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I would like to establish a tax free charitable trust to which I would donate a winning lottery ticket. I would control which charities get the proceeds but receive NO money myself. Would I (Or the charitable trust) pay any New York State or Federal income Taxes on this?

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  • I’m voting to close this question because there's not enough details, and this is solicitation of a legal advice. You'll need to talk to an attorney and a tax adviser licensed in New York.
    – littleadv
    Mar 5 at 4:29
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    We answer questions about taxes all the time. Mar 5 at 14:14
  • @DJClayworth in this case, significantly more information is needed to answer it properly, see my comments under the posted answer, and even so - this is not a trivial use case that a lot of people encounter and there are a lot of reliable references online we can quote/link to
    – littleadv
    Mar 5 at 16:39
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    I wouldn't disagree with a (temporary) close reason of "needs more details". Mar 5 at 19:14
  • You don't have to agree to my reasoning, but feel free to cast your own vote
    – littleadv
    Mar 5 at 22:26

1 Answer 1

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DISCLAIMER: IF you're talking about millions of dollars, I would not rely on strangers on the internet, but would definitely speak to a local tax attorney (and probably an estate planner, financial advisor, etc.) to make sure things are done properly. The cost will be much less to get it right that the cost of messing it up would be.

The Federal limit for charitable donations is 60% of your AGI (which would include the lottery winnings) to public charities, but only 50% to private foundations (which sounds like what you're describing), and possibly less to other private "charities" depending on how they operate. So you can't always avoid tax on all of it, but there might be ways to minimize the tax. For example, you might take the payout over time instead of a lump sum, spreading the tax burden (and increasing the amount that is deductible) over several years.

New York (as well as New York City) has its own withholding and tax rules that may or may not be affected by the same donations.

Bottom line - it is income, you must pay the appropriate tax, but you can use the money for deductible items to reduce (but maybe not eliminate) the tax.

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  • So you can't always avoid tax on all of it - there are most definitely ways to avoid paying all tax on it, with proper advance planning and preparation, which is what I expect the OP is trying to do.
    – littleadv
    Mar 5 at 16:40
  • So if I have a winning lotto ticket for $10 Million, there are ways that I can avoid income tax altogether?
    – D Stanley
    Mar 5 at 22:00
  • If you plan ahead and intend to donate it then yes
    – littleadv
    Mar 5 at 22:19
  • by plan ahead you mean give them the ticket before the winner is announced, or something else? My research showed that once the winner is announced, the income is credited to whoever holds the ticket (you can't just give the ticket to a charity after the fact). if I'm wrong I'll delete my answer.
    – D Stanley
    Mar 5 at 23:34
  • That is one way, yes.
    – littleadv
    Mar 5 at 23:54

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