If you’ve ever dreamt of hitting it big and winning the lottery, you probably always wondered about the implications that come with it. Although the overnight fame and the calls you might get from relatives or high school friends that you’ve never heard of in a decade might sound stressful, there is another aspect of winning big that needs to be taken into account. You see, when you choose online casinos, and you’ve finally won, the first thing you should think about is the tax implications. This is why today, we’re going to talk all about these tax regulations and help you become informed on all the ins and outs of huge prizes.
Is It a Blessing or a Curse?
According to studies, there is normally a one in 9 million chance of winning the grand prize. However, even when this happens, it might not always be time to celebrate. Of course, you might think that winning the big jackpot when playing the lottery might seem great at first, which can sometimes be, but the sad reality is that depending on where you live, your government might take a huge margin off of that prize.
Whether the win is described as a prize like a house or a car, or cold cash, you are still going to owe a portion of it. Federal taxes can be cumbersome and reach almost half of the prize’s amount. Thankfully, there are a couple of methods that you can use to reduce the amount the state takes, and we’re going to talk about that too.
How Do Taxes on Lottery Winning Work?
The most important thing you should know if you’ll ever win big is that the IRS will automatically take 25% out of the prize, even before you touch a penny. This means that whatever the amount is, you are instantly at a disadvantage, and you can take your mind away from the actual prize. After this sum, you will also have to take into account the state / federal tax that comes when the winner is filing his tax returns. Here is a small list of the taxes applied by each state when it comes to lottery winnings:
- Idaho 6,92%
- Wisconsin 7.25%
- New York 8.82%
- New Jersey 8.00%
- Minnesota 7.25%
- Arkansas 7.00%
- Connecticut 6.99%
- Iowa 8.53%
- Maine 7.15%
The Best Places to Win at Lottery
If you’re in the US, chances are, you are probably in a state that taxes lottery winners a lot, such as New York, Maine or Iowa. But thankfully, there are states that do not have income taxes at all, such as Florida, Texas, Washington, Tennessee, and Wyoming.
However, they only apply to national lotteries. If you are playing any other type of lottery, your lottery winnings might be subject to income taxes. This means that just as with your income generated from things such as your salary, you will need to declare these winnings and pay for them accordingly to your state laws. This is why you might want to try playing an appropriate lottery.
Can You Minimise Lottery Taxes?
While, unfortunately, there is no legal way of bypassing tax laws and paying no taxes to your state or the IRS, there are a couple of ways to make sure that you are minimising the taxes and keeping a little bit more of your well-deserved prize. These methods will help you lower the base amount of tax. However, they might have some implications that might not be suitable if you are looking for methods that require no trade-offs. You will notice that all the methods mentioned below will have some strong disadvantages that need to be taken into account.
Prize Instalments
Did you know that you can take any national lottery prize in instalments of up to 30 years? Doing so will dramatically lower the taxes you are paying and keep you in a much lower bracket for taxable income. If you have won a prize and are looking to do this, you will first need to discuss it with the lottery organisers to see if they will be able to split the payment within the desired amount of time.
This method is suitable if you have won a large amount of money and you don’t mind enjoying it gradually. After all, judging by all the stories about lottery winners, it might actually benefit you in the long run.
Donating to Charity or Gifting Your Prize
Although it might not sound like the best idea if you are looking to buy a house, car or anything personal. Donating a portion of your proceeds can help alleviate the taxes generated by your amazing win. This is due to the fact that donating only to non-profit organisations falls into a different tax bracket which means that you will pay less for your earnings. It might not feel like the best thing to do, but combined with the other methods presented here, you can drastically lower the amount you owe to your state and have more fun with the money, and in addition, you are donating to charity.
If you are looking to split the prize with your loved ones, then you can avoid some of the taxes by making sure that you are not sharing more than $15,000 with them. This is the maximum amount allowed by the IRS, and you will not have to pay a single cent in taxes for the gift. This is why, if you can manage to share your prize with as many relatives or friends, and also combine the methods above, you might have a chance to keep a lot more money than expected in your pockets by reducing the total amount of your income and also making someone happy with your prize too.
In Conclusion
All in all, winning the lottery might seem good or bad for some people, but it’s all about the way you manage the taxes. Using the methods above and digging more into your state’s tax laws, you might be able to go home with more than you initially thought of. After all, winning the lottery should be a once-in-a-lifetime joy for those lucky people who get to hear their names and pick up the huge cheque.
Thankfully, there are discussions of the taxes being lowered for the lucky winners in the future, so who knows what the future will reserve? Perhaps in the upcoming years, you will be able to keep even more money than you initially can right now. Nevertheless, judging by the huge amount of jackpot sums in the last few years, you will still be able to afford a house or a great car with the current prizes.
I'm a published author and proud US Army veteran who happens to be a gamer, so I decided to combine the two and love every minute of it! Feel free to contact me with any questions or comments and I'll be sure to get back to you.
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