5 things you need to know before giving a lottery ticket as a holiday gift

Lottery tickets and scratch-offs are popular stocking items, and it’s easy to see why. Who wouldn’t want to start the new year with a huge windfall? But while we all like to dream of ourselves or someone close to us winning the top prize, the reality of the lottery is not so rosy. Here are five things you need to know before buying lottery tickets for yourself or someone else this holiday season.

1. You are probably wasting your money.

This probably won’t come as a shock to you, but your odds of winning the lottery aren’t great. The current Powerball odds are 1 in 292,201,338, and the Mega Millions odds are even worse. Scratch-off tickets have better odds (and lower prize amounts), but they are still very low.

That doesn’t mean you can’t play it if you understand the risks, but don’t expect too much. And don’t spend more than you can afford to lose.

2. Victory is not as valuable as expected

Even if you or a loved one wins the jackpot, you will take home much less than the top prize. Large jackpots like Powerball and Mega Millions don’t offer the full prize if you claim a lump sum like many people do. And then there’s this little thing called taxes.

If you win millions of dollars, you’ll be in the highest tax bracket, giving 37% of your winnings back to the federal government. And you can take a piece of your ledger. Even if you win a smaller amount, it may still be enough to trigger a higher tax rate, which means more money for Uncle Sam and less money for you.

3. The prize does not belong to the ticket purchaser.

A lottery ticket is a bearer instrument with the legal meaning of “property belonging to whoever owns it.” So, if you generously gift a ticket to a friend or family member and they win big, the ticket belongs to that person. It doesn’t matter that it was your hard earned cash that bought it.

If they take home a lot of money, they are under no obligation to share it with you. And if that’s a problem for you, you might prefer to keep the ticket yourself. Instead, buy your friend something else.

4. Winners are not easy to share.

So you promised your friend or relative that you would split the money if one of you won. Doesn’t that solve the above problem? exactly. Depending on the gift tax, you cannot donate more than $17,000 per person in 2023 and $18,000 in 2024. If you donate more than that, you must report it to the IRS. It also counts toward lifetime contribution limits ($12.92 million in 2023 and $13.61 million in 2024). If you exceed your lifetime contribution limit, you will have to pay taxes on your donations.

People have successfully split lottery winnings in the past, but this requires paying a lawyer to do it. If a person claims their own ticket, all money legally belongs to that person, as explained above.

5. There is a better way to give cash during the holidays

Lottery tickets are usually useless pieces of paper. If you want to give a tangible gift to a family member or friend, use cash or gift cards instead. Or, if you want to make a lasting impression, try investing money in a college savings fund or brokerage account, or gifting stocks directly. These are much safer paths to wealth and strong personal finances than buying lottery tickets.

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