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When do your lottery winnings count as income?

techs

techs

Lifer
If a person buys a lottery ticket and their numbers get drawn, are they considered to have won the money at that moment for income tax purposes? Or only when they cash in ticket?

I am wondering when I win the next big Powerball jackpot if I can quickly move to another state before I cash it in and save big bucks on taxes.
 
There is a concept of tax law called "constructive receipt" that is meant to address situations where someone COULD have had income but chose to defer it in order to minimize taxes, but I don't think it would apply to that situation. Clearly just holding the winning ticket does not mean you have the money and it doesn't mean you could have the money the instant that the numbers are drawn. There is a process that the lottery goes through to validate everything before the money is handed over which takes time. I don't think the winner has received income until the check is handed over.

However, if the former state thinks they got screwed out of millions in taxes because the winner up and left before claiming the prize, and they feel they can convince a judge that they are entitled to the taxes, I think you could expect some type of court battle.
 
States with no income tax still will tax lottery winnings


/edit

This is what I was thinking of for Florida and other non-income tax states (their loopholes)


Intangibles Tax

Floridians no longer need to pay taxes to the state on intangible goods, such as investments. The law requiring that tax was repealed in 2007.
Click to expand...
 
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techs said:
If a person buys a lottery ticket and their numbers get drawn, are they considered to have won the money at that moment for income tax purposes? Or only when they cash in ticket?

I am wondering when I win the next big Powerball jackpot if I can quickly move to another state before I cash it in and save big bucks on taxes.
Click to expand...

I will be on the amount and place its drawn at, for example if you plan to stick with the annuity option, you cannot be possibly be taxed for the whole amount.
 
From what I have read you have to claim the ticket in the state you bought it.

Its income when you claim the prize as the tickets do expire so nothing to gain till you cash it in.
 
kranky said:
There is a concept of tax law called "constructive receipt" that is meant to address situations where someone COULD have had income but chose to defer it in order to minimize taxes, but I don't think it would apply to that situation. Clearly just holding the winning ticket does not mean you have the money and it doesn't mean you could have the money the instant that the numbers are drawn. There is a process that the lottery goes through to validate everything before the money is handed over which takes time. I don't think the winner has received income until the check is handed over.

However, if the former state thinks they got screwed out of millions in taxes because the winner up and left before claiming the prize, and they feel they can convince a judge that they are entitled to the taxes, I think you could expect some type of court battle.
Click to expand...

Constructive receipt is generally related to business income using the accrual methodology of accounting as opposed to cash accounting. Income is considered on a cash basis for individuals. I'm speaking on the federal level, not state.
 
On receipt. This also means that if you choose the annuity (the advertised jackpot payout), you are only taxed as the money comes.
 
Checking the back of my losing 🙁 PB ticket it says I have to claim prizes over $30,000 in person at the Lottery HQ in my state.
 
techs said:
Or only when they cash in ticket?
Click to expand...

I don't know for sure, but I'd guess only when they cash in and "take ownership" of the money. So gifting a winning ticket before cashing in wouldn't incur a gift tax or something like that.

Kinda like estates. A massive house could be bequeathed to you, but if you know you can't afford the taxes, you can always refuse to accept it.
 
CPA said:
Constructive receipt is generally related to business income using the accrual methodology of accounting as opposed to cash accounting. Income is considered on a cash basis for individuals. I'm speaking on the federal level, not state.
Click to expand...

I had heard it talked about for people who bunched deductions into alternate years, and wanted to voluntarily defer a bonus to the next calendar year to better align income and deductions for the year.
 
No idea if it's true, but I'd assume it would still adhere to normal tax law. So if you won on Jan 1 and moved to a non-state taxing state on Feb 1 (and followed all the steps to clearly show change of residence), and then claimed the winnings on Mar 1, the lottery of the first state will likely hold some fixed percentage, but when you file taxes you'd file for partial residence in both states and get some state taxes back from the first state.
 
techs said:
Interesting. I should buy my tickets down the road in New Hampshire since they don't have a state income tax.
Click to expand...

Yeah, but income earned while you're a Massachusettes resident is taxed by MA.

So, go rent a place and get a driver's license when you win.
 
jaedaliu said:
Yeah, but income earned while you're a Massachusettes resident is taxed by MA.

So, go rent a place and get a driver's license when you win.
Click to expand...

But if you buy a ticket in NY and NY taxes it whether you are resident or not(as previously posted I think) then would you have to pay both NY and Ma if you bought the ticket in NY but lived in Ma?
 
allisolm said:
Must be only some states. I know Florida has no income tax and no tax on lottery winnings.

Now if only I could win some lottery money.
Click to expand...

This is what I was thinking of for Florida and other non-income tax states (their loopholes)

Intangibles Tax

Floridians no longer need to pay taxes to the state on intangible goods, such as investments. The law requiring that tax was repealed in 2007.
Click to expand...
 
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