I purchased a Powerball for this weekend’s drawing which is something like $300 million (yeah, yeah I’m not going to win, tax on stupid people, etc…). If you won $300 million I’d like to think that one of the things you could do is help some people or organizations. We’re Catholic and our local parish is struggling to raise $3 million to build a church. Right now the church is in a temp space.
If you won I would think that it would be best to avoid double taxes by “sharing” a part of your win. Example: I win $300 million and let’s say I want to give our church $5 million and my sister 5 million. If that is given to them as partial winners then the funds would be paid directly to them by the lottery and be taxed once versus if I collect all the money which I pay taxes on then gift it to someone and they have to pay taxes on it a second time.
So, if I were to name the church as a winner with me and give them $5 million, would their share be tax free because they are a church?
And I know this isn’t a very religious board, but please no “why would you give it to the church” rants. More than anything I’m interested in the tax situation as it pertains to an organization such as the church. I know that if I presented a family member or friend as a partial winner they would be taxed, not sure about an organization that is tax exempt.
You can generally deduct up to 50% of your adjusted gross income in charitable contributions to a public charity, which includes most churches. If you took the cash option and grossed $200 million, you could write your church a check for nearly $100 million without hitting the cap. No need for fancy tax planning here.
I don’t think assigning your winning to someone else changes anything. Its still your income. I can’t assign some portion of my paycheck to my minimum wage earning “artist” nephew and have him pay his lower marginal tax rate on that income.
Churches do not pay taxes on donations.
You have a lifetime estate and gift tax exemption that you can use for your gift to your sister:
Giving assets with value higher than basis is a pretty tax efficient way to make a donation.
This includes appreciated assets and assets that have basis below value due to depreciation.
I don’t think the OP is talking about assigning his winnings per se, but rather giving his church a share of the ticket before the drawing. That’d still be a gift to the church which would count as income for them (if that even matters), but before the drawing, the value of the ticket is only a buck or whatever.
Setting aside states like VA, you’d really want to establish in writing ahead of time that the ticket is jointly owned by yourself, your sister and your church operating as a partnership with whatever percentage of ownership.
I’d note another difference between giving (or ‘sharing’ it) with a taxable individual and tax exempt organization. Assuming the IRS disregarded ‘sharing’ you’d only decided on ‘if you won’, all the income would be taxed as yours. But there would also be gift tax, owed by you, on top of that for an amount greater than $5+ mil (inflation adjusted amt which started at $5mil some years ago) you give to somebody else.
A gift to qualified tax exempt org would not generate gift tax. In fact as everyone else has mentioned it would generate an income tax deduction for you, within limits.
Getting the IRS to accept that the ticket partly belonged to some other person or org which had never heard of it before the win, or bothering to document it all properly on a few $ ticket before it won, seems far fetched though. But I guess it’s more far fetched the ticket would win.
I recently heard an interesting take on this from a friend:
If you’re younger than elderly, you should *always *buy your lottery ticket in the last couple of minutes before they close sales for that drawing. If you buy your ticket any earlier, the odds on you dying before the drawing are much higher than the odds of you winning. Best to not tempt Fate that way.
IOW “Here’s the good news: Our buddy Tom won the lottery on Saturday night! The bad news was after buying his ticket on Saturday morning he dropped dead around noon. That may be a shame, but it was sure the way to bet.”
Good point, my thinking is that I’ve seen many lottery wins that have multiples winners sharing the same ticket (think about Co workers who or purchase tickets together. When they win the lottery divies up the payout). If I’d won, I would want to “share the wealth” with a select few friends and family. If you give them money after you collect that money will be taxed twice, once when you get it and one when they get it. I know there are ways to gift money to certain individuals tax free, but from what I’ve seen is a pretty limited amount. ). My thought was that if the money was divided among the ones you want to have it so it’s distributed directly from the lottery, then it is only taxed once. The church angle I found interesting as I wondered if s tax exempt entity would truly be tax exempt.
