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So you did not win the $555 million Mega Millions jackpot Tuesday night time.
The glass half-full view? Phew! You dodged an enormous tax bill.
Of course, you get one other shot in the subsequent drawing to land a windfall — after which give a boatload of it to Uncle Sam. The nationwide lottery sport’s prime prize has rolled even additional previous the half-billion-dollar mark and is value an estimated $630 million for Friday night time’s pull.
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If received at that quantity, it might mark Mega Millions’ fifth-largest prize ever, however doesn’t crack the prime 10 greatest jackpots of all time.
And, it might include a large tax bill. Whether the prize is taken as an annuity of 30 funds over 29 years or as a direct, diminished money lump sum, taxes find yourself taking a giant chew out of any winnings.
$86.3 million could be withheld proper off the bat
For this $630 million jackpot, the money choice — which most winners select — is $359.7 million. A compulsory 24% federal tax withholding on that quantity would scale back your winnings by $86.3 million.
However, as a result of the prime federal marginal tax charge is 37% — which applies to earnings above $539,900 as a single taxpayer or $647,850 for married {couples} submitting collectively — you may count on to owe extra at tax time.
One technique to cut back your tax bill is to suppose charitably, in keeping with the American Institute of CPAs: You can contribute money, as much as 60% of your adjusted gross earnings, to a public charity or a donor-advised fund and get a tax deduction for the quantity in the yr you make the donation. You may additionally create a non-public basis, donate earnings to it after which decide over time tips on how to make use of it.
If you had no discount in earnings, one other 13%, or $46.7 million, could be as a consequence of the IRS ($133 million in all).
That would scale back the windfall to $226.7 million.
There additionally may very well be state taxes both withheld or due. Unless you stay the place there is not any earnings tax or lottery wins aren’t taxed, these levies may very well be greater than 10%, relying on the place you purchased the ticket and the place you stay.
Nevertheless, even after a giant tax bill, the windfall could be greater than most individuals see in a lifetime. It’s advisable that jackpot winners assemble a crew of execs to assist navigate the claiming course of, together with an lawyer, monetary advisor and tax advisor.
The probability of a single ticket matching all six numbers drawn in Mega Millions is about 1 in 302 million. For Powerball — whose jackpot is an estimated $101 million for Wednesday night time’s drawing — it is 1 in 292 million.
