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The tax implications of lottery winnings

On Behalf of | Oct 24, 2018 | Income Taxes

Georgia residents and others who win a lottery game such as Mega Millions will need to pay taxes on their winnings. Both the IRS and state tax authorities will be looking to collect a portion of any amount received. Those who receive a cash prize will have 24 percent of it withheld to cover federal taxes. Additional taxes may apply depending on the amount of the award and the tax bracket it puts a person in.

Then, the state could take as much as 6 percent of any award. It is possible for an individual to have opportunities to reduce the amount of tax that he or she owes. For instance, if a person has other gambling losses throughout the year, that could negate any amount won in a given drawing. It may also be possible to create a foundation or otherwise give money to charity to achieve tax savings.

Individuals can give up to $15,000 to as many individuals that they want without triggering a taxable event. Giving more than that amount would mean dipping into the $11.18 million lifetime gift tax exemption. It is important to note that the exemption will go back to $5.49 million after 2025. Regardless of what a person does with a large lottery award, a winner is encouraged to speak with an accountant about how to use it.

Generally speaking, a person will owe income taxes on most types of income generated throughout the year. Failure to pay taxes owed may result in financial or other penalties. Individuals may wish to hire an attorney if they are being audited by the IRS or believe that this may happen. This might make it easier to obtain a favorable situation in a tax case and in a timely manner.