Lottery - Cash Option question?

You are right. But it's not "lottery rule", it's just that a jackpot is based on an annuity, so if you want the cash up front, it's not worth as much. But yes, you'd then be taxed on it afterward.

The advertised "jackpot" amount is based on the earnings accrued on the money during the (typically 20yr) pay out period. In other words the money they have in the bank plus what ever is estimated will be earned on that sum in interest. The cash pay out option is the money they have in the bank at the time. However you still aren't going to receive the full amount listed as the cash pay out value of the jackpot as the taxes will be paid on it prior to you receiving it.

The cash option can be considered the real value of the prize at the moment you win it. The annuity (payments every year) are higher for a couple of reasons that have nothing to do with taxes: -If you win $500 million over 26 years the lotto only needs to pay you about $20 million the first year. The remaining $480 million can be invested by the lotto. By the end of the 26 years the lotto will have made a couple hundred million dollars on the interest alone, therefore they can afford to pay you more while keeping a nice profit for themselves. -Inflation. At a 3% inflation rate $500,000,000 in today's dollars will only be worth around $230,000,000 in 26 years. That gives them a hefty "discount" for paying you later. EDIT: If you watch the cash option percentage over time you'll see it fluctuate based on the lotto's predicted investment returns and predicted inflation rate.

This Site Might Help You. RE: Lottery - Cash Option question? Having a debate with a friend in regards to the lottery (taking the cash option). When a person wins a huge sum of money in a lottery (say 10 million), they have the option of getting it all at once (the cash option). However if you do this you get like half of it. My friend says this is due to...

The cash option can be considered the real value of the prize at the moment you win it. The annuity (payments every year) are higher for a couple of reasons that have nothing to do with taxes: -If you win $500 million over 26 years the lotto only needs to pay you about $20 million the first year. The remaining $480 million can be invested by the lotto. By the end of the 26 years the lotto will have made a couple hundred million dollars on the interest alone, therefore they can afford to pay you more while keeping a nice profit for themselves. -Inflation. At a 3% inflation rate $500,000,000 in today's dollars will only be worth around $230,000,000 in 26 years. That gives them a hefty "discount" for paying you later. EDIT: If you watch the cash option percentage over time you'll see it fluctuate based on the lotto's predicted investment returns and predicted inflation rate.

This is a very big planet with lots of countries. Each of these countries has their own tax laws regarding gambling winnings. In my country, gambling winnings, (which includes lottery wins), are taxed the same as income. Therefore, in my country the winner would owe taxes on the entire $14 million. I have no idea about your country since I don't know what it is.

The advertised "jackpot" amount is based on the earnings accrued on the money during the (typically 20yr) pay out period. In other words the money they have in the bank plus what ever is estimated will be earned on that sum in interest. The cash pay out option is the money they have in the bank at the time. However you still aren't going to receive the full amount listed as the cash pay out value of the jackpot as the taxes will be paid on it prior to you receiving it.