Group lottery pool

specifically in the United States

[csdude55]

My sites target local residents, so 99.8% of my traffic is within the same state.

Someone recently suggested that we have a group lottery pool... everyone send in $X, and then I would buy the appropriate number of Quick Pick lottery tickets. If one of the tickets win then we would all split the money.

This is an interesting idea that could be fun for the users, and one that might send a fair amount of traffic to my site, so I'm thinking about it.

The question, though, is how do I handle the money sent to me to purchase the tickets? I have about 120,000 unique visitors each week, so it's not unrealistic to think that 1,000 people might send $4 /month. But if I put $48,000 /year in my business bank account to buy tickets then it will look like income, and I'll have to pay income tax on it.

Before I give up on the idea entirely, or resort to paying a CPA to advise me, have any of you guys gone down this road? Any suggestions on how to handle the payments without paying income tax on it?

[NickMNS]

But if I put $48,000 /year in my business bank account to buy tickets then it will look like income, and I'll have to pay income tax on it.

No why? Yes you will put $48k in your account but then you will have an expense of $48k in lottery tickets, which equals a gross profit of $0.

Personally I would charge a small fee like 10%, so for $4000 participation I would purchase $3600 worth of tickets. Obviously you would need to disclose this to the participants.

Now the big question for me is the legal implications. Can corporations participate in the Lottery? Can one charge for the service as I have suggested? Can one get a cut of the winnings? What steps must one take to ensure the shares of the participants? Dispute resolution?

[lucy24]

which equals a gross profit of $0

You mean a net profit. That's what CPAs are for ;)

[NickMNS]

No I mean gross profit. Gross profit or gross margin == revenue - cost of goods sold. Net profit is Gross profit less expenses (eg: general office expense, interest, taxes etc...).

[csdude55]

I gotcha... OK, that makes sense.

I did some research on how the funds are distributed, and it can be a little tricky. If a ticket wins and I go to claim the winnings by myself, and then distribute it evenly, then not only do I pay the initial tax but they all have to pay a gift tax... because it looks like I won and then gave a bunch of it away to random people.

The only real way is for everyone to show up together and have the lottery split the winnings, but they won't always do it like that. I'm guessing that if 1,000 are involved then it would be pretty complicated! Especially if one of the people involved hire an attorney to represent them, as that could result in no one getting paid until the attorney is satisfied.

So I'm going to still have to do more research before deciding how practical this is...

[topr8]

i know you were asking about the USA however the UK lottery has a useful info page about syndicates/groups [lottery.co.uk...]

notably they say you need a properly drawn out syndicate agreement if there isn't going to be tax implications for everyone, as in the uk only one person can win the prize - and therefore they have to share out the winnings to the others.

perhaps the lottery you are thinking of using has a similar advice page.

[robzilla]

they all have to pay a gift tax

A quick search tells me there's a $15,000 annual exclusion? You'd need a pretty hefty prize :-)

[justpassing]

I loosely remember of a company, may be from Australia, which is specialized in taking part of mega lottery worldwide , and they have special machines to fill tickets, to make all possible combinations.

[mack]

You also need to take into account fees on payments members make.

Mack.