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lottery taxes

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runnideer

Two questions
1. Your lottery ticket is a November (2005) drawing. You realize the following day you are the grand prize winner. It will take until the following January (2006) to get everything order to collect your winnings. Are you taxed for 2005 income or at the time you recieve your payment?
2. If you do not live in state ( collect taxes on lottery winnings) which you brought the tticket, do you pay taxes to both that state and the one you live in?
Thanks

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Chewie

1. https://www.lotterypost.com/thread/122659

2, Doesn't matter untl you win.

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Lawrence Connor

Does it always take two months to be able to collect?

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ryanm

  I believe you pay the taxes in the state where you bought the ticket.  Rest assured, you will never have to pay taxes in more than one state for the same income.

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Todd

  I believe you pay the taxes in the state where you bought the ticket.  Rest assured, you will never have to pay taxes in more than one state for the same income.

I suppose technically that's true, although I'm not sure everyone understands how complicated it can be.

For example, if you were to buy a winning lottery ticket in a state that has higher taxes than your state of residence, you would pay your home state tax rate on the winnings in your state, plus you would pay the difference between the two states to the state you bought it in.  Thus, the net state taxes you pay is the higher rate of the two states.

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Chewie

Does it always take two months to be able to collect?

I haven't heard of two months, but one month is the number published in NJ.  I "assume" that is the collect the winnings from all the states timeline (clerks transfer to states, state transfer to winning state, etc.) and to get the tax people on board for the winfall.

Personally, the timeline doesn't bother me.  I would claim immediately, to start the process of transfer.  Get a loan, using the publlicity and Lottery Director as validation.   Spend the month consulting with those smarter then me.  Consulting would be via satellite link from the most luxurious place I can find.

dvdiva's avatar - 8ball
dvdiva

I would like to know the answer to the first point. If you don't get the money until 2006 do you have to pay tax on it for 2005 or 2006.

At least I live in WA and play MM in WA so the state tax question is irrelevent. 

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Chewie

I would like to know the answer to the first point. If you don't get the money until 2006 do you have to pay tax on it for 2005 or 2006.

At least I live in WA and play MM in WA so the state tax question is irrelevent. 

The answer is in the link I provided.  You have to read.  (Nothing about taxes is siimple.) then contact the lawyers who are considered "fellows" in tax law.  Every one else is a wannabe.

BaristaExpress's avatar - BaristaExpressMX zpsfb0d8b5d.png
BaristaExpress

Dvdiva, I swear you have a very hard head! Yes, the IRS is going to get his taxes from your check when you claim it in 2006, but you are going to be required to claim it on your 2005 tax year, because that's the year you won the lottery! Also the IRS is going to make sure you pay the additional 13% tax he didn't collect when they took the first 25% as a installment payment on the whole 38% you would owe for the tax year 2005! This is why it's going to be claimed on your 2005 tax year when you file by the April 15, 2006 deadline for taxes owed or to be refunded for the 2005 tax year! 

Dvdiva, lets say you wait 180 or 364 days to collect and you already filed your 2005 taxes! OK? Did you know you are now going to have to amend your taxes for the 2005 tax year? Oh My God I See A Huge Light Bulb Gong On! Chit Howdy, I Think There Might Be Hope For You Yet! But be careful, the IRS looks real hard at people who amend their taxes, they will go over the first one you filed and the second one with a fine tooth comb for any mistakes and if any are found, big penalties are then applied! Oh, and don't forget you just might be audited for the next 3-5 years for your mistakes!

I going to give you a word of advice; Please Contact The IRS (your regional office) and ask the questions you just asked about here Again for the second time, since you don't wish to take my word or anyone else's word for it!

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NoCompLotto!

I would like to know the answer to the first point. If you don't get the money until 2006 do you have to pay tax on it for 2005 or 2006.

At least I live in WA and play MM in WA so the state tax question is irrelevent. 

The answer is in the link I provided.  You have to read.  (Nothing about taxes is siimple.) then contact the lawyers who are considered "fellows" in tax law.  Every one else is a wannabe.

You are NOT TAXED UNTIL YOU CLAIM THE PRIZE.  It is not possible for the government to track down the winner before the lottery does. The day you claim the prize is the year you are responsible for it. If you claim the prize on 1/2/2006, your winnings are taxed in tax year 2006, NOT 2005, regardless of the draw date. Any lottery official will tell you this.

BaristaExpress's avatar - BaristaExpressMX zpsfb0d8b5d.png
BaristaExpress

Besides dvdiva, when you call the IRS with your questions, the answers you'll Receive Will Be FREE! Hell, even the phone call is FREE! Just dial their 1-800 number, how hard is that?

BaristaExpress's avatar - BaristaExpressMX zpsfb0d8b5d.png
BaristaExpress

OK NoCompLotto, if that was true, why was it when the last MM draw that was held on Dec 31, 2004 (a Friday) the MM officals even said if there was a winner that night for that draw it was going to have to be claimed on that years taxes! That would mean the 2004 tax year! That was even stated on the news that night with that news stations so called tax expert! The reason is, Because that's the year the lottery was held in and won in, so the taxes will be due for that TAX YEAR, PERIOD!

dvdiva's avatar - 8ball
dvdiva

I would like to know the answer to the first point. If you don't get the money until 2006 do you have to pay tax on it for 2005 or 2006.

At least I live in WA and play MM in WA so the state tax question is irrelevent. 

The answer is in the link I provided.  You have to read.  (Nothing about taxes is siimple.) then contact the lawyers who are considered "fellows" in tax law.  Every one else is a wannabe.

If I could read and understand that than I'd probably be in law school. I was hoping for the cliff notes version. Razz

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Chewie

OK NoCompLotto, if that was true, why was it when the last MM draw that was held on Dec 31, 2004 (a Friday) the MM officals even said if there was a winner that night for that draw it was going to have to be claimed on that years taxes! That would mean the 2004 tax year! That was even stated on the news that night with that news stations so called tax expert! The reason is, Because that's the year the lottery was held in and won in, so the taxes will be due for that TAX YEAR, PERIOD!

Probably because the MM employees know as much about taxes as you and I do.  Did you read the link I provided? From some one who knows:

Other Constructive Receipt Issues
The constructive receipt doctrine has been applied in other contexts with respect to lottery prize winners. Reg. 1.451-2(a) provides, in pertinent part, that "income is not constructively received if the taxpayer's control of its receipt is subject to substantial limitations or restrictions." (Emphasis added). In Paul, TCM 1992-582, the taxpayer won the New Jersey lottery on 12/29/87 but did not receive payment until 1/22/88. The Tax Court held that winnings were includable in income in 1988, the year in which the payment was actually received. In arriving at its decision, the court rejected the Service's argument that the taxpayer could have driven 68 miles to Trenton in the last two days of the year to demand payment "on the spot." The court considered such a requirement a "substantial limitation," thereby negating the application of the constructive receipt doctrine.

Anything confusing here?

dvdiva's avatar - 8ball
dvdiva

I'm thinking it's when you get the money not the drawing date. Otherwise you wouldn't have one year or 180 days to claim. Otherwise anyone waiting until after April 15 to claim a prize from the previous year would be hit with penalties for not filing on income they didn't know about if it was a ticket they forget to check.

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