Contact us at 888-727-8796 if you need assistance with your tax problem (and yes, your information will be subject to the attorney client privilege). We’ve successfully assisted thousands of clients deal with IRS issues. You can also email us at info@irsmedic.com. We deal with both domestic and offshore issues. www.irsmedic.com So you won the lotto! Your first thought is, most likely, “Should I take the lump sum or the annuity payments!?” While this is important (and we’ll get into more details about that question below), there are other critical things to address. We’ve seen lottery winners file bankruptcy, and we’ve also had clients that won the lottery and then fell into trouble with the IRS. It can happen easily to anyone; especially someone that’s not used to having a lot of money. Wealthy habits create wealth, and someone that just had a large sum of money fall onto their lap may not have those wealthy habits. Yet. When you’re dealing with a lot of money, a ‘simple’ mistake can cost you everything. Even though you’re not used to having a lot of money, you need to take steps to ensure you don’t get to that point in the first place. You need to have a plan. It may feel like you have all the money in the world. You do not, and you need to protect what you have. Make a budget. You may not think you need to. Come on! You’re rich now! But creating a budget is of the utmost importance. It is easy to get pulled into a ‘rich’ lifestyle and spend, spend, spend. You’ll want a nice house, nice cars, nice vacations, and pretty soon maybe some botox, a personal trainer…basically an unsustainable lifestyle. Don’t be reckless; get every dollar to work for you. Create a trust. A trust is a relationship where property is held by one party for benefit of another. This will help you to keep your money safe from others, and potentially yourself. The trustee is the person responsible for managing the assets and making payments, and has incentive to manage your money correctly. Lump sum or annuity payments? Ah, the million dollar question (pun intended). Generally people think that the annuity payments are a better option because then you’ll be taxed less, and will have an endless stream of money coming in. We disagree. If you choose an annuity payment, every year you will have to deal with complicated financial issues. You can make errors managing the money, or yearly pay accountants and lawyers to assist you. You also don’t know what future tax rates will be (most likely, higher). Lastly, if you choose an annuity but then change your mind and “need the money now”, you’ll get hit with an additional 12% interest rate on the lump sum. With the lump sum, the taxes are withheld off the bat and you know exactly how much money you have to work with. It’s easier to come up with a planning strategy and take immediate control and begin investing is some tax free plans. You will be hit with a 25% federal withholding tax and local state income tax right away. Once that has happened, you’ll want to figure out how to reduce your tax liability. Thanks to things like the Bank Secrecy Act and FATCA, offshore investing is not the best tax strategy anymore. There are ways to keep your taxes at a minimum, and a professional can help you decide what the best choice is for you. Personally, we are big fans of PPLI (Private Placement Life Insurance) for tax free investing. Learn more about it here. Bottom line – if you win the lottery, take control and have a plan. And if you need assistance, contact us. We’re here to help. www.irsmedic.com The Law Offices of Parent & Parent, LLP Real Tax Attorneys for Tough Tax Problems With clients from around the world 888.727.8796
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