Taxes

Here are some more tidbits about taxes when you win a large amount of cash:

Besides federal tax, state taxes may also be withheld at the time you win

When you decide to take your jackpot in installments, be aware that the future payments are considered winnings which allows you to deduct gambling losses in future years if you itemize your deductions on Sch A. On the other hand, large installment payments will most likely push you into a higher tax bracket, and if you are old enough to receive social security payments might make the whole social security amount taxable.

Winnings are taxed when they are received which might give you time to do some tax planning, especially if you win in December and you collect the winnings in January of the next year.

You might need professional help with estimated taxes so that you don’t end up paying a huge penalty in addition to the higher tax bracket you might end up with.

When buying lottery tickets with other people be aware of the consequences.

When you have to give up part of your winnings in a legal dispute like a divorce, take into account the taxes you are paying on the amount to reduce it by the tax amount you owe.

Whe opting for installments in a payout, research the estate situation carefully in case you die before you collect all the money.

I hope my beginning tax tutorial will help some lucky winner and hopefully one of those illustrious overworked lawmakers will take an interest in overhauling the gambling laws because I do not believe that anybody buys a lottery ticket or gambles in a casino without the intent of making a profit.

LET US BE AWARE A STRANGER OFT MAY BE AN ANGEL WITH A MESSAGE MEANT FOR YOU OR ME. (Edna Massimilla)

Taxes

After harping so much about gambling losses, I am quoting some more from the IRS Pub 17. Gambling losses that are more than your winnings cannot be deducted on Sch A or anywhere else for your hobby that pays. A hobby is not a business because it is not carried on to  make a profit. The IRS states that hobby expenses can generally be deducted only up to the amount of hobby income. To take any losses you may have incurred during the tax year, you have to have records to prove your gambling activities.

The IRS says you must keep an accurate diary or similar record of your losses and winnings. Your diary should contain at least the following information:

date and type of you gambling activity

name and place where you bought tickets

amount you won or lost. Winnings should be shown separately from losses.

Publication 529 has more information.

A lottery record might look like this:

Your name

Your Social Security #

Tax Year

Lottery

Date:   Name of lottery:    Tickets purchased:    Amount won:     Amount lost:

DO WHAT YOU CAN, WITH WHAT YOU HAVE, WHERE YOU ARE. (Theodore Roosevelt 1858-1919)

Taxes

As pointed out before, sweepstakes and contests and any other type of recreational gambling has tax consequences when we end up winning from those activities. Losses from a hobby are not deducted from the winnings because a hobby is an activity from which you do not expect to make a profit. Publication 17, which is the IRS bible for tax prepareers also states that people who collect stamps, coins, or other items as a hobby for recreation and pleasure have taxable gain as a capital gain. However, if they sell items from their collection at a loss, they cannot deduct the loss.

If you receive a free tour from a travel agency for organizing a group of tourists, you must include the value in your income. The fair market value of the tour goes on line 21 of the 1040, if you are not in the trade or business of organizing tours and you cannot deduct the expenses in serving as the volunteer leader of the group at the group’s request, but if you organize tours as a trade or business, you report the tour’s value on Sch C or Schedule EZ and you are able to deduct your expenses connected with this activity. (page 89)

If you find and keep property that does not belong to you that has been lost or abandoned (treasure-trove), it is taxable to you at its Fair Market Value in the first year it is your undisputed possession.

Money that you receive as a gift is not included in your income but if the gift exceeds a certain amount the person who gives you the money has to pay gift taxes, which might come into play when several people pool their money together and buy lottery tickets whose winnings will be divided evenly among the participants. If one person collects all the winnings in their name and gives the others their share, they might end up paying their personal tax on the whole amount of the winnings and in addition gift tax for the amounts they give each person if the amounts exceed a certain amount. To avoid this double taxation on winnings, the person in charge of the group has to ask for the federal tax  Form 5754 Statement by Person(s) Receiving Gambling Winnings where all the people involved in the joint venture of buying lottery tickets together have to be listed so thast the payer of the winnings can prepare separate Forms-2G or 1099 for each winner listed and show the taxable winnings for each individual. A lottery pool should be researched before the members enter into it and professional tax help should be consulted to avoid unwelcome consequences.

IT IS AMAZING WHAT YOU CAN ACCOMPLISH IF YOU DO NOT CARE WHO GETS THE CREDIT. (Harry Truman 1884-1972)

Enter To Win

go to www.advilpm.com/sweeps for a chance to win a Grand Prize of 10,000 dollars; ends June 1, 2008.

Don’t forget those Easter contests for your children that are in your newspapers.

To solve puzzles for a chance to win money, go to www.picture.com and click on free contests for free photo and puzzle contests.

go to www.artsandkids.com or www.poetry.com to enter contests and/or join the International Society of Poets.

ANGELS COME WHEN LEAST EXPECTED TO SOMEHOW SAVE THE DAY AND REDIRECT OUR FOOTSTEPS WHEN WE HAVE GONE ASTRAY. (Clay Harrison)

Taxes

Winning the lottery and opting for installment payments can pose a big problem if you die before you collect all the money. Of course, after you die the installment payments will continue to be paid to your estate. That is good news, right? You decide after I explain the situation as good as I can.

After your death the IRS determines the present-day value of the future payments that are left. For a 20 million dollar jackpot, payable in 20 installments of 1 million pro year, when the winner dies after 1 million dollars have been paid out minus federal and possible state taxes withheld, the deceased is leaving an estate worth about 9.5 million dollars, which is the present-day value of those future payments of 1 million dollars each for the next 19 years. The estate tax on this whole amount has to be paid within 9 months. Unless the heirs have several million dollars at their diposal to cover the tax liability, the estate is in deep trouble because practically every state law does not allow future lottery prize payments to be sold or used as collateral for a loan. Until the laws are changed, the only option the estate has is to forfeit the rest of the prize. Sad but true as I understand it.

I DREAM, THEREFORE I EXIST. (August Strindberg)

Taxes

So far we figured out that our sweepstakes, lottery and contest winnings are being sent to us by the sponsor on a Form 1099 which is considered miscellaneous income and goes on line 21 on the Form 1040 and if we itemize our deduction on Schedule A we can deduct gambling losses we had during the year up to the amount of our winnings.

The Form 1099 shows winnings from lotteries, raffles, cash, bonds, cars, houses, garage makeovers, trips that are over 600 dollars FMV. Lesser prizes might be spa treatments, computers, M3P players, music downloads, beauty contest, radio program and anything else that is given as a prize and is taxable.

Gambling winnings in a casino will be on a Form-2G. Just like the Form 1099, the FMV of the prize and any tax withholdings are shown in box 1 and 2 respectively. Don’t forget to put any tax withholdings on line 58 of Form 1040. If you refuse a prize you don’t have to pay tax on it.

Winning the lottery jackpot can pose quite a problem. The prize can be collected either in one lump sum payment or in installments, usually spread over 20 years. In this case you must include in your gross income the annual payments and any amount you receive as interest on the unpaid installments. If you sell future lottery payments for a lump sum, you must report the amount you receive from the sale as ordinary income on line 21, Form 1040 in the year you receive it, which might put you in a higher tax bracket than you are used to.

EVERYONE THINKS OF CHANGING THE WORLD, BUT NO ONE THINKS OF CHANGING HIMSELF. (Leo Tolstoy)

Taxes

We are in the middle of the tax season of 2007. The subject is so huge and complicated that I just dread to get started on it. However, sweepstakes and contest and lottery winnings are subject to taxes in the US, and since I was a taxpreparer for 6 years, I might as well tackle the subject as much as I can understand myself.

To determine our tax liability, whether it is earned or unearned income, which winnings from gambling are, should always be determined from the form 1099 which you get in the mail from the sponsor of the prize you won if it is over 600 dollars. Forms are the lifeblood of taxes which brings me to the subject of Hobby Income which most winnings are considered by the IRS. It would be so much less complicated if we had a schedule to put our hobby income, instead of putting it on line 21 on the 1040 and putting the losses on the Schedule A subject to the 2% Adjusted Gross Income deduction which means that only people who make enough income to itemize, can take the losses up to the hobby income. I lost a client once at H&R Block because he insisted that he should be able to take his losses and subtract them from his winnings. He had a shoebox full of nonwinning lottery tickets to prove it. If life was just that simple, it would be wonderful. I wonder myself what the rationale behind this procedure is but I am at wit’s end. It was a good education for a newbie to taxes, like myself, to the traumatic subject of taxes.

The very first thing to remember is the Forn 1099 which will be sent to everyone who has more than $ 600 in winnings in any tax year which is for most people Jan1. – Dec. 31. It will be sent from sponsors who award the prizes from any kind of gambling activity which of course includes sweepstakes, lotteries and contests. No matter what the prize, it must be included as income at the Fair Market Value, which is the amount at which the prize would change hands between the buyer and the seller, neither being required to buy and sell, and both having reasonable knowledge of all necessary facts.

TTHERE IS NO FAILURE UNTIL YOU FAIL TO KEEP TRYING.

Did you know?

Tom Wethers from Boston enters about 40 online sweepstakes a day and about half a dozen mail-in sweeps a month. He has a whole house full of prizes to prove it. You can go to http://winwithweth.com to see his detailed list of every prize he won in 2007 to get an idea what type of prizes are won every day by hobbyists of sweeping. An article of Tom is in the National Examiner.

YOU MUST DO THE THINGS YOU THINK YOU CANNOT DO. (Eleanor Roosevelt)

Lotteries

Here are some considerations when playing the lottery:

In a lottery you pick a series of numbers out of a given range. The 6/54 game in Nebrasa lets you pick 6 numbers from 1 to 54. Sample selection 3/6/7/10/38/46.

Through the ages, private lotteries have been corrupted, few people trusted them. Today winners are chosen by a random generator number which apparently makes it impossible to cheat the software program.

In economic hard times contests and sweepstakes and lotteries are very popular and give a ray of hope to millions of people.

Forecasting the jackpot is part science, part art and part fortunetelling based on past ticket sales and present jackpot and projected ticket sales. The forecasters try to err on the conservative side because they have to pay out the projected jackpot.

You cannot transport lottery tickets across state lines for the purpose of resale. It is against the law.

Powerball tickets are a multistate lottery; each state operates a separate computer system, you must cash in the prize in the state where the ticket was purchased.

A single state lottery ticket can be redeemed anywhere in that state.

Some winning tickets are not collected .  You usually have 6-12 months to collect your lottery prize; so check all your lottery tickets. Unclaimed money is usually rolled over into other lottery games.

When you start a lottery pool to share winnings with others, you must have agreed beforehand to avoid gift taxes. It is best to chose people you like and trust. Have rules and assign tasks to keep it on a business level.

It is not against the law to give lottery tickets or scratch tickets away.

Some poor people say lotteries are a regressive tax and the poor pay more than the rich. The global rule is always the same: Only play what you can afford.

Lottery Jackpots are paid out in two different options:

1. in increments (annuity) of usually 20 years.

2. In a lumpsum (good for older people who don’t expect to live 20 years).

Lotteries have financed many public institutions like some high-class colleges back east and they have also been used by the government in the good old days to finance roads and gov’t buildings.

INTELLIGENCE WITHOUT AMBITION IS A BIRD WITHOUT WINGS.

Tips

Watch for incomplete prizes like winning tickets to an event in NYC where the airfare is not included or a trip with only part of the meals and no spending money.

You can refuse any prize that you cannot afford, that is over your head lik an expensive car that you cannot afford to pay taxes on or you can ask if the sponseing company will give you cash instead.

To determine FMV of a prize look at periodicals, catalogs or newspapers for the selling prize.

You might be limited to how many times you can win through the same company. If the rules say, past winners excluded, move on.

To enter contests, experiment what you are good at. Is it taking pictures of your pet cat, or can you write jingles or slogans, or can you make videos which improves your chance of winning most of the time because a lot less people enter than online where you just click, or are you creative with new recipes? There are tons of recipe contests out there. Find your niche to make some extra bucks.

IF YOU WANT TO MAKE YOURSELF FEEL GOOD, MAKE SOMEBODY ELSE FEEL GOOD.