Smaller gifts. Wedding gifts. If you have family members getting married, you might like to support them with a gift. While there is no fixed amount on this rule, money gifts to support living costs for a relative may also be exempt from inheritance tax. This could be a relative under 18 or an elderly relative. A big lottery win can leave you millions of pounds better off.
Essentially, there is no limit to the amount of lottery winnings you can gift to a family member. This relates to the general rule that you can gift however much money you like. And do that for all the years you receive lottery installment payments. If you win a non-cash prize, the year would be the one in which you receive the prize. If you can choose between a lump-sum payment and a series of installment payments, when your winnings are taxable depends on when you made that choice.
If you had to make the choice when you bought the ticket, you include your winnings in income only when you actually receive them. In that case, if you chose the lump-sum arrangement, you must include the entire lump sum in income the year you received the money.
If you chose the installment arrangement, you must include the annual payments and any amount designated as interest on the unpaid installments in income as received. The payor will send you a Form W-2G that shows the amount of lottery winnings you got during the year and the amount of federal income tax withheld.
The payor will also send this information to the IRS. They might use a W9 to request your SS number. Also, you might owe state and local income taxes, so you might have to make estimated payments on those as well.
If you need help deciding if you should be making estimated tax payments, please let us know. It all depends on the sharing agreement. If audited, they will ask for the partnership agreement that existed prior to ticket buying. They will ask when the family members contributed the money. They will ask your history of buying tickets as a family, etc. If you are planning on sharing the lottery with other people, make sure that there is some sort of agreement beforehand.
David is a Fort Lauderdale attorney with a law practice focused on estate planning, probate and trust administration, guardianships, and tax. Among other things he is a Mac nerd, BBQ lover, and blogger.
Comprehensive estate planning, probate, guardianship, and elder law is all we do. More money up front means more money to invest and grow. O'Leary recommends putting the money to work by investing in "low volatility, dividend paying stocks. Like Cuban, O'Leary warns against making any risky moves with your winnings.
It's not worth accidentally blowing it. That way, you're in control of your own money. However, opting for the annuity is typically a smarter choice for the average person who doesn't have experience managing and investing significant sums of money, Orman says.
It's especially important to think about how the windfall might impact your relationship with your friends and family. For the inexperienced, choosing to receive a set amount each year prevents you from being able to blow all of your earnings right away.
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