Question 1
Is the money received from lottery an annual payment income? Give reason for your answers.
The amount of money that is received from any lottery is taken into consideration as an annual income of the individual and taxable. According to Heavy (1978) if a person wins a huge amount of money in any lottery then the person generally have two options open for him to take possession for the amount that he has won. The first process in which he can take possession for the amount won by him is through Lump Sum. The second process in which he can take possession for the amount he has won is through Annual Instalments. Here, the winner considers the process of annual instalment. According to the given situation, the first $50000 of the amount won is given to the winner as soon as the announcement of the winner’s name is done. The rest of the amount is paid to the winner on the day of the first anniversary of the first payment that was done to the winner. Tax advantages are provided to the winner for both the options that the winner is given. According to Morgan (2002), if the winner chooses the option for the Lump Sum payment, it can save the winner from long term tax payment and also provides the winner with much better option where the winner can further investments in high-yield financial categories just like Real Estates or Stock Markets.
According to Brown et al. (1999) if the winner chooses any long-term annuity payment then the winner can be of use to in major benefits in tax payments. Federal taxes brings a decrease in the number of lottery winnings while the winners who chooses annual payments are much more closer in winning annual jackpots rather than winning any Lump Sum amount. But, maximum of the winners chooses the process of Lump Sum payments. According to Matheson (2001) the taxations also plays an important role in influencing the winners’ decision that which method of payment will the winner go for: the Lump Sum method or the Annuity Process. There are benefits for both the ways of payment, the Lump sum and also the Annuity but the benefits of Lump sum is certain. According to Weisbach (2001), winning the lottery can be taken as current federal and the State taxes both are prevalent at the time the prize amount is won by the winner. As soon as the winner clears the amount of tax that he is required to pay, the winner considered a free person can make any further investment with the rest of the amount left from the original prize money that the winner has won.
At the same time, the advantages that the winner gets in choosing annuity payment is exactly opposite to lump sum payment, which is not at all certain in tots form. According to Hu and Scott (2000), since the payment in annual payment are made at the end of the year it is taken for taxation under the rates that are under the current federal and states. The winners who chooses the annual payment procedure often thinks that the tax reasons are often risky and the tax rates will be much lower that the present rates. But, once the winners’ select the annuity payment method, they are found to be regretting about the decision that they had made and not going for the annuity payment method. Also the lottery winners’ have the option of selling the annuity payments even for a lump sum that are discounted.
Considering the Federal law, the winning amount of any winner won in a lottery are exactly equal to the amount of salary that any person receives after working in any office. Whatever amount of prize that a winner wins in any lottery must be announced to the federal tax return, while at many places an amount is taken into consideration from the amount that the winners’ are given on winning the lottery. When the prize money is announced to the federal tax return, the winner can bring a claim to the federal taxes that are taken as a payment on the basis of the taxation. According to Haisley et al.(2008) the claims that are brought on the lottery losses are the internal deductions that generally increases the tax refunds or the amount of tax that one needs to bear. The sum of all the deductions are lower than the standard reductions that the IRS sanctions for all the taxpayers that they are claimed. The standard reductions are used because the amount of tax that the winner needs to pay will be quite lower than the current rates of taxations.
Taxation Law
As per the taxation Laws to Australia, a visitor visiting Australia is liable to pay tax. However, there are certain aspects of that are being checked to ensure the fact that the tax liability being imposed is at par the guidelines of Australian taxation laws.
