Since it seems everyone is throwing their hat into the ring for the half a billon dollars + Megamillions Jackpot, I am posting info I read in some Forbes articles on the subject. Good Luck to all who are playing, and remember money doesn’t change you, it just allows for the real you to surface, and that can be positive or negative, but don’t blame it on “money changed her/him.”
How Much Tax Will You Owe On $640 Million Jackpot?
So let’s just say that you win the
$540 $640 million Mega Millions jackp0t and are the only winner. (For the slim odds of that, check out this story.) How much of your winnings will you actually get to keep once Uncle Sam and your state take their cut? That depends on where you live; whether you claim your money now as a lump sum or take it as an annuity; and if you make the annuity choice, what happens to tax rates in the future.
let’s assume you are taking your money in a lump sum this calendar year. In that case, you’ll get only
$389 $462 million. (Yep, that higher $540 $640million figure is only if you’re ready to take your money over 26 years.) …With a lump sum payment, you must immediately pay tax on the entire amount, says Michael A. Kirsh, a financial planner in New York. With an annuity, you are taxed only as you receive the payments.
Of the 42 states (plus the District of Columbia) participating in Mega Millions, five—New Hampshire, Tennessee, Texas, South Dakota and Washington —don’t have a state income tax. Should a resident of one of those states be the sole winner, he or she will have to fork over 35% to Uncle Sam —or $
136 $161.7 million. (That 35% is the top rate on ordinary income, such as wages, and gambling winnings are taxed as ordinary income. Note: Some readers are confused by the fact that Mega Millions only withholds 25% federal tax. But I’m sorry to report that you still owe tax at the 35% rate.)
But if a New York City resident wins, he or she will get hit with the highest combined state and local tax in the nation— 8.82% will go to the state and another 3.87% to the city. State and local taxes are deductible from federal taxable income, which reduces the federal bite a bit. So the total federal/state/local tax bill for a New York City resident will come to about
$168 $199.5 million, figures Bruce Cobern, a senior manager at accounting firm Crowe Horwath LLP in New York City.
If you plan to share your good fortune with your family, beware the federal gift tax. Any amount over $5.12 million you give to anyone other than your spouse is subject to a 35% federal gift tax. (If you’re married, you and your spouse can give away a combined $10.24 million tax free.) But remember, any amount you give away now, reduces your federal estate tax exemption, also $5.12 million per person.
Fortunately, most states don’t have gift taxes. But 22 states and the District of Columbia do impose inheritance or estate taxes. So if you live in one of them, giving away money to your family while you’re alive could save your family a tidy amount in tax. (For state death tax rates, see the map here.)
What if you plan to give a big chunk of your winnings to charity? Do it this year, at the same time you’re recognizing income. You can deduct your whole cash gift from your taxable income, but if you wait until later years to give, you may not have enough income to deduct your gifts against. Or, if you’re serious about becoming a philanthropist, take the payout over 26 years and and donate over time, as you build up expertise and experience with the causes and charities you’re funding—….
also Read on Forbes: 12 Fast Facts About The $640 Million Jackpot
10. What if you die before collecting? Mega Millions will continue to pay the annual payments, as scheduled, to the winner’s designated beneficiary or to the winner’s estate. That’s a great reason to update your estate plan.
11. If you win, can you remain anonymous? That depends on state rules, as I explain here.[ 10 Things To Do When You Win The Lottery ]
…rules on winner publicity vary by state. In New York, for example, winners’ names are a public record. Elsewhere it may be possible to maintain your anonymity by setting up a trust or limited liability company to receive the winnings, says Beth C. Gamel, a CPA with Pillar Financial Advisors in Waltham, MA. A client of Gamel’s who won a past lottery did that, and had a lawyer claim the prize on behalf of of the trust. Depending on where you bought the ticket, prize winners have between 180 days and one year from the date of the drawing to claim their prize. So find out what the state rules are and plot a course.
Take steps to protect assets
People who are worth a lot of money need to guard against losing assets to creditors. They include everyone from disgruntled spouses and ex-spouses to people who win lawsuits against you. If people think you have deep pockets they may look for reasons to sue. “If you win the Powerball, everyone’s going to be laying in front of your car so you can run over them so they can sue you,” says Ely. It’s prudent to ensure you are not an easy target.
The best defense is to erect a variety of roadblocks that make it difficult, if not impossible, for creditors to reach your money and property. These asset protection strategies, as they are called, can range from relying on state-law exemptions to creating multiple barriers through the use of trusts and family limited partnerships or limited liability companies. It may be possible to rely on a variety of strategies, either separately or in combination with each other.
Review your estate plan
If your winnings have made you suddenly wealthy, this may be the first time that you need to plan for estate tax. The sweeping tax overhaul of 2010 offers more flexibility than ever before. Each person has a $5 million limit on tax-free transfers, which can be applied during life, when you die or some combination of the two. If Congress doesn’t act by the end of this year, that exclusion amount will revert to $1 million and the tax rate will increase to 55%. So if you want to share some of your largess with family and friends, this is the ideal time to do that. For details, see my posts, “6 Ways To Give Family And Friends Financial Aid” and “ Make A New Year’s Resolution To Give Your Estate Plan a Checkup.”
- Lotto Fever -The Mega $$ Madness (priconnects.wordpress.com)
- A List of Things More Likely Than You Winning the $540 Million Lotto Jackpot Tomorrow [MegaMillions] (gizmodo.com)
- So You’ve Won the Mega Millions Jackpot. What Now? (newsfeed.time.com)
- What to do after you hit the Mega Millions jackpot (usnews.com)