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Comment by vacri | Hacker News Reader

I've always found it odd how the lotteries do that. Win X Dollars. You can take it now as X/2 dollars, or you can take the 'whole thing' annually for the rest of your life in small amounts... where they mean less over time due to inflation... and you have to hope that the entity paying out is still around decades later. There doesn't seem to be a way to take your winnings in a way that preserves the purchasing power of those winnings at the time they were won.

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It's because the annuity's figure is the purchasing power of those winnings at that time--the value you see as a jackpot is based on an annuity over a period of years. You're buying a lottery ticket to win a $XM dollar Y year annuity, with an allowed early exit (with penalty).

The choice to take the annuity or lump sum looks like its based on projected tax rates and projected return on the investment.[0]

[0] http://www.businessinsider.com/should-you-take-the-annuity-o...

uhh... correct me if i am wrong, but the PV of an annuity is generally NOT equal to X where the annuity pays N payments of X/N

So when they are saying "40 payments of $25 mil" that doesn't mean that $1B is the PV of said annuity. (I might have misunderstood you though)

America is the only country I've ever heard of that does this, BTW.

Marketing. It allows you to advertise a prize about double of what it normally would be.

Taxes. Lottery winnings may be taxed depending on state taxes. Though it is not clear if this is a lottery or gambling. Gambling winnings are not normally taxed in the US.

> Gambling winnings are not normally taxed in the US.

Where did you hear this? They're income, and subject to the income tax.

Not only that, you can deduct gambling losses from your income, if you're unlucky.

Not accurate. For US federal taxes, you can deduct gambling losses against gambling winnings, but not against your income.

If you earn $50,000 in income, $X in winnings, and $Y in losses, you pay taxes on $50,000 of income, plus taxes on $X-Y of winnings (if it's a positive number).

You can only deduct them from your _winnings_, not income[1]. You can't go to Vegas, blow $10,000 on a single round of blackjack and deduct that at the end of the year.

1: http://www.irs.gov/taxtopics/tc419.html

Taxed in the US but not in Canada I believe (IANAL etc)

Or maybe that is irrational, and your tendency towards Loss Aversion is lying to you. After getting your first cheque for $25M, your biggest worry shouldn't be about losses due to inflation on the remainder of the $1B sitting in trust, as you did not have $25M before, and now you do.

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