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WHAT TO DO IF YOU WIN THE
LOTTERY OR BIG IN VEGAS?

WHAT TO DO IF YOU WIN THE LOTTERY OR BIG IN VEGAS?

by | 52 Tax Tips and Weekly Financial Blog

 

 

“Someday . . . if I win the lottery!” Aren’t we all harboring a thought
like this in some tiny corner of our hearts? 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 taxman 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 W2G. 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:
1. Keep your playing tickets until year-end (in case you win
later)

2. Seek professional assistance (CPA, EA, or Attorney)

3. Consider a partnership to own the winning ticket

4. Decide which payout option is best for you (immediate
cash payout or an annuity payment over many years).

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Mr. Hockensmith has been a guest newscaster for national and local TV stations in Phoenix since 1995, broadcasting financial and tax topics to the general pubic. He has written tax and accounting articles for both national and local newspapers and professional journals. He has been a public speaker nationally and locally on tax, accounting, financial planning and economics since 1992. He was a Disaster Reservist at the Federal Emergency Management Agency, for many years after his military service. He served as a Colonel with the US Army, retiring from military service after 36 years in 2008. Early in his accounting career, he was a Accountant and Consultant with Arthur Andersen CPA’s and Ernst & Young CPA’s.

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