Three Tax Tips to Keep in Mind if You Win the Lottery

Winning the lottery brings on immediate excitement, relief and fear. The fear is that you have an almost unlimited amount of money to spend in your lifetime as most jackpots are more than a single person needs to cover their expenses for the remainder of his life. You have to know how to claim your winnings and how to invest it to reduce your tax burden.

Check State Income Tax Laws

Not all states have individual laws requiring lottery winnings to be reported as income. Check your state laws, or inquire with an in-state tax preparation specialist, while remaining anonymous, about the laws. You may not have to claim the income for state purposes, but you will for federal income tax.

Choose the Annuity Payment Option

Choosing the annuity payment option is better for you in more than one way. In reference to taxes, you are only taxed on the amount of payments received (income) each year, not your entire winnings. It may take more time to receive your money, but it controls distribution which ultimately results in more money in your pocket.

Donate to IRS-approved Non-Profit Organizations

Making donations is something many lottery winners do, and in some cases it is merely to reduce tax liabilities. For a donation to count as a deduction of income, it must be made to an IRS-approved non-profit organization. The IRS website has a list of approved non-profit organizations available.

Final Thoughts

Before doing anything with your lottery winnings, hire a financial advisor and tax attorney to help setup bank accounts, trusts and keep your anonymity safe. It is important to claim your funds as anonymous if your state permits it.

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