteries fill out W-2G forms and send copies to the IRS in December with "player to be named later"?

                      If "those in the know" say in which tax year depends on when the ticket is validated, I'll agree.

                        justxploring's avatar - villiarna
                        Wandering Aimlessly
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                        Posted: August 13, 2008, 12:51 pm - IP Logged

                        Well, when you win next week, just hold onto the ticket until January and we'll see.  You are not interpreting the IRS rule correcting.  "constructive payment" means that the prize was won and the money is available for you.  You cannot wait 5 months to collect it and expect to avoid taxes for the year you won.  If you win in September and wait until February, you will still have to pay 2008 tax.

                        If you win during the last 2 months of the year, then you can opt to wait and pay tax for the following year.  Anyway, you only pay tax on your prize once, so who cares?  You never pay it both years.  So if someone waited until May to collect, 25% would be deducted (plus any state tax if applicable) and then you could invest the rest.  

                        The last thing I'd be worried about if I found a winning lottery ticket after 6 months would be "Gee, what year will I be taxed?"

                        Stack, you can quote me all you want, agree or disagree, but you are not making sense.  You can't go to the lottery and say "I want the lump sum, but don't pay me." It is saying if you claim your prize within 60 days of the date of the drawing (when you are entitled to the money) you will be tax according to the date paid. You are reading it 2 different ways.  Once you go to the Lottery and claim your prize, they're not going to send you a check in 6 months. 

                        Regarding what your ticket says or doesn't say, the Lottery is not the IRS.  The Lottery never gives tax advice.  It just follows the rules by deducting a minimum of 25% if your prize is $5,000 or over and sending a W-G form to every winner who was paid $600 or more.  Even if you call the Lottery, I doubt if anyone will tell you the answer, but maybe you should call the IRS if you're that stubborn. 

                          AlecWest's avatar - alec
                          Vader, Washington
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                          Posted: August 13, 2008, 1:27 pm - IP Logged

                          Wow!  Thanks for all the helpful advice.  If I understand things correctly, this is the scenario that would be copasetic under IRS rules and regulations (and note that I'm discussing a one-time cash-option payout, not an annuity scenario).

                          If a person wins a jackpot between January 1st and Novenber 1st, 2008, it must be declared as income for the 2008 tax year - regardless of whether the ticket is redeemed in 2008 or 2009.  But, if a person wins a jackpot between November 2nd and December 31st, 2008 but does not "redeem" the ticket until 2009, the person is allowed to consider the income as 2009 tax year income.

                          Please correct me if this is an incorrect interpretation of IRS rules.

                          One other tax question.  All states withhold a minimum mandatory withholding tax.  But, if a person has consulted with a tax attorney prior to redeeming the ticket ... and the attorney suggests that the "real" tax bite will be, say, 39% ... will the Lottery Commission take out more than the mandatory withholding if requested to do so?

                          Again, thanks to everyone for the feedback.

                          P.S. to "justxploring" - I notice you're a Floridian and was curious if you've read Carl Hiassen's humorous mystery novel, "Lucky You," dealing with the misadventures of a Florida lottery jackpot winner.  Opinions?

                          Regards - J. Alec West

                            justxploring's avatar - villiarna
                            Wandering Aimlessly
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                            Posted: August 13, 2008, 3:01 pm - IP Logged

                            Alec, that might depend on the state lottery.  The IRS dictates that you must deduct at least 25% if the person is a US citizen with a social security number and 30% if he is not.   Some people here have told me that their state deducts tax if the prize is over $600.  In Florida it's $5,000. (which is the IRS rule)  In any case, all prizes $600 and over are reported to the IRS. 

                            I was very sure I was correct when answering the original question.  But just to make sure I was up-to-date on my tax knowledge (since others said they "knew" I was wrong) I phoned the Florida Lottery customer service department a few minutes ago.  She agreed.  You cannot hold a winning ticket for months and claim it the next year without paying 2008 taxes.  At the end of the year you can wait to claim your prize as long as that period is 60 days or less.  I've read on some state sites that they prefer people wait until Jan to claim their prizes after Christmas so there's no mix-up.  If you get paid in Jan, you might still get a W-2G for 2008 if you file a claim in Dec or vice versa. 

                            BTW, while I was on the phone, I also asked about the tax deduction and she said 25% is the maximum the Lottery will deduct if you are a US citizen.  As I wrote before, the Lottery is not a tax office and not an agency of the Federal government like the IRS.  They just run the lottery.   Thanks for asking that question, since I thought of it before and didn't know for sure if they'd take out more if requested.  Now we know!  (at least in this state)

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                              Kentucky
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                              Posted: August 13, 2008, 4:00 pm - IP Logged

                              Well, when you win next week, just hold onto the ticket until January and we'll see.  You are not interpreting the IRS rule correcting.  "constructive payment" means that the prize was won and the money is available for you.  You cannot wait 5 months to collect it and expect to avoid taxes for the year you won.  If you win in September and wait until February, you will still have to pay 2008 tax.

                              If you win during the last 2 months of the year, then you can opt to wait and pay tax for the following year.  Anyway, you only pay tax on your prize once, so who cares?  You never pay it both years.  So if someone waited until May to collect, 25% would be deducted (plus any state tax if applicable) and then you could invest the rest.  

                              The last thing I'd be worried about if I found a winning lottery ticket after 6 months would be "Gee, what year will I be taxed?"

                              Stack, you can quote me all you want, agree or disagree, but you are not making sense.  You can't go to the lottery and say "I want the lump sum, but don't pay me." It is saying if you claim your prize within 60 days of the date of the drawing (when you are entitled to the money) you will be tax according to the date paid. You are reading it 2 different ways.  Once you go to the Lottery and claim your prize, they're not going to send you a check in 6 months. 

                              Regarding what your ticket says or doesn't say, the Lottery is not the IRS.  The Lottery never gives tax advice.  It just follows the rules by deducting a minimum of 25% if your prize is $5,000 or over and sending a W-G form to every winner who was paid $600 or more.  Even if you call the Lottery, I doubt if anyone will tell you the answer, but maybe you should call the IRS if you're that stubborn. 

                              "Stack, you can quote me all you want, agree or disagree, but you are not making sense.  You can't go to the lottery and say "I want the lump sum, but don't pay me.

                              Nope I'm saying the winners has up to 60 days AFTER validating their ticket to choose either a cash payment or the annuity.

                              "Upon completion of internal validation and claiming procedures established by the Ohio lottery commission, at the time a valid claim is presented for payment of the grand prize jackpot, the estimated cash option prize amount along with the amount of appropriately withheld state and federal income taxes shall be disclosed in writing to the prize winner. Commencing with the date of presentment of a valid winning grand prize jackpot ticket to the Ohio lottery commission, and for sixty calendar days thereafter, claimants may choose the cash option instead of annual installments. Claimants who choose the cash option will receive the discounted present cash value of the grand prize jackpot in an amount equal to the full proceeds generated by the sale of the investments acquired by the Ohio lottery commission to fund the twenty-six year annual installment payment stream as set forth in paragraph (I)(J)(1) of this rule, less the appropriately withheld state and federal income taxes and any other deductions required by law."

                              Taxes are deducted and the prize winner is notified AFTER validation too.

                              "Regarding what your ticket says or doesn't say, the Lottery is not the IRS.  The Lottery never gives tax advice.  It just follows the rules by deducting a minimum of 25% if your prize is $5,000 or over and sending a W-G form to every winner who was paid $600 or more."

                              The topic is about a player that didn't know they won and has the winning ticket from a December drawing validated in May and AFTER the April 15 filling deadline. 

                              "Even if you call the Lottery, I doubt if anyone will tell you the answer, but maybe you should call the IRS if you're that stubborn."

                              Form 1040, line 21 is "other income" and includes lottery winnings. The winnings are paid AFTER the ticket is validated, AFTER taxes are deducted, and a form W-2G is issued. Line 4 says date won and the form W-2G I got last year is the date I validated the ticket; a week after the drawing.

                              "If you win during the last 2 months of the year, then you can opt to wait and pay tax for the following year.

                              If they enter the drawing date on line 4 it would still be the previous year whether they waited until January or not. My win was under $10,000 so I got the prize on the same day. Payment of prizes over $10,000 are not usually paid on the date the ticket is validated so we'll have to ask EzMoney what date is on his W-2G.