For both scenarios: lump-sum and annual payents? I've heard many things and am having a hard time finding straight, layman examples. Thanks!
2007-02-28 06:25:20 · 6 answers · asked by Anonymous in Business & Finance ➔ Taxes ➔ United States
Upon receipt. Otherwise, there would be no incentive whatsoever to take the payments, because they'd be taxed just as much as the lump sum. The idea behind taking the lump sum is that you'll suffer the cut in extra taxes because your investments with the money will pay off more than the lottery payments would have.
Besides, it would be outrageous for the government to tax money that you don't even have yet. Any such practice would be easily overturned in a court of law.
2007-02-28 06:30:18 · answer #1 · answered by Anonymous · 1⤊ 0⤋
Some federal income taxes are normally withheld at the time the money is paid out. Then the amount must be claimed on the person's tax return, and if they owe more, they have to pay it then, or if too much was taken out, the extra is refunded. Taxes on winnings are due for the year when it was received, whether it's the whole lump sum or just an annual payment.
Most states don't tax winnings on their own lotteries.
2007-02-28 06:30:00 · answer #2 · answered by Judy 7 · 0⤊ 1⤋
When you receive winnings from a lottery, normally 25% is taken out of the payment for federal taxes before any cash is received by the winner. If it is a large amount 25% will not be enough withholding and an estimated payment should be sent off for the balance before spending the win-fall.
A real life example that I have seen was a customer winning $150,000 prize in the lottery. He assumed the amount withheld was enough and proceeded to pay off his mortgage with the balance. He did not realize that even with the 25% withholding rate the prize placed him in the 35% income bracket. When it was time to do his taxes he found out he was $9,000 short and had no cash in the bank to pay the bill.
2007-02-28 06:45:44 · answer #3 · answered by jks_mi 3 · 0⤊ 1⤋
Income is taxed upon receipt.
If you take a lump sum, you pay the whole tax bill immediately.
If you take annual payments, you add those payments to your income every year and pay the tax as you receive them.
2007-02-28 06:30:07 · answer #4 · answered by Bostonian In MO 7 · 1⤊ 0⤋
in case you are able to not undergo in strategies getting into right into a lottery on line and then at present you get carry of a letter asserting a sort of kakka which you have won then for confident its a scam. do not deliver them any own information nor money. Random e mail lottery wins are a confident scam.
2016-10-16 23:05:38 · answer #5 · answered by ? 4 · 0⤊ 0⤋
All payments are taxed as ordinary income.
The tax is owed in the year you received the money. This is because you are a cash basis taxpayer.
2007-02-28 06:29:13 · answer #6 · answered by Floyd M 2 · 0⤊ 0⤋