What is a raffle?

January 17, 2019

A raffle is similar to a gambling competition in which prizes are distributed among the people who have bought numbered tickets, each ticket having the chance of winning an award. Drawing cards determine the winners from a container or a barrel. A raffle is generally held to raise money for a nonprofit charity, organization, etc. Raffle tickets are sold at a set price. So, by definition, a raffle and lottery look the same, but in actual they are different in many ways. We’ll talk about it later in the article.

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Difference Between Lottery and Raffles:

Following are some significant difference between lotteries and raffles.

You don’t get to choose your numbers in Raffles: When you are playing raffle, you are provided with a preprinted raffle code. Whereas, when you purchase a lottery ticket, you can select your numbers.

Raffles always have a jackpot winner: When playing a raffle there is a guaranteed jackpot winner because the draw includes only the numbers or codes that have been sold. Whereas, in the lottery there is no guarantee to have a jackpot winner. The reason is that the draw machine has all the numbers included in the guess range. So, this could be possible that no ticket holder would have the winning number.

Raffles winners are announced on a defined date: Raffles take place on a specific published time, and the people are determined because they know when precisely the winner is going to be announced. However, this is not the case with the lotteries. Lotteries can roll over multiples time.

Raffles only have a limited number of tickets: For a lottery, there can be as many tickets as people are willing to buy them. However, this is not the case with raffles. There are only a limited number of tickets that are to be sold.

Raffle Jackpots are defined where are lottery jackpots grow: In lotteries, the pot is decided at first, but it increases depending upon the number of tickets sold. Additionally, if there is no winner, the prize money rolls over to the very next draw. This keeps on happening until the jackpot is won. On the other hand, raffles have specified fixed prize money that does not roll over.

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Types of Raffles

There are various kinds of Raffles. Following are the most common ones.

There are various kinds of Raffles. Following are the most common ones.a

Table Raffle:
In a table raffle, various prizes are placed on a table. People have to buy tickets and put their raffle tickets in a box or a container in front of the rewards they would like to win. A winner is chosen by drawing out a card from the table.

Automobile Raffle:
Automobile Raffles is a great way to raise money since many people would want to win a car. It has proven to be the most effective raffle to raise money.

Calendar Raffle:
A calendar raffle is generally an event that lasts for a week or a month, and each day a prize is given away for the specified period. The tickets are sold in advance as they tickets must not be sold during the time in which calendar raffle takes place. The prizes are not much more expensive.

Travel Raffle:
It is one of the most popular types of raffles. The winner gets the chance to win a free vacation. The prize contains a return ticket and hotel expenses for the lucky winner.

Monetary Raffle:
In this kind of raffle, people are asked to buy a ticket to get a chance of winning money. The prize money offered can be a pre-determined amount, or it can be a percentage of the funds raised by selling the tickets. Some of the times the ticket buyers do not even know how much prize money they will be getting.

Holding A Raffle

Holding a raffle is a great way to raise money, but keep this mind that there are multiple rules and regulations to be followed if you desire to make your raffle a success. There are some Federal as well as State regulations that are needed to be followed, and one State might have different rules than the other. Make sure you obtain all the necessary permits and follow all the tax and gambling laws of your State.

Rules and Regulations

– Tax Laws: As there is gambling involved, your group must abide by all the laws regulating gambling activities.

– Permits Needed: only non-profit groups can conduct raffles with Federal 501(c) tax status.

Avoid Online Ticket Sales: Due to the risk of out-of-state sale, most States specifically ban online sales of raffle tickets.

– Accounting and Taxes: Groups doing charitable gaming activities like raffles need to provide detailed reports to the IRS. In case of any prize-winning over 5000$, there applies a 28% withholding tax on the actual prize money which must be reported on a W-2G form.

– Withholding Tax on Prizes Over 600$: If the prize money is over 600$, the winner must provide their Taxpayer Identification Number (TIN) to the non-profit organization or give 28% withholding tax.

– Withholding Tax on Non-Cash Prizes: Non-cash Raffle prizes that are worth 5000$ must have 28% income tax withholding, which must be collected by the charitable organization. However, there can be an exception to this rule only if the prize value is increased by 28% on the winners W2-G form.

-Prize Winner Certification: Records of all the prize distribution must be kept, and signature from prize winners must be obtained on their W2-G forms. The winners must complete IRS form 5754, Statement by Person(s) Receiving Gambling Winnings.

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Legal Obligations to Observe When Conducting A Raffle:

As far as selling raffle tickets are concerned, following information must be provided:

– Ticket Price
– Details of the non-profit organization that would be getting the benefit.
– The time, place and date of the draw.
– How winners will be declared, notified and publicized
– The method to draw ticket must give every ticket the equal chance of being drawn
– If there is more than one prize, the ticket that is brought first must win the first prize.
– If the award is more than $5000, then the name and other information of every ticket buyer must be saved.

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