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Old 02-09-2015, 12:30 PM
 
Location: Southlake. Don't judge me.
2,834 posts, read 3,746,630 times
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Quote:
Originally Posted by Lowexpectations View Post
Experienced poker players are not doing what you suggest when in a single hand and calculating pot odds. If it cost you 1 to have a chance of winning 200mm cash value and your odds of winning are less than 200mm to 1 the pot odds are correct to wager the one dollar.
Actually, in terms of the lottery, you're using an after-tax dollar to purchase a pre-tax benefit. That said, you are allowed to deduct your cost of tickets from your lottery wins (but not to exceed your lottery wins). However, I think those deductions would fall under Miscellaneous Itemized Deductions on Schedule A (2% floor) and like any itemized deductions would be subject to the Pease limitation.

Short answer is that even I don't care enough to try and figure out a break-even on the hypothetical "I could buy all 100 million combos and be guaranteed of winning $130 million" (or whatever) when factoring in all tax consequences (and that's before accounting for any additional tax planning applied to lottery winnings).

If a jackpot gets "close enough", I'll toss a buck or 2 or 5 at it. If I spend $50 on lottery tickets in a year that would be a LOT for me. It's probably closer to $10/yr, and I assume there will be zero coming back, although every now and then I win $2 or $4 or maybe $10. Largest winnings I ever had was something like $25 in a state lotto long ago.
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Old 02-09-2015, 12:49 PM
 
Location: Keosauqua, Iowa
9,171 posts, read 16,585,039 times
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Quote:
Originally Posted by synchronicity View Post
That said, you are allowed to deduct your cost of tickets from your lottery wins (but not to exceed your lottery wins). However, I think those deductions would fall under Miscellaneous Itemized Deductions on Schedule A (2% floor) and like any itemized deductions would be subject to the Pease limitation.
Correct, except that gambling losses are reported as "other miscellaneous income" and are not subject to the 2% of AGI floor.
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Old 02-09-2015, 12:50 PM
 
Location: Southlake. Don't judge me.
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Quote:
Originally Posted by duster1979 View Post
Correct, except that gambling losses are reported as "other miscellaneous income" and are not subject to the 2% of AGI floor.
Thanks for the correction. Good to know.
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Old 02-10-2015, 03:35 AM
 
Location: San Antonio, Texas
4,274 posts, read 6,636,164 times
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It would be hilarious if these end up being the winning numbers: How Powerball Works | The Onion - America's Finest News Source
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Old 02-10-2015, 04:06 AM
 
7,281 posts, read 8,843,811 times
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Quote:
Originally Posted by snowdenscold View Post
I'm not sure which is worse - that I wasted a minute reading this website below, or that it even exists in the first place.

https://www.lottosend.com/blog/3-exc...erball-lottery
That you not only read it but then wrote about it.
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Old 02-10-2015, 06:51 AM
 
Location: Raleigh, NC
3,469 posts, read 4,150,667 times
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Quote:
Originally Posted by synchronicity View Post
Short answer is that even I don't care enough to try and figure out a break-even on the hypothetical "I could buy all 100 million combos and be guaranteed of winning $130 million" (or whatever) when factoring in all tax consequences (and that's before accounting for any additional tax planning applied to lottery winnings).
You would be guaranteed to win a share of the jackpot - all of it if you were the only winner. I think a group tried this years ago, only to have to split the jackpot with others that had the same numbers.
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Old 02-10-2015, 08:23 AM
 
Location: Southlake. Don't judge me.
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Quote:
Originally Posted by don6170 View Post
You would be guaranteed to win a share of the jackpot - all of it if you were the only winner. I think a group tried this years ago, only to have to split the jackpot with others that had the same numbers.
Right, but the math gets a little trickier for 2 reasons. First, the chances of more than one winner. That's a pretty easy thing to calculate using the BINOMDIST function in Excel (well, actually in the hypothetical the jackpot would get increased by my buying 100 million or whatever "additional" tickets to cover every combo. We'll ignore the fact that buying 100 million additional tickets is pretty much impossible through conventional means. Also, the super-mathy would likely say that BINOMDIST only applies to truly random events and the distribution of lottery number choices is non-random due to people choosing numbers based on birthdays or whatnot which limits their number choices to certain subsets of all available options).

However, setting aside that issue, I'm ostensibly spending $100 million of after-tax money (because apparently in this hypothetical I'm earning $180 million or something a year. Which makes me wonder why I'm playing the lottery. Well, it's still more realistic than the physics in the entire Hobbit trilogy). I win, say, $130 million pre-tax. That gets taxed, almost all of it at 39.6% (I think but am not sure that those winnings won't be subject to the 3.8% Net Investment Income medicare surtax, but haven't checked. Whatever, let's just say the entire amount is taxed at 40% flat rate to keep the math easy). So my $130 million pre-tax becomes only $78 million after-tax. Oops, I'd have been better off keeping my $100 million and buying hookers and booze rather than squander it.

BUT, if we REALLY want to get technical, I can deduct my $100 million spent on Schedule A. So it's an itemized deduction. BUT, my itemized deductions will be limited because my AGI is WAY above the level where the Pease limitation kicks in. If when I say "Pease limitation" you're wondering why I'm talking about food, well, that's a sign that we're going way too far down the rabbit hole in this exercise, as if the whole "BINOMDIST or not" discussion earlier wasn't the first sign of that.

TL;DR - the EV of virtually any lottery is going to be less than $1 for every $1 you spend. Play them occasionally if you feel like it and the fancy strikes you (and you have a little cash to burn) and the lump sum jackpots get kinda-sorta close to the odds against winning. If you really want to gamble and have some fun, most casinos have better EV payouts for their games and will comp you free booze or food as well (plus the whole social aspect if you're looking for that).

And if you ever win the lottery, don't look to the internet for financial advice.
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Old 02-10-2015, 09:21 AM
 
18,769 posts, read 13,522,574 times
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The ev would be neutral in a scenario where the cash payment was equal to the odds of hitting the cash payment would it not?
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Old 02-10-2015, 09:31 AM
 
Location: Southlake. Don't judge me.
2,834 posts, read 3,746,630 times
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Quote:
Originally Posted by Lowexpectations View Post
The ev would be neutral in a scenario where the cash payment was equal to the odds of hitting the cash payment would it not?
Not always because (ignoring any income tax issues, which you had the discussion about earlier), there's a chance of more than one winner which lowers the EV a little bit. Depends on how many tickets are sold for a drawing compared to the odds against winning.
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Old 02-10-2015, 09:44 AM
 
3,930 posts, read 4,018,010 times
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Quote:
I think a group tried this years ago, only to have to split the jackpot with others that had the same numbers.
Actually a few groups have done this with varying levels of success. The downside is that if you have the ability to pool the low millions of dollars required to get solid odds, there are less risky ways to get the large returns, so they really only do it for fun or as a challenge, or as a way to launder money (more common).

In other words, if you have millions of dollars, attempting to grow it via the lottery is among the dumbest ways to do that.
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