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ATHHA3042 Taxation Law

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ATHHA3042 Taxation Law

 

QUESTION 1

Is the Lottery money an annually received payment income? Provide reasons for decisions taken.

The lottery money received is taken as an income on an annual basis that is taxable. The Heavy statement of 1978 states that a winner can procure the amount of the lottery through two fundamental options in the cases of large amounts received from the prize money of a lottery that is Annual Instalments and Lump sum. For the case provided, the winner selects the option for Annual Instalments. According to the situation, the payment for the initial $50000 is made instantly upon the announcement of the winner. The payment of the rest of the money is done on the anniversary of the initial payment. Tax advantages are included in both payment options. While the options of payment guarantee a payout of the lottery, there are different advantages regarding the lump sum and the annuity. Franke and Leininger (2013) stated that, choosing the payment lump sum alternative could help the winners to avoid tax implications that are long term and provide the opportunity for investments in high yielding categories of finance like stocks and real estates.

According to Stiff et al. (2014), he states that the selection of the payment option of annuity can help the winners to receive huge tax benefits. Lottery winnings are declined by federal taxes, but the cases for annuity payments for winners allow them to earn jackpots that are advertised unlike the takers of lump sum. A large number of the winners selected the payment of lump sum. According to Perez (2013), taxes have an essential role that impact the decisions of many winners of lottery based on the selection between annuity procedures or payment done in lump sum. Definite benefits exist for both annuity payouts and lump sum. The lump sums benefits are certain. According to McGuire et al. (2013), the lottery winnings undergo current state and federal taxes that prevail during the time of winning the prize money. Once the winner clears all the taxations, the particular individual is allowed to make investments in the high yielding sections like real estate or spend the money according to their requirements.

Besides the mentioned, the advantages of the payments done annually differ greatly than the payout of lump sum that is uncertain. Brown et al. (2013) stated that the annual payments made to the winner at year-end will be subjected to the current state and federal rates regarding the tax related to the payment. The winners opting for the annuity option of payment believe that the rates of tax will decrease in the near future in opposition to the current rates prevailing in that area. After the selection of the procedure of annuity payment, the decisions are often regretted regarding the payout conducted annually.

Despite the above issues, the winners of the lottery have the advantage of an alternative option regarding the selling of payment done on an annual basis for a discount on the lump sum.

 



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