Why Winning a Million Doesn’t Make you a Millionaire

Posted: 21 Feb 2008 | Categories: Personal Finance

Winning a million dollars during a contest or gamble its sure to be one of the most exciting moments of your life, the adrenaline rushes through your body and all you want is to celebrate you have just become a millionaire! but at the end of the day, are you really a millionaire if you have won a million dollars? Most certainly not, it is known that by law you must report any income you have acquired though gambling or lottery winnings, if you paid $5 for a lottery ticket and won $100 you should theoretically report $95 in lottery winnings when you do your tax returns, however not everyone will include such small amount in their taxes, none the less it is your duty to disclose such information.

When it comes to lottery and gambling winnings there are heavy taxes to pay which may lower your level of “happiness” once you realize the amount which needs to be paid to the government. The taxes paid on such winnings are 40% on average, now do a quick calculation and you will find that out of a million dollars you - figuratively speaking - $400,000 will have to be paid back to the state, this percentage applies to lottery winnings.

Casinos on the other hand will take anywhere from 1-10% of the revenues which is not so bad, this is why people prefer this method over lottery winnings. There are several laws applicable to lottery and casino winnings, for instance, if you won the lottery in another country and you are a US resident or citizen, you must pay taxes on such income. People have heard that the Canadian lottery pays 100% of the amount advertised which is true but a US citizen would have to pay the taxes on the winnings, there is no escaping the law.

Besides taxes your million will be decreased by inflation. I’m pretty sure you have heard all the commotion about the sharp decline of the dollar against foreign currencies, what this ultimately means to you is that your dollars are loosing buying power and if you agreed to receive this amount of money in small payments over time you will be getting a lot less than you though.

Another disadvantage of such arrangements which are also known as deferred payments, is that your money is not earning you any interest, so you see this is a loose-loose situation because you are unable to use your funds in full, they are not appreciating at a higher value and are getting hit by inflation. In these cases the most obvious decision to take is to cash these financial instruments for a lump sum which will allow you to use your funds and invest them somewhere else in order to get positive returns.

In conclusion, winning a million dollars today will most definitively not make you a millionaire, winning two million on the other hand will make you a millionaire, but again you have to deduct taxes and be smart with the money.

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Article Author :Ivan_A_Cuxeva