won $1M from lottery, how to minimize taxes

depalma13 said:   stormdog123 said:   Pick up every discarded lottery ticket in the parking lot. Gambling wins are offset by gambling losses. Now you have proof of gambling losses.

Unfortunately, it is not that easy. The IRS wants a record/ledger of wins and losses to go along with those losing tickets.

Using http://www.unclefed.com/AuthorsRow/Daily/fwdgetaudited.html you can use receipts and statements to reconstruct a log. Receipts, by themselves, according to Publication 529 are sufficient, when combined with other documentation such as bank statements. However you will have to document winners as well as losers, and although in Tax Court the IRS has recognized that frequent gambling is a net loser, that doesn't mean that there can be short term gains. At the very least, you should deduct the cost of the winning ticket, $10 - the fact that you won is self evidence that you bought at least one ticket.

DavidScubadiver said:   peekay331 said:   So the other day, my wife (and I!) won $1M on a Scratchers ticket. We're planning to see a CPA and possibly a (flat-rate) financial planner, but before we do so, I'd like to be armed with FW's input. For now, my question is what, if anything, can we do to minimize our tax liability?
I gave you red for buying a lottery ticket. Total waste of money.yes, winning $1MM is a total waste of money.

Al3xK said:   Update 2. Bought two more $10 tickets. Won $10 on one, and lost on the other. I don't understand what I'm doing differently than the OP.Next time have your wife buy without you knowing. Every day for a few years.

depalma13 said:   stormdog123 said:   Pick up every discarded lottery ticket in the parking lot. Gambling wins are offset by gambling losses. Now you have proof of gambling losses.

Unfortunately, it is not that easy. The IRS wants a record/ledger of wins and losses to go along with those losing tickets.

You don't submit the ledger with your 1040, however. So you really only need it in case of audit. So if you are going to commit fraud here, there is plenty of time to produce the fraudulent ledger if needed later.

In fact, you don't even need to collect the tickets up front.

Regardless, she definitely should scrap together what actual losing tickets she has lying around to claim as losses against your wins (assuming you itemize, since you have to itemize to take that deduction).

This probably isn't the solution for $1m in winnings, but for larger amounts where someone might want to quit their day job & devote time/money to good causes --

You could set up a private foundation. Contribute and deduct up to the 30% AGI limit. While carefully avoiding self-dealing rules, foundation could employ you as executive director, send you on fact-finding trips to interesting locations, etc.

Al3xK said:   Update 2. Bought two more $10 tickets. Won $10 on one, and lost on the other. I don't understand what I'm doing differently than the OP.

Consider asking for donations to help with this experiment. It's science.

hamspamwich said:   Al3xK said:   UPDATE: I actually bought a $10 scratcher because of this thread and did not win anything.

Off topic. If we had a follow button on FW, I would follow Al3xK. Your posts in this thread have made me laugh out loud.

Do we have a follow button somewhere?There is a subscribe to topic button at top of page.

raringvt said:   yelloe1213 said:   My bf, an insurance salesman, suggests that you should talk to an insurance salesman. Please keep in mind that this is only information based on what you have provided in the post and should not be followed without talking to an insurance salesman. However, given the information, he suggests the following 2 options:

(1) Variable Universal Life Insurance Policy (VUL): The premiums paid into the VUL are invested in various investment options and grow as a cash value separate from the death benefit. It is from this cash value that you can take tax free withdrawals or loans from the policy. Insurance salesmen will often use a VUL for people who have maxed out their 401(k) and want to have a separate source of retirement savings. While it is a life insurance policy, it can be utilized as a retirement tool as withdrawals can be made from the cash value. This is usually the best way to mitigate tax consequences.

One issue that many people have with using a VUL is the relatively high fees early on. However, the tax mitigating benefits in the long run often make up for the higher fees in the beginning. Depending on what company you choose to go with the fees will generally be higher in the initial 5-10 years given that it is life insurance and the company needs to mitigate its losses should you pass away early on. However, generally after 5-10 years the fees will reduce. Also keep in mind that aside from this being a potential tax free income, you also have a death benefit.

(2) Variable Annuity: A variable annuity will allow you to have a guaranteed source of lifetime income for retirement. However, the drawback for a variable annuity is that you cannot make withdrawals prior to age 59.5 without incurring a 10% penalty by the IRS. Furthermore, unlike a variable universal life insurance policy, variable annuity withdrawals will be taxed as income.

Hope this helps!

EDIT: So what's with all the Reds? I seem to be the only person who thinks OP should plan for retirement using the $$. The key is to PLAN for retirement. Not wait until you get there to realize you've saved absolutely nothing. And then you wonder why there's so many people out there have saved absolutely nothing when it comes time to retire. Go figure.

Fixed that for you. Insurance salesmen are easy to identify...they're the ones that try to convince you that insurance is the answer to every financial need.

You forgot to fix one thing. raringvt said "my bf". More likely, her bf actually wrote the post. Unless she sits in on MANY client meetings, I doubt she can write all that, describing what her bf does. I've been married MANY years and my wife can't explain what I do for a living... just as I couldn't really explain what she did.

Technologist said:   dk240t said:   depalma13 said:   stormdog123 said:   Pick up every discarded lottery ticket in the parking lot. Gambling wins are offset by gambling losses. Now you have proof of gambling losses.

Unfortunately, it is not that easy. The IRS wants a record/ledger of wins and losses to go along with those losing tickets.

You don't submit the ledger with your 1040, however. So you really only need it in case of audit. So if you are going to commit fraud here, there is plenty of time to produce the fraudulent ledger if needed later.

In fact, you don't even need to collect the tickets up front.

Regardless, she definitely should scrap together what actual losing tickets she has lying around to claim as losses against your wins (assuming you itemize, since you have to itemize to take that deduction).

OP, I know I don't need to point out that any of the fraudulent ideas about collecting tickets (that aren't yours) are a bad idea. And those suggesting it, did you read the Topic, where he said he is an attorney (officer of the court, thus could be debarred and LOSE much more than being saved by committing fraud)?

That said, I know someone that tried this... and during the AUDIT, it was discovered that multiple tickets were bought at the SAME TIME, at different stores (MILES apart). The someone being audited (single person) couldn't explain, and the losses were disallowed. Anybody's guess as to fines, penalties, etc that resulted... the someone doesn't talk about it.

It doesn't have to be lotto losses. What about a Vegas trip?

I feel like OP should save himself the next 10 years of his life, and just spend $1m on lotto tickets this year. For one, I get the feeling either him or his wife will eventualy do it. Second, it lets him get out of paying taxes this year. Profit!!

ironfist99 said:   Two Chicks at one time, that's what I'd do if I had a million dollars.

ummm, check your local prices, it can be had for much, much, much less than a million dollars...

So, I heard...

yelloe1213 said:   My bf, a financial advisor in CA, suggests that you should talk to a financial advisor. Please keep in mind that this is only information based on what you have provided in the post and should not be followed without talking to a financial advisor. However, given the information, he suggests the following 2 options:

(1) Variable Universal Life Insurance Policy (VUL): The premiums paid into the VUL are invested in various investment options and grow as a cash value separate from the death benefit. It is from this cash value that you can take tax free withdrawals or loans from the policy. Financial advisors will often use a VUL for people who have maxed out their 401(k) and want to have a separate source of retirement savings. While it is a life insurance policy, it can be utilized as a retirement tool as withdrawals can be made from the cash value. This is usually the best way to mitigate tax consequences.

One issue that many people have with using a VUL is the relatively high fees early on. However, the tax mitigating benefits in the long run often make up for the higher fees in the beginning. Depending on what company you choose to go with the fees will generally be higher in the initial 5-10 years given that it is life insurance and the company needs to mitigate its losses should you pass away early on. However, generally after 5-10 years the fees will reduce. Also keep in mind that aside from this being a potential tax free income, you also have a death benefit.

(2) Variable Annuity: A variable annuity will allow you to have a guaranteed source of lifetime income for retirement. However, the drawback for a variable annuity is that you cannot make withdrawals prior to age 59.5 without incurring a 10% penalty by the IRS. Furthermore, unlike a variable universal life insurance policy, variable annuity withdrawals will be taxed as income.

Hope this helps!

EDIT: So what's with all the Reds? I seem to be the only person who thinks OP should plan for retirement using the $$. The key is to PLAN for retirement. Not wait until you get there to realize you've saved absolutely nothing. And then you wonder why there's so many people out there have saved absolutely nothing when it comes time to retire. Go figure.

The reds are because this is bad advice. Plain and simple. Generally you don't want to push bad investment advice on a finance forum. In 99% of cases, the reason anyone sells these things is because the commissions are huge. "Financial advisor" is probably a bad phrase to use to describe him.

suezyque said:   blueiedgod said:   ironfist99 said:   Two Chicks at one time, that's what I'd do if I had a million dollars.

ummm, check your local prices, it can be had for much, much, much less than a million dollars...

So, I heard...

If you play your cards right, it doesn't cost a thing !!!

Play them wrong, and it could cost you 18 years.... times 2!!!

Congrats to the OP!

This is not you I hope: http://boston.cbslocal.com/2012/05/04/lottery-ticket-misprint-fo...

aznxsoulrave98 said:   I just graduated college not too long ago and got into a financial advisory firm. Due to the downfall of the financial services in the last few years, there has been a huge layoff in my firm. But I was fortunate enough to remain in the company. Because of the lack of employees, I was forced to learn quite a lot about the whole financial planning process. 650k is a good amount to invest into a supplemental income program. If you are interested in the details, please feel free to leave me a message.

Here's some friendly advice for you. Delete your post. Delete your user name. Come back as someone else and never solicit in this manner again.

Going on a public forum like this as a registered rep and soliciting for business can easily cost you your job.

JTausTX said:   aznxsoulrave98 said:   I just graduated college not too long ago and got into a financial advisory firm. Due to the downfall of the financial services in the last few years, there has been a huge layoff in my firm. But I was fortunate enough to remain in the company. Because of the lack of employees, I was forced to learn quite a lot about the whole financial planning process. 650k is a good amount to invest into a supplemental income program. If you are interested in the details, please feel free to leave me a message.

I'm super interested in your products, and I know I can trust you because of your hip screen name. Please post the details here for the community to review.

Yeah, need your phone number, company name, and your real name NOW!

ThanksOkayBye!