Most people dream of what they will do with the money that they win from the lottery. While these aspirations may be the most common response to jackpot winnings, it’s very important to remember to pay your taxes first before going on that spending spree. For individual lottery winners, it’s pretty straightforward to fill out IRS Form W-2G, but when there is a group of people that win off of the same numbers, they will need to fill out IRS Form 5754. This form is a great guide to figuring out how to fill out and file the form that will eventually be sent to the IRS.
If, for example, an office pool of 20 people were to win a lottery, they must choose a representative to claim the winnings. This person must also begin to fill out IRS Form 5754 and calculate how the prize money is to be distributed. Also, if any of the group also purchased a separate winning ticket, that money must be claimed on that form in a separate column. In addition, every entity receiving a share must provide their Taxpayer Identification number. Individuals must give their Social Security number while all others must give their Employer Identification number.
For lotteries, 25% of the winnings must be withheld for tax purposes if the amount won is over $5,000. When tax is withheld, IRS Form 5754 must be signed and dated after it has been filled out. It can then be turned over to the organization that will present the winners with the prize and IRS Form W-2G. Form 5754 is not sent to the IRS but is still kept with financial records. For questions on how to use any IRS form or for other tax-related questions, it is recommended to speak with a tax professional. Not paying taxes can lead to penalties, fees and interest which can whittle down your winnings or even plunge one into tax debt. It’s best to plan ahead and consult with tax experts to ensure that the money that was won can be used and enjoyed.