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Avoiding State tax on Megamillions winnings.

Topic closed. 14 replies. Last post 3 years ago by Stack47.

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Posted: October 1, 2013, 5:40 pm - IP Logged

Ok I live in VA where there is a 4% state tax on lottery winnings.

I drove through and purchased a ticket in PA where there is NO state tax on lotto winnings.

If I win, I have one year to claim the ticket in PA.

If I win, can i just move to PA, live there and be a resident, then claim the ticket after about 6 months?

I would think I would be a full PA resident and the winnings would be PA income, thus not subject to any state tax. 

Any problems with this logic?


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    Posted: October 1, 2013, 6:34 pm - IP Logged

    Interesting concept...when does a particular state consider you a resident though? Also if you pay your year end taxes in the one state and it's not time for you to pay them again til the next fiscal will they consider the actual state you paid your year end taxes in you actual state of residence?

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      Posted: October 1, 2013, 6:51 pm - IP Logged

      I've moved a few times in the middle of the year. You just have to fill out two separate State tax forms. You will also have two W-2s for the two states.

      Each state has different requirements, but usually you're good to go if you have a residence and have their Driver's license.

      By the time I claim the winning, I would comfortably be a resident in that state.

        noise-gate's avatar - images q=tbn:ANd9GcR91HDs4UJhjxO7cmeMQWZ5lB_FOcMLOGicau4V74R45tDgPWrr
        Bay Area - California
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        Posted: October 1, 2013, 7:27 pm - IP Logged

        Ok I live in VA where there is a 4% state tax on lottery winnings.

        I drove through and purchased a ticket in PA where there is NO state tax on lotto winnings.

        If I win, I have one year to claim the ticket in PA.

        If I win, can i just move to PA, live there and be a resident, then claim the ticket after about 6 months?

        I would think I would be a full PA resident and the winnings would be PA income, thus not subject to any state tax. 

        Any problems with this logic?

        Interesting theory you have going on rgrpark BUT the States have already gone through this rehearsal,  your driver's license lets them know whether you were a State resident at the time of your winnings.  There is no getting away with not paying State taxes if you were living there at the time.Much like being seperated from your spouse and you won the lottery,  just because you were not together at the time of your win does not mean you do not have to share half or a percentage of the winnings.
        I would suggest you read the bottom section of the USAMega payout State by State. You could also do a google search for your question and see what comes back. Such as " if l lived in ...and won the lottery in ..do l have to pay taxes?"
        * The State tells you whether you getting a free lunch * taxes wise- not you or l.
        Nice Try though.

          Coin Toss's avatar - shape barbed.jpg
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          Posted: October 1, 2013, 7:31 pm - IP Logged

          rgpark,

          Everything noise-gate said above and don't forget the ticket has a date on it.

          Those who run the lotteries love it when players look for consistency in something that's designed not to have any.

          Lep

          There is one and only one 'proven' system, and that is to book the action. No matter the game, let the players pick their own losers.

            Artist77's avatar - batman14

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            Posted: October 1, 2013, 7:35 pm - IP Logged

            rgpark,

            Everything noise-gate said above and don't forget the ticket has a date on it.

            Amen. Perfect answer. Per the IRS "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."

            J'aime La France.

              grwurston's avatar - 144
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              bel air maryland
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              Posted: October 1, 2013, 7:48 pm - IP Logged

              Ok I live in VA where there is a 4% state tax on lottery winnings.

              I drove through and purchased a ticket in PA where there is NO state tax on lotto winnings.

              If I win, I have one year to claim the ticket in PA.

              If I win, can i just move to PA, live there and be a resident, then claim the ticket after about 6 months?

              I would think I would be a full PA resident and the winnings would be PA income, thus not subject to any state tax. 

              Any problems with this logic?

              Click on USA MEGA on the left side, then go to the FAQ'S. They will answer your questions there. (You will still pay taxes in Va.)

              "You can observe a lot just by watching." Yogi Berra, Hall of Fame baseball player.

              The numbers will tell you what numbers to play. Pay attention to the numbers.

              Don't just think outside the box, crush it.

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                Kentucky
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                Posted: October 1, 2013, 8:47 pm - IP Logged

                rgpark,

                Everything noise-gate said above and don't forget the ticket has a date on it.

                Residences of other states with state taxes that work in a state with no state taxes still must pay state taxes on their income in the state of residence. It's possible someone could get away with paying no state taxes on a prize under $5000, but a multi-million jackpot is a whole different ball game.

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                  Posted: October 1, 2013, 8:52 pm - IP Logged

                  If it's the jackpot say, MM or PB, I would just pay the state taxes and somewhere that you really would like to live.

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                    Posted: October 1, 2013, 9:30 pm - IP Logged

                    From the USA MEGA FAQ:

                    "One other option to consider, depending on how much in taxes you're looking to save: the residency requirements as they relate to prize claims, state taxes, and income reporting.  Since you aren't responsible for paying taxes until you claim the prize, perhaps there is time to establish residency in the state where you purchased the ticket before the prize claim period expires.  However, that is something you would definitely need to explore with an attorney before taking any action to assess the feasibility." 

                    Definitely worth looking into.

                      Coin Toss's avatar - shape barbed.jpg
                      Zeta Reticuli Star System
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                      Posted: October 2, 2013, 12:38 am - IP Logged

                      Artist77,

                      You once mentioned a proposed book by jackpot winners about how people had hit them up for $$$ would be interesting.

                      I think another would be "How Lottery Winners Tried To Beat The tax Man".

                      Chapter 1, by Joe Jones,

                      #235764, Federal Pen. Atlanta

                      Scared

                       

                      rgpark,

                      Something to consider - if an American wins a Canadian lottery they still have to pay U.S. taxes on the winnings.

                      When the Irish Sweepstakes was going on althought it was illegal to buy a ticket if you won Uncle expected his share.

                      Along with that, by law bookies and drug dealers are supposed to get Federal tax stamps (they used to be $50). Sounds ridicluous, I know- but if they got pinched and didn't have the stamp they got stiffer sentences.

                      Those who run the lotteries love it when players look for consistency in something that's designed not to have any.

                      Lep

                      There is one and only one 'proven' system, and that is to book the action. No matter the game, let the players pick their own losers.

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                        Posted: October 2, 2013, 12:47 am - IP Logged

                        I'm pretty sure you can use cash or accrual based accounting for income taxes. Some accountant please chime in.

                        My belief, if you can use cash-basis: If you live in VA for 6+ months in 2013 and you cash it in 2013, then you will have to pay VA taxes and file 2 taxes (PA & VA) NO MATTER WHAT. Also note, I believe that PA's no-tax on lottery winnings is only for in-state residents - you have to pay a rate to PA if you're from out-of-state.

                        Now maybe it's possible to move to PA at the start of 2014, cash it in, and then live in PA for 6+ months in 2014. You would file income taxes on a cash-basis in that case for just PA (unless you move at any point in the year; in that case, as long as you were in PA for 6+ months, you would not owe to that other state).

                         

                        One thing I've wondered is...for those wishing to renounce citizenship to avoid future taxes (the U.S. government is the only developed country that taxes based on citizenship), if your assets are worth more than a few million, you are forced to pay an exit tax and could potentially be barred from returning to the country (this law was passed in response to renouncers doing so for tax purposes). Now if you renounce your citizenship before cashing in, can you avoid the exit tax or will the government view you as a renouncer due for tax purposes. All this requires you have dual citizenship, of course (or the means to get citizenship quickly from another country with your own money - not your prize money).

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                          Marana AZ
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                          Posted: October 2, 2013, 1:09 am - IP Logged

                          You have to choose cash or annuity within a fixed time (60 days?) so waiting 6+ months to claim means you will only have the annuity option. But if taxes are your main concern, taking the annuity and then moving to an income tax-free state would mean you only paid state tax on the first payment.

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                            Posted: October 2, 2013, 1:36 am - IP Logged

                            You have to choose cash or annuity within a fixed time (60 days?) so waiting 6+ months to claim means you will only have the annuity option. But if taxes are your main concern, taking the annuity and then moving to an income tax-free state would mean you only paid state tax on the first payment.

                            OK Nevermind, annuities are handled through a 3rd party company

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                              Kentucky
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                              Posted: October 2, 2013, 8:15 am - IP Logged

                              From the USA MEGA FAQ:

                              "One other option to consider, depending on how much in taxes you're looking to save: the residency requirements as they relate to prize claims, state taxes, and income reporting.  Since you aren't responsible for paying taxes until you claim the prize, perhaps there is time to establish residency in the state where you purchased the ticket before the prize claim period expires.  However, that is something you would definitely need to explore with an attorney before taking any action to assess the feasibility." 

                              Definitely worth looking into.

                              It is an interesting scenario if there is no PA residency requirements on the date the ticket was sold. It's really similar to the question of winning in December and waiting until January to collect the winnings. In which year will the winnings be taxable income?

                              If you have a system you believe will eventually win the jackpot, it makes sense to buy the tickets in a state with no state taxes on lottery winning or in a state that allows claiming the winnings anonymously. If you're buying QPs, recently NJ was the best option and their state taxes is the highest.