A friend wants to know how much He will keep if he wins $55,000 in the lottery. He also likes gambling and says that the 40% rule should hold true for lottery winnings as well. That is, that if you are honest and pay taxes on gambling income, you should save about 40% of it. Is this true? By the way, He lives in North Carolina and that income would possibly bring his makings for the year to 70-80k (tax bracket information).
2007-02-18 13:37:58 · 4 answers · asked by sam 1 in Business & Finance ➔ Taxes ➔ United States
Federal taxes: 50%. State - depends on where you live, check your current tables.
If he plans on gambling his winnings away, he will need to do so in the same tax year. IRS requires that he keeps a log of winnings and losses. You can only deduct the amount of your winnings.
He would do better to put it in a ROTH IRA and take it out at retirement.
2007-02-18 14:30:42 · answer #1 · answered by Christmas Light Guy 7 · 0⤊ 1⤋
The net income after tax will depend upon his tax bracket so there's no way to say without knowing his entire financial picture. The total Federal bite will be about 25% or maybe a little bit less if it brings him to $70k total.
There is no self-employment tax on gambling winnings. Social Security is only assessed on earned income and that isn't earned income.
The state tax bite probably averages 5% so the total hit would be around 30% but that is ONLY a semi-educated guess.
On a one-time hit like that, he'd be required to make an estimated tax payment using form 1040ES and pay it at the next payment due date following the payout of the winnings. The due dates for 2007 are 4/17/07, 6/15/07, 9/17/07, and 1/15/08. Failure to pay the estimated tax would result in penalties and interest for underpayment of taxes.
2007-02-18 16:37:45 · answer #2 · answered by Bostonian In MO 7 · 0⤊ 0⤋
There won't be self-employment taxes on a lottery win. Federal tax will depend on his tax bracket - figure 25% although it could be more or less depending on his other income and personal situation. Most states don't tax their own lotteries, so if it's a state lottery, there probably wouldn't be state tax.
2007-02-18 14:56:47 · answer #3 · answered by Judy 7 · 0⤊ 0⤋
figure about 35% goes to federal and state taxes. you would not pay self-employment tax on lottery winnings.
2007-02-18 14:54:25 · answer #4 · answered by tma 6 · 0⤊ 0⤋