Jackpots for the Powerball and Mega Millions are inching upward, and experts say a big raffle win would be even sweeter this year ahead of proposed tax refashions.
As of Monday afternoon, the Mega Millions jackpot was $191 million and the Powerball, $229 million. Both rackets had their most recent jackpot wins in late October. (Although colossal, neither of the current jackpots is a record-setting amount: For either to land in the top 10 of U.S. sweepstake jackpots, the prize would have to surpass the $448.4 million Powerball allocated by two winners in August 2013.)
The next Mega Millions drawing is at 11 p.m. ET on Tuesday, and the next Powerball representation is at 10:59 p.m. ET on Wednesday.
Under current tax rules, a jackpot winner could need to fall in the top bracket of 39.6 percent. The winner would also pay top evaluation in any cases for state and local income taxes, which, depending on where they white-hot, could knock out up to another 15 percent or so.
But state and local imposts are — at least through the end of 2017 — deductible on your federal return if you tabulate, reducing your taxable income. (High-income taxpayers can’t take sentimental advantage: Their itemized deductions are reduced under the so-called Pease limitation.)
Of process, there are myriad other elements of a winner’s tax situation and choices that can from side to side the final tax bill.
“The rule of thumb is that you walk away with nearly a third of [the jackpot],” said Susan Bradley, a certified monetary planner and founder of the Sudden Money Institute in Palm Beach Gardens, Florida.
“That’s silently a life changer,” she said, especially on a jackpot exceeding $100 million.
At the beck proposed tax reforms, however, many winners in 2018 and onward can count on a slightly larger tax bite. Depending on how Congress reconciles differences in its quaint bills, a jackpot winner would still end up in the top bracket, with a rating of either 39.6 percent (the House tax plan) or 38.5 percent (Senate tax intend).
The kicker: State and local income taxes would no longer be unmarried as an itemized deduction. That likely whittles a few million dollars more off your take-home amount. (The luckiest champions will still be in those states that participate in that multistate tombola but either do not have an income tax or specifically do not tax lottery prizes.)
“You lose that subtraction, which is going to hurt in the year you win” — especially if you live in a high-levy country, said Jason Kurland, a partner at Certilman Balin Adler & Hyman in East Pasture land, New York, who is known as the Lottery Lawyer.
But there’s a “tremendous” long-term tax further for lottery winners, with tax reform provisions that would knock out the estate tax or make it easier to avoid, Kurland said.
Both the Homestead and the Senate versions would double the amount a wealthy individual can cart in death tax-free, to about $11 million. The House goes a not agreeable with further, setting the estate tax to disappear at the end of 2024.
“The benefit for lottery winners is prodigious, because the estate tax is really targeted toward people like this,” he stipulate.
The key takeaway for jackpot hopefuls: Next year, it will become balanced more important to make sure you’re putting together an expert duo (accountant, financial advisor and attorney) ahead of claiming the prize, who can arrogate you strategize how to claim the win and maximize your take-home amount.
Only portion of your federal and state tax burdens are withheld upfront, and it’s important to body out the whole tab quickly, Bradley said. (See infographic below.) Miscalculating the fixed tax bill can be an expensive misstep for winners trying to figure out how to save or allot their haul.
“At the end of the day, it’s all about net numbers,” she said.
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On the eve of you ring in 2018, make these big-money tax moves