Question about lottery winnings

[Greenjellybean]

Jurisdiction

Georgia

The recent billion dollar mega millions really got me thinking. If I were to win that and wanted to share it with a friend how would that work? After some more research and one audiobook, it made me think maybe we need to form a limited partnership. How does taxation work in that scenario, seeing as the partnership has pass through taxation? Let's say my friend and I agree in writing to purchase the ticket as a partnership both contributing a dollar and agreeing to split the winnings. Would the general partner pay a self employment tax if there's no actual trade or business being run through the partnership? Is it likely the State Lottery Corporation will still withhold federal income tax or will they not because it's being paid into a legal limited partnership?

 

[army judge]

If I were to win that and wanted to share it with a friend how would that work?

When you become the next lottery multi-millionaire you retain a tax attorney to address the tax issues that huge amounts of money can have on us average Joes and Janes.

The attorney will work with you to make sure that those you love receive whatever portion of your winnings you wish to share.

If lottery lightening ever strikes for you, dozens of attorneys and CPA's will probably reach out to you long before you are ready to contact them. LOL

After some more research and one audiobook, it made me think maybe we need to form a limited partnership. How does taxation work in that scenario, seeing as the partnership has pass through taxation?

When you hit the big one, your attorney will discuss the various options available to you, including a trust of some sort.

As for any other questions, none of them matter unless lightening lottery does strike.

As my dad used to say, "I only play $5.00, never more than $5.00. You gotta buy a ticket to win."

 

[Greenjellybean]

When you become the next lottery multi-millionaire you retain a tax attorney to address the tax issues that huge amounts of money can have on us average Joes and Janes.

The attorney will work with you to make sure that those you love receive whatever portion of your winnings you wish to share.

If lottery lightening ever strikes for you, dozens of attorneys and CPA's will probably reach out to you long before you are ready to contact them. LOL



When you hit the big one, your attorney will discuss the various options available to you, including a trust of some sort.

As for any other questions, none of them matter unless lightening lottery does strike.

As my dad used to say, "I only play $5.00, never more than $5.00. You gotta buy a ticket to win."

I get it LOL but you can't blame me for pondering these things beforehand. I would still like anyone who can to weigh in on this. I don't want to start hiring an attorney and I have absolutely no idea what's going on. I want to be informed when this lightning strikes! And I do seriously want to know of my friend and I should buy tickets as legal partners. Wouldn't that be helpful? Instead of telling the IRS we were partners after the fact...

 

[cbg]

Do you think that forming a legal partnership is free? Are you seriously contemplating spending several hundred dollars to create a partnership on the off chance that a $2 lottery ticket pays off?

My friend, you are seriously overthinking this.

 

[Tax Counsel]

The recent billion dollar mega millions really got me thinking. If I were to win that and wanted to share it with a friend how would that work?

That depends on the deal you and you friend make and what options the lottery you participate in allow for claiming the winnings.

After some more research and one audiobook, it made me think maybe we need to form a limited partnership.

No, for just you and your one friend you'd not need to form a limited partnership or any other kind of limited liability entity under state law. The friend(s) not holding the lottery ticket would want to ensure they have a written contract regarding the deal they struck so that the friend holding the ticket doesn't suddenly "forget" the deal when faced with the prospect of winning many millions of dollars and try to cash the ticket all for himself.

Then should you hold the winning ticket, what happens from there depends on the options you have to collect on the winnings. If you all agreed to take the lump sum option then you'd simply divide the check you get among the parties to the contract. The lottery organization may be willing to do that for you and do the the tax withholding for each of the participating ticket holders. Otherwise, filing a partnership return is one option for reporting the lottery winnings to the federal and state tax authorities.

Would the general partner pay a self employment tax if there's no actual trade or business being run through the partnership?

No, none of the partners in this investment would be liable for self-employment tax for this.

Is it likely the State Lottery Corporation will still withhold federal income tax or will they not because it's being paid into a legal limited partnership?

You'd have to ask the lottery organization what options they permit for dealing with winnings in this situation. It won't be a new situation for the organization so it likely has a policy on how tickets held by more than one person are handled.

 

[Tax Counsel]

Do you think that forming a legal partnership is free?

Well, creating a general partnership is easy to do and free if you don't use a lawyer to draft the agreement. Of course for any long term business partnership you want a lawyer to draft the partnership agreement, but an agreement to simply share lottery winnings can be pretty easy for a group to do on their own. And that's the most important thing they need — the partners not holding the ticket very definitely want a signed written agreement that they are sharing the winnings from the ticket, with copies of the tickets that are covered by the agreement attached so it's clear exactly which tickets are part of the partnership. All the participants should have a copy of that agreement. Otherwise, the person holding the ticket might just try to claim it all as his/her own winnings. I've seen the litigation that results from such situations and they'll want to avoid that problem.

 

[army judge]

Wouldn't that be helpful?

If you win $500,000,000 you can GIFT anyone you want to a portion of your winnings.

There are tax considerations, which is why I suggest you retain a tax attorney to make sure all pitfalls are avoided.

If you buy a small amount of tickets ($5.00 as my dad said), you don't require a partnership.

If $5.00 is too stiff, maybe you could consider buying a lesser amount.

If you do the math, buying $5,000 of tickets barely increases your chances of winning over the $5.00 spender.

Realistically, you're overthinking something that happens so rarely, statistically you're more likely to be struck by lightening during a thunderstorm.

The overall odds of winning a prize are 1 in 24 and the odds of winning the jackpot are 1 in 302,575,350.

The odds of being struck by lightning over the span of one year approximate 1 in 500,000.

If I ever win, I already know the beneficiaries that will receive a percentage of my largesse.

In fact, at my age, I'll likely take a lump sum, create a family trust describing what amounts relatives will receive annually until their deaths.

This makes my life less complicated, because I need not craft a plan for something that is unlikely to ever occur.

 

[Greenjellybean]

Do you think that forming a legal partnership is free? Are you seriously contemplating spending several hundred dollars to create a partnership on the off chance that a $2 lottery ticket pays off?

My friend, you are seriously overthinking this.

You take yourself way too serious LOL Lighten up

 

[Greenjellybean]

That depends on the deal you and you friend make and what options the lottery you participate in allow for claiming the winnings.



No, for just you and your one friend you'd not need to form a limited partnership or any other kind of limited liability entity under state law. The friend(s) not holding the lottery ticket would want to ensure they have a written contract regarding the deal they struck so that the friend holding the ticket doesn't suddenly "forget" the deal when faced with the prospect of winning many millions of dollars and try to cash the ticket all for himself.

Then should you hold the winning ticket, what happens from there depends on the options you have to collect on the winnings. If you all agreed to take the lump sum option then you'd simply divide the check you get among the parties to the contract. The lottery organization may be willing to do that for you and do the the tax withholding for each of the participating ticket holders. Otherwise, filing a partnership return is one option for reporting the lottery winnings to the federal and state tax authorities.



No, none of the partners in this investment would be liable for self-employment tax for this.



You'd have to ask the lottery organization what options they permit for dealing with winnings in this situation. It won't be a new situation for the organization so it likely has a policy on how tickets held by more than one person are handled.

Thanks for the input!

 

[Greenjellybean]

If you win $500,000,000 you can GIFT anyone you want to a portion of your winnings.

There are tax considerations, which is why I suggest you retain a tax attorney to make sure all pitfalls are avoided.

If you buy a small amount of tickets ($5.00 as my dad said), you don't require a partnership.

If $5.00 is too stiff, maybe you could consider buying a lesser amount.

If you do the math, buying $5,000 of tickets barely increases your chances of winning over the $5.00 spender.

Realistically, you're overthinking something that happens so rarely, statistically you're more likely to be struck by lightening during a thunderstorm.

The overall odds of winning a prize are 1 in 24 and the odds of winning the jackpot are 1 in 302,575,350.

The odds of being struck by lightning over the span of one year approximate 1 in 500,000.

If I ever win, I already know the beneficiaries that will receive a percentage of my largesse.

In fact, at my age, I'll likely take a lump sum, create a family trust describing what amounts relatives will receive annually until their deaths.

This makes my life less complicated, because I need not craft a plan for something that is unlikely to ever occur.

Thanks for telling me what you would do...good stuff. Believe it or not I'm actually aware of the odds.

 

[cbg]

Nonetheless, I stand by my answer. OP is seriously overthinking.

 

[zddoodah]

The recent billion dollar mega millions really got me thinking. If I were to win that and wanted to share it with a friend how would that work?

Well...if you found a $100 bill on the street and wanted to share it with a friend, how would that work? The answer isn't any different for your hypothetical lottery winnings.

After some more research and one audiobook, it made me think maybe we need to form a limited partnership.

Huh?

How does taxation work in that scenario, seeing as the partnership has pass through taxation?

You're asking "how taxation works" for limited partnerships? I'm confident there are books that are several hundred pages that cover the topic of limited partnership taxation.

Let's say my friend and I agree in writing to purchase the ticket as a partnership. . . .

You are seriously overthinking this.

Is it likely the State Lottery Corporation will still withhold federal income tax

Yes.

Do you think that forming a legal partnership is free?

I don't know about the OP, but I do. "Legal partnerships" are formed at no cost every day (although not properly formed limited partnerships).

 

[cbg]

Okay, so I was mistaken about the option for forming a legal partnership for free. Sure wasn't free when I did it. Even so, I STILL think the OP is going way overboard.