Who wouldn't want to win a huge lottery prize? You might be surprised. For one thing, these jackpots aren't free: most prize winnings are taxed as income by the Internal Revenue Service (IRS). Add in a few financial missteps, and that wind෴fa🌟ll can quickly turn into a major burden.

Here are some common prizes and the often-overlooked costs to keep them—and what you can do to safeguard your winnings if you do score a 𓄧big jackpot.

The Cost of Winning a House

After winning a home, you'll be responsible for paying the federal income tax based on the home's value. You may also be liable for state income tax, depending on your state of residence. As with any prize, the home's 澳洲幸运5官方开奖结果体彩网:fair market value must be reported on 澳洲幸运5官方开奖结果体彩网:Form 1040 as other income, and will be taxed at your 澳洲幸运5官方开奖结果体彩网:marginal income tax rate.

Unless you already own a home that you plan to sell, you probably can't afford to pay such a significant tax sum all at once, even with several months' notice.

Of course, if you could afford the tax bill, you'd be getting a home for the price of a generous down payment. But your costs wouldn't end there. On top of income taxes, you would also have higher recurring expenses such as property taxes, homeowner's insurance, and utility bills, not to mention the cost of general maintenance and upkeep. Despite striking it rich in the sweepstakes, you could end up 澳洲幸运5官方开奖结果体彩网:house poor in the end.

The Cost of Winning a Brand New Car

Just as with that prize of a home, you'll be responsible for federal and state income taxes on any car that you win. These amounts will be based on the vehicle's fair market value. The combined federal and state bill might add up to about one-third of the car's value.

If you win a sports car that retails for over $100,000, for example, the tax bill would be quite high. Since the cars that are given away as prizes are often luxury models, your new wheels could boost your taxable income quite a bit, maybe even into a new 澳洲幸运5官方开奖结果体彩网:brack�🎉�et taxed at a higher marginal rate.

Don't forget that you'll have to pay registration and licensing fees in order to get that car on the road. Then there are the ongoing costs associated with auto ownership. You can bet that costs for insurance premiums and maintenance are higher for a more expensive car. Oil changes can get pricey. And your shiny new car probably doesn't get 澳洲幸运5官方开奖结果体彩网:gas mileage that could rival your previous ride's.

The Cost of Winning a Vacation

When you win a trip, you are taxed on its fair market value. Depending on the sort of holidays you take, the taxes might be as much as you'd normally spend on an entire vacation. 

In many cases, you will still be expected to cover some trip expenses. Say you enter a contes𝕴t in which the prize is a trip for two to Paris. It includes airfare from New York to Paris, hotel, ground transportation, and half a day of sightseeing.

But if you don't live in New York, you are responsible for the travel expenses to get there, all your food costs, sightseeing beyond what is offered, tips, and other spending.

The Cost of Winning a Dream Wedding

The average wedding cost $29,000 in 2023, so it's no wonder many couples jump at the chance to win 澳洲幸运5官方开奖结果体彩网:a stylish wedding at the prize sponsor's expense.

However, there are often additional costs. For example, say that a wedding prize package offering a designer wedding worth more than $50,000 includes a stay at a spa resort in Mexico and an engagement photoshoot in New York. Transportation may be covered only to Mexico, however. Bridesmaids' dresses and a designer wedding gown are included, but costs for alterations aren't.

Even if crucial parts of the trip are covered and the contest is explicit about what's not included, it may not be a good deal. Such items can add up for a cash-strapped couple (or their parents), and it's harder to budget when someone else is calling the shots.

The Cost of Winning at Casinos

The tax bill on any money you win from gambling can be offset by any money you have lost. However, you'll only get this benefit if you itemize your taxes rather than take the standard deduction. Plus you can't deduct more than the amount you have won in the same year. Winnings from horse races, sports betting, and casinos are all considered 澳洲幸运5官方开奖结果体彩网:gambling income by the IRS and must be reported as such on your return.

Depending on the game and the amount you win, you may have to fill out a payer-provided Form W-2G when you receive the prize, from which a standard rate of 24% of your winnings will be withheld and sent to the IRS on your behalf.

The Cost of Winning the Lottery

Playing the lottery counts as gambling. So if you win big, the proceeds will be considered gambling income. Payouts of jackpots over $5,000 automatically have 24% withheld for federal taxes.

Most states tax lottery winnings as well; depending on where you live your total tax bill could be as high as 50% of the prize, based on your other income. In contrast to a house or a car, there are no unavoidable ongoing costs associated with winning the lottery. That is except, of course, for annual income taxes owed should you opt to receive your prize as an annuity–more on that below.

Options for Dealing With Prizes

Now that you know the strings attached to a big win, what can you do? With most prizes, you have five opti🅷ons:

1. Keep the prize and pay the tax. This is the best option if you can afford the tax bill and can use the prize.
2. Sell the prize and pay tax on the proceeds. If you don't want the prize or if you can't or don't want to pay the taxes on it, you can still benefit from your win by selling the prize.
3. Receive a cash settlement instead of the prize. If you take money instead of a tangible object or amenity, at least you'll have the money to pay the tax that's due.
4. Forfeit the prize. If the prize isn't worth the trouble to you, you can just refuse it.
5. Donate the prize. In some cases, you can donate the prize to a government agency or 澳洲幸运5官方开奖结果体彩网:tax-exempt charitable organization without paying tax on it.
   

Minimizing Lottery Taxes

If you win the lottery, you do have 澳洲幸运5官方开奖结果体彩网:choices in handling the windfall. The biggest choice concerns how you'll receive the money. You'll have to decide whether to take the payment as a single lump sum or as an annuity (annual payments spread out over years or decades). Each choice has financial implications, and you may want to consult with a tax attorney, certified public accountant (CPA), or 澳洲幸运5官方开奖结果体彩网:certified financial planner (CFP) to discuss them before deciding.

Strictly from a tax viewpoint, the annuity has some advantages. Let's say you win a jackpot with a $1 million lump-sum payout. (Jackpot amounts are advertised based on the cumulative annuity payments winners would receive, and the lump-sum payout is usually significantly smaller.)

If you took the lump sum, you would owe $370,000 in federal income tax based on the top marginal tax rate of 37%. If you opted instead for an annuity paying $50,000 a year, you might only be taxed at a 22% marginal rate, paying $11,000 per year or $220,000 cumulatively over 20 years on the first $1 million of annuity payments.

By limiting tꦿhe rate at which your winnings are taxed, the annuity would have saved you $150,000 in taxes on that first $1 million in lottery winnings.

Other Tips to Consider If You Win

Contain Your Spending

Even if you did win the lottery, you might not be able to hold on to the money. One of the first things a lot of people do after receiving their newfound financial freedom is quit their jobs. It's also natural to go on a spending spree: a 澳洲幸运5官方开奖结果体彩网:fancy second house, a new car, a luxury vacation. And then, maybe, help friends, family, colleagues—you might be surprised by the number of people askiꦑng for money.

Between the usual decision to forego earned income, the increased spending, the requests for gifts, and the ever-present hazard of scams targeting newfound wealth, it's no wonder so many lottery winners eventually end up in financial distress.

Get Expert Help

To avoid such pitfalls, consider enlisting the help of professionals such as a financial advisor and financial planner. In addition, consider contacting 澳洲幸运5官方开奖结果体彩网:a professional for 澳洲幸运5官方开奖结果体彩网:estate planning issues and a CPA or another tax specialist to put the appropri൲ate tax planning in place.

Get the financial guidance you need and take the time to plan for the use and protection of your good fortune. Refrain from making rash decisions—economic or otherwise. Certainly, helping 🤡those close to you is a good thing, but you need to set limits and learn to say no.

Maintain Your Privacy

Don't attract attention to the fact that you've won a substantial amount of money. By failing to do so, as mentioned above, you may discover that friends, family, and even those unknown to you seek a portion of it. You may also draw the attention of scammers and other malevolent individuals whose goal is to take what's yours fraudulently.

Some states allow you to maintain anonymity after winning a lot🐎tery. They include Kansas, Maryland, North Dakota, Texas, Ohio, and South Carolina.

The Bottom Line

If you receive a significant cash windfall from the lottery or other prizes, avoid the common mistakes. Don't do anything rash or go on a spending spree before you've hammered out a wealth management plan and done some long-term thinking and financial goal-setting. With lotteries, this includes determining how you want to receive the jackpot, which w🍸ill affect how much you get, when you will get it, and t▨he taxes you'll owe.

Before accepting any prize, consider the financial implications of keeping it. Decide if it will impro🌼ve your financial situation in the long run. Otherwise, your big win could turn into a losing proposition.