Won Lottery

October 28, 2010 by  
Filed under Questions & Answers

Today TaxMama hears from Mike from Chicago, Il who is excited. “I won the lottery and paid taxes on the winnings. I want to give my mother $1 million out of my after tax winnings. Will she have to pay taxes on the $1 million again? Or just on any interest it accumulates?”

Dear Mike,

Well, that’s amazing! Congratulations!

No, if you give your mother $1,000,000, she won’t have to pay taxes on it. But you might. There’s a gift tax, if you give someone more than $13,000 worth of gifts this year. (or $26,000 per couple).

You can avoid the gift tax by filing the Form 709 and taking advantage of your Unified Credit, using line 12.
Read the instructions for more detail about how this works.

You may only give away a total of $1,000,000 of gifts (in addition to the $13,000 per person, tax-free gifts) for your whole lifetime.

Let’s be clear on this. You may not give away One Million Dollars a year. Just One Million Dollars in your whole lifetime. So you’d be using up your whole lifetime exclusion from gift tax by giving your mother all that money at one time.

There are other ways to do these things. I really suggest that you speak with a good tax professional before you hand this money over to your mother. There are some fun, legal things to do to beat the taxes, long-term. In the meantime, give her $13,000 to play with.

Incidentally, did she give you money to buy the lottery ticket? Come on, aren’t you always borrowing money from her? If she did, then she owns a share of that ticket – and you should have given Mom her share before reporting your win to the Lottery Commission. There would have been no special tax consequences at that time.

Folks, for future reference, the time to do tax planning on a lottery win – is before you report your claim to the Lottery Commission. After you get paid – it gets expensive to share your win.

And remember, you can find answers to all kinds of questions about hitting the jackpot, and other tax issues, free. Where? Where else? At www.TaxMama.com.

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Comments

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