Welcome Guest
Log In | Register )
You last visited January 21, 2017, 6:32 pm
All times shown are
Eastern Time (GMT-5:00)

Taxes and the Big-One

Topic closed. 16 replies. Last post 2 years ago by RJOh.

Page 1 of 2
PrintE-mailLink
RL-RANDOMLOGIC's avatar - usafce

United States
Member #59354
March 13, 2008
4088 Posts
Offline
Posted: February 11, 2015, 9:10 am - IP Logged

Hi all

Lets say that you hit the Power-ball JP tonight.  The cash value is listed at $327.700,000.00 and most would

have to pay around 40% come tax-time so the bottom line after taxes would be $196,620,000.  The norm is

that they hold out a certain percent when you claim the prize with a disclaimer that you could have to pay more

at tax time. 

Here in MO you can opt out and take the full amount with an agreement  to pay the full taxes at tax time.  Being

that the average up front taxes are around 30% or $98,310,000 for tonight's JP, would we not be better off taking

the full amount and make some good investments since the taxes would not be due until Apr-15-2016.  $98,310,000

at 5% would earn a additional $4,915,500 in interest over the course of a year. 

 

Most would say just pay them up front and be done with it, but most of them are poor. 

 

RL

Working on my Ph.D.  "University of hard Knocks"

I will consider the opinion that my winnings are a product of chance if you are willing to consider

they are not.  Many great discoveries come while searching for something else

USAF https://en.wikipedia.org/wiki/Prime_Base_Engineer_Emergency_Force

  US Flag Trump / 2016 & 2020  

    Avatar

    United States
    Member #149820
    December 9, 2013
    644 Posts
    Offline
    Posted: February 11, 2015, 9:14 am - IP Logged

    When the jackpot gets that high I could care less what I paid in taxes, cause whatever I end up with will be waaaaay more than I or anyone of us on this site could ever earn in  2 lifetimes

      Avatar
      fajardo
      United States
      Member #152445
      February 15, 2014
      47 Posts
      Offline
      Posted: February 11, 2015, 9:33 am - IP Logged

      If only good investment were that easy to find.

        RL-RANDOMLOGIC's avatar - usafce

        United States
        Member #59354
        March 13, 2008
        4088 Posts
        Offline
        Posted: February 11, 2015, 9:39 am - IP Logged

        When the jackpot gets that high I could care less what I paid in taxes, cause whatever I end up with will be waaaaay more than I or anyone of us on this site could ever earn in  2 lifetimes

        The extra 5-mill could go a long way in helping others if you not interested in keeping it for yourself. 

        RL

        Working on my Ph.D.  "University of hard Knocks"

        I will consider the opinion that my winnings are a product of chance if you are willing to consider

        they are not.  Many great discoveries come while searching for something else

        USAF https://en.wikipedia.org/wiki/Prime_Base_Engineer_Emergency_Force

          US Flag Trump / 2016 & 2020  

          Avatar
          NY
          United States
          Member #23835
          October 16, 2005
          3502 Posts
          Offline
          Posted: February 11, 2015, 12:32 pm - IP Logged

          "Here in MO you can opt out and take the full amount with an agreement  to pay the full taxes at tax time."

          I'm guessing you've misunderstood something. Maybe only part of it, or maybe the entire concept. Missouri is free to do what they want about withholding state income taxes, but the withholding of federal income taxes is a federal requirement and Missouri can't change that.

          Many (most?) states make withholding voluntary for distributions from some investments. In theory, perhaps Missouri would allow somebody to opt out of withholding on a $50 million payment from a retirement fund, but the vast majority of exempt payments are far smaller. I think it's very unlikely that they'd have a "requirement" for withholding on lottery winnings and then let winners decide to opt out of the requirement.

          Even if it turns out you could opt out, it's a risky proposition. In a safe investment you might earn a small percentage of the amount you invest, and that amount will be even smaller after you pay the income taxes on it. If you're stupid enough to invest it in something that offers a chance to earn a significant return you've also got a chance to lose far more than you're likely to earn. You're speculating about an after-tax return of perhaps $3 million, while potentially risking the entire $98 million.

            RL-RANDOMLOGIC's avatar - usafce

            United States
            Member #59354
            March 13, 2008
            4088 Posts
            Offline
            Posted: February 11, 2015, 5:37 pm - IP Logged

            "Here in MO you can opt out and take the full amount with an agreement  to pay the full taxes at tax time."

            I'm guessing you've misunderstood something. Maybe only part of it, or maybe the entire concept. Missouri is free to do what they want about withholding state income taxes, but the withholding of federal income taxes is a federal requirement and Missouri can't change that.

            Many (most?) states make withholding voluntary for distributions from some investments. In theory, perhaps Missouri would allow somebody to opt out of withholding on a $50 million payment from a retirement fund, but the vast majority of exempt payments are far smaller. I think it's very unlikely that they'd have a "requirement" for withholding on lottery winnings and then let winners decide to opt out of the requirement.

            Even if it turns out you could opt out, it's a risky proposition. In a safe investment you might earn a small percentage of the amount you invest, and that amount will be even smaller after you pay the income taxes on it. If you're stupid enough to invest it in something that offers a chance to earn a significant return you've also got a chance to lose far more than you're likely to earn. You're speculating about an after-tax return of perhaps $3 million, while potentially risking the entire $98 million.

            KY

            When playing in a syndicate or claiming the prize as a trust they can be set up so that each member

            receives a full share after filling out the necessary tax forms which makes them responsible for taxes

            on the money they receive.  As far as investments go there are those with guaranteed returns.  When

            the annual payment option is chosen the lottery invest the cash value and that's where the annual

            payments come from.  I could be wrong as things change but that's the way it use to be.  Everyone

            who wins a giant JP should form a trust and claim it anonymously if their state allows it. 

            RL

            Working on my Ph.D.  "University of hard Knocks"

            I will consider the opinion that my winnings are a product of chance if you are willing to consider

            they are not.  Many great discoveries come while searching for something else

            USAF https://en.wikipedia.org/wiki/Prime_Base_Engineer_Emergency_Force

              US Flag Trump / 2016 & 2020  

              mikeintexas's avatar - tx avatar-1.gif
              Texas Panhandle
              United States
              Member #136843
              December 20, 2012
              1409 Posts
              Offline
              Posted: February 11, 2015, 8:12 pm - IP Logged

              I mentioned that very thing in this November thread: $321 MILLION: Mega Millions jackpot is red hot and KY Floyd had this to say about making money off the difference - 14.6% -  between the 25% initial withholding and the total 39.6% due the federal govt.  I read up on it some, not wanting to take a single source as gospel and it looked like he was correct.   I follow a Forbes financial writer (who has written several articles about the lottery) on Twitter (not that I'm an avid user of that particular social media) and asked her but she never did reply.

                Teddi's avatar - Lottery-008.jpg

                United States
                Member #142499
                May 13, 2013
                1203 Posts
                Offline
                Posted: February 11, 2015, 8:31 pm - IP Logged

                KY

                When playing in a syndicate or claiming the prize as a trust they can be set up so that each member

                receives a full share after filling out the necessary tax forms which makes them responsible for taxes

                on the money they receive.  As far as investments go there are those with guaranteed returns.  When

                the annual payment option is chosen the lottery invest the cash value and that's where the annual

                payments come from.  I could be wrong as things change but that's the way it use to be.  Everyone

                who wins a giant JP should form a trust and claim it anonymously if their state allows it. 

                RL

                I guess the question I would first pose to you is, what investment do you know of that will guarantee you a 5% return for a period not exceeding 12 months. 

                I'm sorry to say that  American Greed is filled with stories of people losing their shirts from "guaranteed investments". The "guarantee" gets them every time. 

                Escrow accounts get looted, Ponzi schemes get revealed, financial institutions fail, advisors pilfer, insurers lie. Nothing is a guarantee. Some investments are simply a safer risk than others. I remember a time when real estate investing was a guarantee. People will always buy houses they said. People will walk away from their cars, give up their retirement accounts, but they'll never walk away from their homes. 2008 saw that guaranteed belief system turn on its head.

                I'm not understanding why you would take the risk. What's the point? If you had $330, would you risk $98 of that $330 for the chance of getting an extra 5 bucks? And for all the reasons to take a risk, taxes shouldn't be one of them. Make some charitable donations and lower your tax burden that way. You're planning to donate some of it anyway. Make the donation work for you.

                  Avatar
                  Kentucky
                  United States
                  Member #32652
                  February 14, 2006
                  7344 Posts
                  Offline
                  Posted: February 11, 2015, 8:53 pm - IP Logged

                  KY

                  When playing in a syndicate or claiming the prize as a trust they can be set up so that each member

                  receives a full share after filling out the necessary tax forms which makes them responsible for taxes

                  on the money they receive.  As far as investments go there are those with guaranteed returns.  When

                  the annual payment option is chosen the lottery invest the cash value and that's where the annual

                  payments come from.  I could be wrong as things change but that's the way it use to be.  Everyone

                  who wins a giant JP should form a trust and claim it anonymously if their state allows it. 

                  RL

                  Couldn't find any withholding exemptions for pools, syndicates, or trusts on the Forms W-2G and 5754 instructions but I'm positive the Federal tax rules for Missouri are the same as every other state.

                  If more than one person shares in the winnings from a single wager, the total amount of the winnings (minus the amount wagered) will determine the amount of the proceeds for purposes of reporting and withholding. Do not allocate winnings to each winner before determining whether the withholding or reporting thresholds were reached.

                  For example, E purchases a sweepstakes ticket for $1 on behalf of himself and S, who contributes an equal amount of the ticket price and who will share equally in any winnings. The ticket wins $5,002. Because the winnings ($5,002 - $1 = $5,001) are more than $5,000, you must withhold 25% of $5,001. You must prepare Form W-2G for E and a separate Form W-2G for S using the information furnished to you on Form 5754.

                    RL-RANDOMLOGIC's avatar - usafce

                    United States
                    Member #59354
                    March 13, 2008
                    4088 Posts
                    Offline
                    Posted: February 11, 2015, 11:14 pm - IP Logged

                    Couldn't find any withholding exemptions for pools, syndicates, or trusts on the Forms W-2G and 5754 instructions but I'm positive the Federal tax rules for Missouri are the same as every other state.

                    If more than one person shares in the winnings from a single wager, the total amount of the winnings (minus the amount wagered) will determine the amount of the proceeds for purposes of reporting and withholding. Do not allocate winnings to each winner before determining whether the withholding or reporting thresholds were reached.

                    For example, E purchases a sweepstakes ticket for $1 on behalf of himself and S, who contributes an equal amount of the ticket price and who will share equally in any winnings. The ticket wins $5,002. Because the winnings ($5,002 - $1 = $5,001) are more than $5,000, you must withhold 25% of $5,001. You must prepare Form W-2G for E and a separate Form W-2G for S using the information furnished to you on Form 5754.

                    Stack

                    I don't want this to turn into a tax class such as filing a W-9 and having a TIN, etc...

                    I was making a simple observation about the time between the date of the claim until

                    the deadline for filing on Apr-15-2016.  No money is safe even if it's locked away in a safe

                    cemented into your basement floor, fact is, that 97% of all US money does not even exist.

                    As for safe investments there is no such thing but the more money you have the safer it

                    gets.   Walk into a bank and tell them you have $100,000.00 to deposit and ask what they

                    can do for you.   Better yet win a major JP and they will be lining up with offers.  Many people

                    lost out in the housing bubble and others lost everything in stocks but some made out like

                    bandits.  I think everyone would do well to at least learn a little about how the banking industry

                    works.  Most will never have that kind of money and even banks come and go but that's another

                    story.  I hope that I never get so rich that I can toss out a few million as if it means nothing. 

                    Investing a few dollars to maybe win big, well I do it quite often, matter of fact I do it every time

                    I buy a lottery ticket.  If I don't buy a ticket then I am sure not to loose but it's also a sure thing that

                    I won't win either. 

                    RL

                    Working on my Ph.D.  "University of hard Knocks"

                    I will consider the opinion that my winnings are a product of chance if you are willing to consider

                    they are not.  Many great discoveries come while searching for something else

                    USAF https://en.wikipedia.org/wiki/Prime_Base_Engineer_Emergency_Force

                      US Flag Trump / 2016 & 2020  

                      RJOh's avatar - chipmunk
                      mid-Ohio
                      United States
                      Member #9
                      March 24, 2001
                      19901 Posts
                      Offline
                      Posted: February 12, 2015, 12:42 am - IP Logged

                      Hi all

                      Lets say that you hit the Power-ball JP tonight.  The cash value is listed at $327.700,000.00 and most would

                      have to pay around 40% come tax-time so the bottom line after taxes would be $196,620,000.  The norm is

                      that they hold out a certain percent when you claim the prize with a disclaimer that you could have to pay more

                      at tax time. 

                      Here in MO you can opt out and take the full amount with an agreement  to pay the full taxes at tax time.  Being

                      that the average up front taxes are around 30% or $98,310,000 for tonight's JP, would we not be better off taking

                      the full amount and make some good investments since the taxes would not be due until Apr-15-2016.  $98,310,000

                      at 5% would earn a additional $4,915,500 in interest over the course of a year. 

                       

                      Most would say just pay them up front and be done with it, but most of them are poor. 

                       

                      RL

                      You should check http://www.irs.gov/taxtopics/tc306.html

                      Topic 306 - Penalty for Underpayment of Estimated Tax

                      The United States income tax is a pay-as-you-go tax, which means that you must pay tax as you earn or receive your income during the year. You can do this either through withholding or by making estimated tax payments. If you do not pay your tax or you pay an insufficient amount of tax through withholding, you might also have to pay estimated taxes. If you did not pay enough tax throughout the year, either through withholding or by making estimated tax payments, you may have to pay a penalty for underpayment of estimated tax. Generally, most taxpayers will avoid this penalty if they either owe less than $1,000 in tax after subtracting their withholding and estimated tax payments, or if they paid at least 90% of the tax for the current year or 100% of the tax shown on the return for the prior year, whichever is smaller. There are special rules for farmers and fishermen, certain household employers and certain higher income taxpayers. Please refer to Publication 505, Tax Withholding and Estimated Tax, for more information.

                      Generally, taxpayers should make estimated tax payments in four equal amounts to avoid a penalty. However, if you receive income unevenly during the year, you may be able to vary the amounts of the payments to avoid or lower the penalty by using the annualized installment method. Use  Form 2210 (PDF), Underpayment of Estimated Tax by Individuals, Estates, and Trusts, to see if you owe a penalty for underpaying your estimated tax.

                      The law allows the IRS to waive the penalty if:
                      1.You did not make a required payment because of a casualty, disaster, or other unusual circumstance and it would be inequitable to impose the penalty, or
                      2.You retired (after reaching age 62) or became disabled during the tax year for which you should have made estimated payments or in the preceding tax year, and the underpayment was due to reasonable cause and not willful neglect.


                      Refer to the  Form 1040 Instructions (PDF) or the  Form 1040A Instructions (PDF) for where to report the estimated tax penalty on your return.

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

                        Avatar
                        Kentucky
                        United States
                        Member #32652
                        February 14, 2006
                        7344 Posts
                        Offline
                        Posted: February 12, 2015, 3:54 am - IP Logged

                        Stack

                        I don't want this to turn into a tax class such as filing a W-9 and having a TIN, etc...

                        I was making a simple observation about the time between the date of the claim until

                        the deadline for filing on Apr-15-2016.  No money is safe even if it's locked away in a safe

                        cemented into your basement floor, fact is, that 97% of all US money does not even exist.

                        As for safe investments there is no such thing but the more money you have the safer it

                        gets.   Walk into a bank and tell them you have $100,000.00 to deposit and ask what they

                        can do for you.   Better yet win a major JP and they will be lining up with offers.  Many people

                        lost out in the housing bubble and others lost everything in stocks but some made out like

                        bandits.  I think everyone would do well to at least learn a little about how the banking industry

                        works.  Most will never have that kind of money and even banks come and go but that's another

                        story.  I hope that I never get so rich that I can toss out a few million as if it means nothing. 

                        Investing a few dollars to maybe win big, well I do it quite often, matter of fact I do it every time

                        I buy a lottery ticket.  If I don't buy a ticket then I am sure not to loose but it's also a sure thing that

                        I won't win either. 

                        RL

                        I was just making sure when you said "Here in MO you can opt out and take the full amount with an agreement to pay the full taxes at tax time.", you were aware of 25% will be withheld for Federal taxes regardless where you live or how you collect. The winner will still owe about another 14% and they can invest that amount until the tax time. The last thing a jackpot winner needs is IRS problems because of creative accounting.

                          CDanaT's avatar - tiger avatar_04_hd_pictures_169016.jpg
                          TX
                          United States
                          Member #121193
                          January 4, 2012
                          1637 Posts
                          Offline
                          Posted: February 12, 2015, 6:42 am - IP Logged

                          You should check http://www.irs.gov/taxtopics/tc306.html

                          Topic 306 - Penalty for Underpayment of Estimated Tax

                          The United States income tax is a pay-as-you-go tax, which means that you must pay tax as you earn or receive your income during the year. You can do this either through withholding or by making estimated tax payments. If you do not pay your tax or you pay an insufficient amount of tax through withholding, you might also have to pay estimated taxes. If you did not pay enough tax throughout the year, either through withholding or by making estimated tax payments, you may have to pay a penalty for underpayment of estimated tax. Generally, most taxpayers will avoid this penalty if they either owe less than $1,000 in tax after subtracting their withholding and estimated tax payments, or if they paid at least 90% of the tax for the current year or 100% of the tax shown on the return for the prior year, whichever is smaller. There are special rules for farmers and fishermen, certain household employers and certain higher income taxpayers. Please refer to Publication 505, Tax Withholding and Estimated Tax, for more information.

                          Generally, taxpayers should make estimated tax payments in four equal amounts to avoid a penalty. However, if you receive income unevenly during the year, you may be able to vary the amounts of the payments to avoid or lower the penalty by using the annualized installment method. Use  Form 2210 (PDF), Underpayment of Estimated Tax by Individuals, Estates, and Trusts, to see if you owe a penalty for underpaying your estimated tax.

                          The law allows the IRS to waive the penalty if:
                          1.You did not make a required payment because of a casualty, disaster, or other unusual circumstance and it would be inequitable to impose the penalty, or
                          2.You retired (after reaching age 62) or became disabled during the tax year for which you should have made estimated payments or in the preceding tax year, and the underpayment was due to reasonable cause and not willful neglect.


                          Refer to the  Form 1040 Instructions (PDF) or the  Form 1040A Instructions (PDF) for where to report the estimated tax penalty on your return.

                          Interesting RJOH, especially that part about the 4 equal parts of paying estimated taxes, especially if you collected your winnings within the next 4-6 weeks. Obviously you would have to change your career title to gaming/gambling. Next challenge I see would be offsetting those 3 remaining tax quarters with losses or perhaps donations to charities...Of the 14.6% due, you would have to have some pretty shrewd advisers and accountants  to make gosh darn sure that the IamGod Redistribution Specialists weren't knocking at your door with a big empty Santa bag saying,"Fill er up".
                          Glad I don't have that problem........................................................................Yet
                          Wink 

                            RL-RANDOMLOGIC's avatar - usafce

                            United States
                            Member #59354
                            March 13, 2008
                            4088 Posts
                            Offline
                            Posted: February 12, 2015, 8:06 am - IP Logged

                            I guess that's why they say to talk to a professional tax person before claiming your JP.

                            On a big JP your going to owe way more than 30%.  What a racket.

                            RL

                            Working on my Ph.D.  "University of hard Knocks"

                            I will consider the opinion that my winnings are a product of chance if you are willing to consider

                            they are not.  Many great discoveries come while searching for something else

                            USAF https://en.wikipedia.org/wiki/Prime_Base_Engineer_Emergency_Force

                              US Flag Trump / 2016 & 2020  

                              Avatar
                              NY
                              United States
                              Member #23835
                              October 16, 2005
                              3502 Posts
                              Offline
                              Posted: February 12, 2015, 12:58 pm - IP Logged

                              Interesting RJOH, especially that part about the 4 equal parts of paying estimated taxes, especially if you collected your winnings within the next 4-6 weeks. Obviously you would have to change your career title to gaming/gambling. Next challenge I see would be offsetting those 3 remaining tax quarters with losses or perhaps donations to charities...Of the 14.6% due, you would have to have some pretty shrewd advisers and accountants  to make gosh darn sure that the IamGod Redistribution Specialists weren't knocking at your door with a big empty Santa bag saying,"Fill er up".
                              Glad I don't have that problem........................................................................Yet
                              Wink 

                              "Next challenge I see would be offsetting those 3 remaining tax quarters with losses"

                              Amen. Who wouldn't want to lose $25 million to get a deduction that will save $10 million in taxes?

                              I see people talking about reducing taxes by charitable donations or investment losses all the time. With charities you're at least doing somehting beneficial, but I have the feeling that a lot of people don't realize that reducing their taxes will mean there's less money in their pocket, too.