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Why can't you claim lotto winnings as investment income

Topic closed. 8 replies. Last post 4 years ago by Six balls.

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Poo Nanny's avatar - 2649029

United States
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March 30, 2012
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Posted: May 16, 2013, 10:10 pm - IP Logged

When I buy my tickets, I think of it as a possible investment in my future. Kind of like buying a risky stock. Why can't I claim my winnings as investment income which would be taxed at a lower percentage?

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    Kentucky
    United States
    Member #32652
    February 14, 2006
    7314 Posts
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    Posted: May 16, 2013, 10:46 pm - IP Logged

    When I buy my tickets, I think of it as a possible investment in my future. Kind of like buying a risky stock. Why can't I claim my winnings as investment income which would be taxed at a lower percentage?

    Because the IRS defines lottery winnings as certain gambling winnings. And considering the fact about 97% of the tickets win nothing, it can hardly be called even a possible investment.

    The good news is you can deduct your losing tickets up to how much you win.

      rdgrnr's avatar - walt
      Way back up in them dadgum hills, son!
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      April 28, 2009
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      Posted: May 17, 2013, 12:22 am - IP Logged

      When I buy my tickets, I think of it as a possible investment in my future. Kind of like buying a risky stock. Why can't I claim my winnings as investment income which would be taxed at a lower percentage?

      Hi Poo Nanny.

      Are you related to Pee Diddy?

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        Sacramento, CA
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        May 12, 2013
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        Posted: May 17, 2013, 12:47 am - IP Logged

        Because it's not a long term capital gain. Buy a stock today, have it go up $1000 and sell it next week, it's taxed the same as money earned by working (between 10% and 39.6%). Buy the same stock today, hold it for ovar a year and it's gone up the same $1000, you're taxed at the 10-15% capital gains rate.

         

        Course, if you buy a lottery ticket and hold onto it for a year, it's going to be worthless when you try to cash it in. Welp, that's one way to reduce your tax burden. ROFL

          Poo Nanny's avatar - 2649029

          United States
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          Posted: May 17, 2013, 1:26 am - IP Logged

          Hi Poo Nanny.

          Are you related to Pee Diddy?

          That great!  Maybe I am.

            whiteballz's avatar - Lottery-015.jpg
            Nutley, New Jersey
            United States
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            August 1, 2012
            875 Posts
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            Posted: May 17, 2013, 8:53 am - IP Logged

            Because it's not a long term capital gain. Buy a stock today, have it go up $1000 and sell it next week, it's taxed the same as money earned by working (between 10% and 39.6%). Buy the same stock today, hold it for ovar a year and it's gone up the same $1000, you're taxed at the 10-15% capital gains rate.

             

            Course, if you buy a lottery ticket and hold onto it for a year, it's going to be worthless when you try to cash it in. Welp, that's one way to reduce your tax burden. ROFL

            this is accurate for the most part. One correction I would add is the long term capital gains tax rate is no longer 15% starting Jan 2013. There is a new 3.8 percent  surtax on investment income to help fund obamacare. This effects households making at least $250,000 ($200,000 single). The 3.8 percent surtax in addition to the expiration of the Bush era tax cuts would result in a 23.8% long term capital gains tax rate.

            http://swampland.time.com/2012/12/07/5-new-obamacare-taxes-coming-in-2013/

            .

              Jill34786's avatar - Lottery-006.jpg
              Windermere, FL/Franklin, TN
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              Member #50210
              March 1, 2007
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              Posted: May 17, 2013, 10:43 am - IP Logged

              this is accurate for the most part. One correction I would add is the long term capital gains tax rate is no longer 15% starting Jan 2013. There is a new 3.8 percent  surtax on investment income to help fund obamacare. This effects households making at least $250,000 ($200,000 single). The 3.8 percent surtax in addition to the expiration of the Bush era tax cuts would result in a 23.8% long term capital gains tax rate.

              http://swampland.time.com/2012/12/07/5-new-obamacare-taxes-coming-in-2013/

              The new tax structure for 2013 is still quite vague. There have been numerous reports stating that the 3.8% Obamacare tax will apply to both unearned/investment income as well as earned income. The link below states that the 3.8% tax applies to investment/unearned income and that a 2.35% Medicare Part A tax applies to earned income with 200k/single or 250k/married being the basis.

              Either way, large lottery winnings which are classified as earned income will be subject to a 39.6% Federal tax and either the 2.35% Medicare Part A or 3.8% Obamacare tax...don't forget some state may also want a cut of your winnings.

              http://obamacarefacts.com/obamacare-taxes.php

              http://taxes.about.com/od/payroll/a/Medicare-Tax.htm

                whiteballz's avatar - Lottery-015.jpg
                Nutley, New Jersey
                United States
                Member #131058
                August 1, 2012
                875 Posts
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                Posted: May 17, 2013, 11:15 am - IP Logged

                The new tax structure for 2013 is still quite vague. There have been numerous reports stating that the 3.8% Obamacare tax will apply to both unearned/investment income as well as earned income. The link below states that the 3.8% tax applies to investment/unearned income and that a 2.35% Medicare Part A tax applies to earned income with 200k/single or 250k/married being the basis.

                Either way, large lottery winnings which are classified as earned income will be subject to a 39.6% Federal tax and either the 2.35% Medicare Part A or 3.8% Obamacare tax...don't forget some state may also want a cut of your winnings.

                http://obamacarefacts.com/obamacare-taxes.php

                http://taxes.about.com/od/payroll/a/Medicare-Tax.htm

                ohhhhh <snip>!!!!!

                .

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                  Sacramento, CA
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                  May 12, 2013
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                  Posted: May 17, 2013, 12:17 pm - IP Logged

                  And this, kids, is why all the "What to Do If You Win the Ginormous Jackpot!" advice columns tell you to get the advice of tax attorneys/CPAs, as opposed to internet code monkeys. Too much math!