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This article discusses buying winning lottery tickets at a discount.  It's apparently legal under North Carolina law, and many other states, and basically a way for the "real" winner to avoid withholding for back taxes, child support, etc.  Anyone have any investing/trading experience?

http://www.newsobserver.com/news/local/education/article10495588...

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Why would you pay $700 for a $1000 lottery ticket? For $1000 wont income taxes be deducted automatically? And now you ... (more)

marc6296 (Jan. 12, 2017 @ 1:10p) |

I used to work at the local horse race track. People with huge winning tickets would offer and find someone else cash i... (more)

Ailocha (Jan. 12, 2017 @ 3:06p) |

No state tax for lottery in CA so if you are making less than 200K or so and fall into federal 28% or less top bracket y... (more)

zonacat (Jan. 12, 2017 @ 4:28p) |

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It's all swell until someone sells you counterfeit tickets.

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WTF.

Cecil Etheridge, the brother of former N.C. Congressman Bob Etheridge, paid two store clerks near Raleigh $100 each time he asked them to cash a winning ticket, investigative records show. The clerks gave him the prize money the next day.

The clerks claimed nine tickets, data show, all worth $1,000 or more. They said most were from Etheridge.

Etheridge also cashed in 52 tickets for $73,000 under his own name and beat odds of 1 in 1,143 some 30 times.  He refused to comment.

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I don't like it, especially ducking back child support. Pay your bills deadbeat is important, but for chrissakes, take care of your children!

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I wonder if these professional lottery ticket buyers also buy worthless lottery tickets for the tax write off against their winnings?  I'll let some of those go for cheap!

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This kind of reminds me of CT residents registering their cars in Maine. Why? Because they can't register in CT if they have back property taxes...

Which I think is insane for the state to impose, as the state takes a loss on BOTH registration and the backed taxes.

Sorry! Kinda random..

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I can see the appeal for ticket sellers but unless the discount is greater than your marginal tax rate, what's the point of buying winning lottery tickets? In the few examples, discounts seem to be 20-30% so for a good number of people, you're gonna pay in extra taxes about the same, and possibly more than the discount.

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keaton85 said:   This kind of reminds me of CT residents registering their cars in Maine. Why? Because they can't register in CT if they have back property taxes...

Which I think is insane for the state to impose, as the state takes a loss on BOTH registration and the backed taxes.

Sorry! Kinda random..

  It's a tradeoff - they might lose some registration fees, but, on the flipside, it probably drives some people to pay their property taxes so they can register their car. 

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Shandril said:   I can see the appeal for ticket sellers but unless the discount is greater than your marginal tax rate, what's the point of buying winning lottery tickets? In the few examples, discounts seem to be 20-30% so for a good number of people, you're gonna pay in extra taxes about the same, and possibly more than the discount.
If it helps a scofflaw, a right-wing wacko, or a convicted felon remain anonymous, I'd be happy to break even.    Consider it a public service.

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Shandril said:   I can see the appeal for ticket sellers but unless the discount is greater than your marginal tax rate, what's the point of buying winning lottery tickets? In the few examples, discounts seem to be 20-30% so for a good number of people, you're gonna pay in extra taxes about the same, and possibly more than the discount.
  I'm assuming that they also purchase losing tickets to equalize the winning ticket. Buy $1000 winning ticket for $700 then buy $1000 in losing tickets for $10 and write off the win against the same number in losses.

http://www.ebay.com/itm/Scratch-Off-Lottery-Tickets-Non-Winning-...

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Most of us will never need to worry about this because we will most likely not win any lottery in our lifetime.

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elfrozo said:   
Shandril said:   I can see the appeal for ticket sellers but unless the discount is greater than your marginal tax rate, what's the point of buying winning lottery tickets? In the few examples, discounts seem to be 20-30% so for a good number of people, you're gonna pay in extra taxes about the same, and possibly more than the discount.
  I'm assuming that they also purchase losing tickets to equalize the winning ticket. Buy $1000 winning ticket for $700 then buy $1000 in losing tickets for $10 and write off the win against the same number in losses.

http://www.ebay.com/itm/Scratch-Off-Lottery-Tickets-Non-Winning-...

  But if you're buying the lottery tickets (legally, as OP pointed out that it's "legal" to do so in many states) for over initial purchase value, wouldn't you just report the basis as what you paid and therefore only owe taxes on the difference between what you paid and what they redeemed for?  So, if you buy at 20-30% off, then you would only pay income tax on that 20-30% gain.

Similarly, unless you were blatantly committing tax fraud buying losing tickets wouldn't help as you'd only be able to report $10 of loss since that's what you paid for the tickets.

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Bend3r said:   
  But if you're buying the lottery tickets (legally, as OP pointed out that it's "legal" to do so in many states) for over initial purchase value, wouldn't you just report the basis as what you paid and therefore only owe taxes on the difference between what you paid and what they redeemed for?  So, if you buy at 20-30% off, then you would only pay income tax on that 20-30% gain.

Similarly, unless you were blatantly committing tax fraud buying losing tickets wouldn't help as you'd only be able to report $10 of loss since that's what you paid for the tickets.

  That's an interesting theory, but then wouldn't you be required to issue a 1099 to the person you purchased it from?

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supersnoop00 said:   
  That's an interesting theory, but then wouldn't you be required to issue a 1099 to the person you purchased it from?

  Why? You aren't required to issue 1099s to people/businesses you buy other things from and re-sell. *(Unless there's applicable laws with certain $ value thresholds, etc, to require reporting like third party payment processors have now)

You buy something from a garage sale for $100 and then go sell it for $1000, you only pay taxes on the $900 income.  But you don't issue a 1099 to the garage seller.

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TheDealMaker said:   Most of us will never need to worry about this because we will most likely not win any lottery in our lifetime.
 

  but many of us are enterprising enough to try to purchase lotto tickets from those that do win

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Bend3r said:   
elfrozo said:   
Shandril said:   I can see the appeal for ticket sellers but unless the discount is greater than your marginal tax rate, what's the point of buying winning lottery tickets? In the few examples, discounts seem to be 20-30% so for a good number of people, you're gonna pay in extra taxes about the same, and possibly more than the discount.
  I'm assuming that they also purchase losing tickets to equalize the winning ticket. Buy $1000 winning ticket for $700 then buy $1000 in losing tickets for $10 and write off the win against the same number in losses.

http://www.ebay.com/itm/Scratch-Off-Lottery-Tickets-Non-Winning-...

  But if you're buying the lottery tickets (legally, as OP pointed out that it's "legal" to do so in many states) for over initial purchase value, wouldn't you just report the basis as what you paid and therefore only owe taxes on the difference between what you paid and what they redeemed for?  So, if you buy at 20-30% off, then you would only pay income tax on that 20-30% gain.

Similarly, unless you were blatantly committing tax fraud buying losing tickets wouldn't help as you'd only be able to report $10 of loss since that's what you paid for the tickets.

  Assuming an IRS audit, how would you prove the basis? 

I'm thinking that even though it is "legal" in some states someone who does this on a regular basis will not be able to stand up to an IRS audit.

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Most people who owe back taxes and child support -- and the people who buy winning tickets from such people -- generally aren't too concerned about 1099 reporting, distinguishing net gambling income vs. gain on sale, etc.  I think some people are overthinking this ...

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tuphat said:   Most people who owe back taxes and child support -- and the people who buy winning tickets from such people -- generally aren't too concerned about 1099 reporting, distinguishing net gambling income vs. gain on sale, etc.  I think some people are overthinking this ...
  But if you're providing cash for something which you will have to pay taxable income on, (the lotto ticket if it's high enough to be redeemed from a state and not a retailer), you're going to only be profiting if you're only paying 30%-50% of face value. I would assume that people who are smart enough to have the liquid capital to buy these tickets are either laundering money or have enough taxable income that they would need to actually pay taxes....or I guess just they all could be tax cheats?

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I remember when my grandfather was alive he would have a Native American cash any large winning horse race tickets as they did not pay taxes in our state...

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Popular past time at the local racetracks is being a "signer" for winning irs tix.

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xerty said:   I wonder if these professional lottery ticket buyers also buy worthless lottery tickets for the tax write off against their winnings?  I'll let some of those go for cheap!
  Worthless lotto tickets don't count as a write off since you can find dozens littering the parking lot.

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Are there any market for unused (unscratched etc) lottery tickets?

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mwa423 said:   
tuphat said:   Most people who owe back taxes and child support -- and the people who buy winning tickets from such people -- generally aren't too concerned about 1099 reporting, distinguishing net gambling income vs. gain on sale, etc.  I think some people are overthinking this ...
  But if you're providing cash for something which you will have to pay taxable income on, (the lotto ticket if it's high enough to be redeemed from a state and not a retailer), you're going to only be profiting if you're only paying 30%-50% of face value. I would assume that people who are smart enough to have the liquid capital to buy these tickets are either laundering money or have enough taxable income that they would need to actually pay taxes....or I guess just they all could be tax cheats?

  I imagine many/most buyers would report zero taxable income, by netting (fictitious) gambling losses (supported by losing tickets purchased off ebbay) against the amount collected on the winning ticket.  So their "after-tax" profit equals the discount amount.

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kriskos4 said:   I don't like it, especially ducking back child support. Pay your bills deadbeat is important, but for chrissakes, take care of your children!
   Provided the child suport order is both legal and moral. If its not ?
 In the late 80's a local state troopers bring home after taxes, medical, and child support was $8.00.
 Mean while ... he still has to take care of the children when state sees fit to allow him time with them.
 Ps ... the kids and his new kids( i think) now live with him.

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owenscott said:   
kriskos4 said:   I don't like it, especially ducking back child support. Pay your bills deadbeat is important, but for chrissakes, take care of your children!
   Provided the child suport order is both legal and moral. If its not ?
 In the late 80's a local state troopers bring home after taxes, medical, and child support was $8.00.
 Mean while ... he still has to take care of the children when state sees fit to allow him time with them.
 Ps ... the kids and his new kids( i think) now live with him.

  
Divorce sucks, nobody knows that more than me.  And certain states are brutal but men have a responsibility to provide for the their children and if they don't then the state gets involved.  As far as 'state see fit', your friend did something to limit the state from seeing his kids.

My teen kids live with me and I still pay CS because I don't care to go to court.  I could spend $5000+, get custody and still have to pay CS so I won't go through the effort.

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Looking4morecents said:   
xerty said:   I wonder if these professional lottery ticket buyers also buy worthless lottery tickets for the tax write off against their winnings?  I'll let some of those go for cheap!
  Worthless lotto tickets don't count as a write off since you can find dozens littering the parking lot.

  How are you going to explain shoe prints on "your" tickets?

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alamo11 said:   
Looking4morecents said:   
xerty said:   I wonder if these professional lottery ticket buyers also buy worthless lottery tickets for the tax write off against their winnings?  I'll let some of those go for cheap!
  Worthless lotto tickets don't count as a write off since you can find dozens littering the parking lot.

  How are you going to explain shoe prints on "your" tickets?

  
I store them in a shoebox???

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This should be obvious, but the IRS is known to find and deny these fraudulent deductions. In my tax course in college we referred to it as the "Foot Print Rule" or something along those lines.

The other denial reason was that "No one could logically place all those bets". I.e. You pick up a ton of random losing bets. Why would you place a bet on nearly every single horse in the race? That's a sure way to lose your money after the 'house' gets their cut.

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StartByServingOthers said:   This should be obvious, but the IRS is known to find and deny these fraudulent deductions. In my tax course in college we referred to it as the "Foot Print Rule" or something along those lines.

The other denial reason was that "No one could logically place all those bets". I.e. You pick up a ton of random losing bets. Why would you place a bet on nearly every single horse in the race? That's a sure way to lose your money after the 'house' gets their cut.

  
I would think you could pick them all up, then cherry pick the biggest losers.  Not all bets are $2.  I imagine hitting up your regular convenience store for the losers left on the counter after people check their numbers would be a better source for losing tickets.  Probably matches a regular betting pattern better.

I remember ages ago reading about an embezzlement scheme where company funds were used to buy many small lotto type tickets, then when the winners were cashed in, there was a 'legitimate' source for the found money.  Don't know how many times you could win before drawing attention to oneself.  Also don't know if this was an urban legend.

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The IRS isn't that dumb. Those tickets are supporting evidence of a gambling loss but worthless by themselves.

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kriskos4 said:   
owenscott said:   
kriskos4 said:   I don't like it, especially ducking back child support. Pay your bills deadbeat is important, but for chrissakes, take care of your children!
   Provided the child suport order is both legal and moral. If its not ?
 In the late 80's a local state troopers bring home after taxes, medical, and child support was $8.00.
 Mean while ... he still has to take care of the children when state sees fit to allow him time with them.
 Ps ... the kids and his new kids( i think) now live with him.

  
Divorce sucks, nobody knows that more than me.  And certain states are brutal but men have a responsibility to provide for the their children and if they don't then the state gets involved.  As far as 'state see fit', your friend did something to limit the state from seeing his kids.

My teen kids live with me and I still pay CS because I don't care to go to court.  I could spend $5000+, get custody and still have to pay CS so I won't go through the effort.

  Unless you come to an agreement outside of court and the judge rubber stamps it in court ... then yes u get to see your kids when the state sees fit. Since they craft the schedule.

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Found one listed in my local Craigslist:
https://sandiego.craigslist.org/csd/for/5947518984.html

This is crazy high risk IMO.  No way for you to know if this has already been redeemed or is a counterfeit.  Good luck getting your $ back from the seller.

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You would have to take the seller along with you when you cash it in.

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Imagine how hooked you have to be on lotto tickets to buy them knowing you legally can't cash them in?

I know a couple guys super hooked on scratchers. They always complain they're broke yet in their desk drawer at work are dozens of losing $5 and $10 tickets.

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xerty said:   I wonder if these professional lottery ticket buyers also buy worthless lottery tickets for the tax write off against their winnings?  I'll let some of those go for cheap!
  
Can't say who's buying them, but there is a market for losing scratch tickets on eBay.

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Why would you pay $700 for a $1000 lottery ticket? For $1000 wont income taxes be deducted automatically? And now you have zero profit?

Am I missing something?

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I used to work at the local horse race track. People with huge winning tickets would offer and find someone else cash it in. Commission would be about 5%.

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marc6296 said:   Why would you pay $700 for a $1000 lottery ticket? For $1000 wont income taxes be deducted automatically? And now you have zero profit?

Am I missing something?


No state tax for lottery in CA so if you are making less than 200K or so and fall into federal 28% or less top bracket you are still coming out ahead.

Either way I don't think lottery withholds just 1099s, so lots of people would rather have the money now and worry about the tax part later. Not that that's the smart move, but probably neither is buying winning lotto tickets from Craigslist.

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