What To Do If You Win The Lottery or Big in Vegas?

“Someday . . . if I win the lottery!” Aren’t we all harboring a thought like this in some tiny corner of our heart? Yes, many of us hope to win the Lottery at some point in our lives. Who can deny the charm of a fancy glamorous life, without really having to work hard for it? What if the Powerball winning number matches this time, or if you win, in the casino, playing Blackjack?

We dream of the easy life, and being able to buy whatever we want without worrying about the cost, but what are some of the tax ramifications of such a windfall? Whether it’s the lottery, a pool at work, keno, scratchers or some other game of chance, there are a few ways to keep more of what you win and pay the tax man less.

If you’re a casual gambler, odds are good that these basic tax tips can help you at tax time next year:

  1. Gambling income

Gambling income includes winnings from lotteries, horse racing and casinos. It also includes cash prizes and the fair market value of prizes like cars and trips.

  2. Payer tax form

If you win, you may get a Form W-2G, Certain Gambling Winnings, from the payer. The IRS also gets a copy of the W-2G. The payer issues the form depending on the type of game you played, the amount of your winnings and other factors. You’ll also get the form if the payer withholds taxes from what you won.

  3. How to report winnings

You must report all your gambling winnings as income. This is true even if you don’t receive a Form W-2G. You normally report your winnings for the year on your tax return as ‘other income.’

   4. How to deduct losses

You can deduct your gambling losses on Schedule A, Itemized Deductions. The amount you can deduct is limited to the amount of the gambling income you report on your return.

  5. Keep gambling receipts to save, if you win later

You should keep track of your wins and losses. This includes keeping items such as a gambling log or diary, receipts, statements or tickets. Often, once players find out they did NOT win, people simply throw the losing tickets away. WRONG!! You may not win today but keep all those losing tickets until the end of the year as proof that you lost. This, because you can reduce any winnings that year against any losses you incur until the end of the year. Then you start over again next year. Consider throwing away $1,000 worth of losing tickets, and then at the end of the year, you win $3000. You will pay taxes overall $3,000 unless you kept the losing tickets. Keeping these losing tickets lets you reduce your winnings and your tax bill. For most people that’s about a $300 tax savings.

  6. Seek professional advice

If you win the BIG one, always see a good accountant and attorney BEFORE you tell anyone about the win. These professionals can give you some excellent advice before going public.

  7. Consider a Partnership Strategy for ownership of tickets

If you buy a ticket as a member of a group or family, consider a Limited Partnership strategy to be the entity that owns the winning ticket, rather than one person. This is a great way to reduce taxes by spreading the wealth as they say around the family or group, because many in the group will be at different tax brackets.

  8. Decide which payout option to use

Consider whether to take the cash payout or the 20-year payout. For older winners, the cash payout may be best, but then again, maybe a 20-year payout might be a form of protection for your heirs. Again, seek professional advice BEFORE collecting your winnings.

Here are some points to remember:

• Keep your playing tickets until year end (in case you win later)

• Seek professional assistance (CPA, EA or Attorney)

• Consider a partnership to own the winning ticket

• Decide which pay out option is best for you (immediate cash payout or an annuity payment over many years)

Call today, don’t delay! See how this affects you. We can be reached at 602-264-9331 and on all social media under azmoneyguy.

Be more prepared for this year’s tax season! Get your copy of Bob’s NEW book, 52 Ways to Outsmart the IRS, Weekly Tax Tips to Save You Money on Amazon, Kindle, or at Azmoneyguy.com (available in paperback and eBook).

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