Take the Lottery Winnings and Run - But You Won’t Escape the NJ Tax Bite by Howard Hook, CFP®, CPAAs published in The Star Ledger, “Biz Brain” on January 19, 2014 Question. With all the recent publicity about that giant Mega Millions lottery drawing, let me give you this hypothetical situation: Let’s say I was a New Jersey resident when I was the lucky winner — it’s a very nice dream — but I don’t cash my winnings right away. Then let’s say I take up permanent residency in another state — Florida. I will remain in Florida for the entire year. The question becomes: I bought the ticket in New Jersey, but I waited until I lived out-of-state to cash it. Will New Jersey collect state income tax on the winnings even though the ticket wasn’t cashed until I declared residency in another state? — In Sparta, but possibly fleeing with an uncashed ticket. Answer. All you need is a dollar, a dream and a good tax attorney or CPA. And the odds. Before you start packing your bags and selling your home, the odds of winning the Mega Millions are one in 258,890,850, said Jerry Lynch, a certified financial planner with JFL Total Wealth Management in Fairfield. As a point of reference, Lynch offered a few other statistics: • The chance of your home being burned down? One in 16,000. • The chance of being hit by lightning? One in 500,000. • The chance to being audited by the IRS? One in 100. “Your chance of being audited by the state of New Jersey if you win the lottery here and move to Florida? About one in one,” Lynch said. Assuming you beat the odds and won that $600 million jackpot, and then declared that Florida was your residence, that would be an attempt at avoiding paying New Jersey $54 million in taxes. “Do you really think that would fly?” Lynch said. “If you purchased the ticket when you lived in New Jersey as a primary residence, it does not matter when you cash the ticket. You ‘earned’ the money when you were a NJ resident.” One more comment from Lynch the Brain couldn’t hold back: “Remember, cows get fed, pigs get slaughtered!” he said. You get a grade of “A” for creativity from Howard Hook, a certified financial planner and certified public accountant with EKS Associates in Princeton. He said the state has already thought of this strategy, and it won’t work. He said the state taxes New Jersey lottery winnings in excess of $10,000, no matter where the winner resides. He said your idea of holding the ticket and not cashing it brings up an excellent concept called “constructive receipt.” “In simple terms, the principal of constructive receipt says that the income is taxable to the taxpayer when it is made available to the taxpayer without any restrictions,” Hook said. “So while physical possession of a check is not required for deposit, it certainly goes a long way towards constructive receipt if indeed you had physical possession of the lottery check.” There is some good news, he said. The state will allow you to deduct any gambling losses you may have incurred against the winnings, so you may get a tiny bit of a tax break after all, Hook said.