In the US, lotteries are run by 47 jurisdictions-44 states plus the District of Columbia, Puerto Rico, and the U.S. Virgin Islands. Most of these states run their in-state lottery games, but Powerball and Mega Millions lotteries are quite popular games in all the jurisdictions that continue to draw huge interest. Their jackpots are vast with billions of dollars in profits being raised directly from these lottery games. Lottery games are a valuable contribution to states’ incomes and they are funding everything from health and welfare to education. The popularity of Powerball and Mega Millions is because they are pretty much always quick to roll over into the $100 million-plus range as such attracting more and more players willing to take their chance with the games.
Unlike European lottery jackpots which are generally tax-free (with the lottery games themselves taxed in other ways) and jackpots are paid in lump sums, the lottery wins in the US are taxed and jackpots are made out in annuity payments. If you are a jackpot winner and you choose to receive lump sum cash payout rather than the extended payout (which most jackpot winners do) you typically receive around half the headline amount, much less money than the advertised jackpot value. If you choose the extended payout, the state takes the present cash value of the jackpot and buys annuity or bonds that will generate interest to fund the future payments made at fixed intervals of time thus providing you with a steady stream of income for many years going forward over a span of 25 to 30 years. For example, if you won a $14 million jackpot in the multi-state Powerball lottery game, you could take $538,461 a year for 26 years and get the entire $14 million, or accept a lump sum of $8,120,000, equal to 58 percent of the $14 million won. The state lotteries guarantee that if a jackpot winner who has chosen the annuity extended payout dies, his heirs will get all of the remaining installments. Prizes for various other lottery games are also taxed in most US States. haihuayonline.com
Gambling Losses are Tax Deductible
If you do spend a significant amount of money on the lottery in a year, your old tickets might be worth cash to you. Gambling losses are tax deductible, but only to the extent of your winnings. This requires you to report all the money you win as taxable income on your return. However, the deduction for your losses is only available if you are eligible to itemize your deductions. If you claim the standard deduction, then you can’t reduce your tax by your gambling losses. The IRS says you cannot offset losses against winnings and report the difference. For example, if you spend, say, $1,600 a year on tickets and wins only $600, you must report the $600 even though your losses amounted to $1,000. According to the tax rules, if you have gambling losses, you can claim them as an itemized deduction, but you cannot deduct more than the winnings reported. So if you itemize your deductions, you can take only $600 as an itemized loss on schedule A.
On the other hand, if you spend $600 and win $1,600, you also must report the $1,600. But if you itemize, you can claim the entire $600 as a loss on schedule A since you are allowed to report any losses up to $1,600. Documentation you should have to prove your losses can include Form W-2G, Form 5754, wagering tickets, canceled checks or credit records and receipts from the gambling facility. Ironically, this law helps winners more than it helps losers. So think positively. Think like a winner, and save those old tickets.
Be the Smart Player
You have to be smart with your play and learn more about lottery games. Get information about new games (online and instant), prizes remaining on instant games, and special winning numbers-that way you will know what lottery games with better odds you should participate in. For example, 6 from 49 Lotto winning probability is 1 in 13,983,816, which is 10 times luckier than Mega Millions. Some in-State lottery games even offer second chance lottery draws. Find out about the second chance lottery draws and take your second chance with them by registering any qualifying scratcher codes and entries from scratch games you have previously purchased.