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Whether the winner wins in the form of a three-decade annuity or an immediately reduced lump sum, lottery officials must retain 24% of federal taxes.
However, the highest federal tax rate, of 37%, means that the winner will have a lot more at the time of the tax return.
For the Wednesday night draw, the cash option – which benefits most winners – is $ 335 million. The 24% withholding would reduce that by $ 80.4 million.
Assuming the winner has no reduction in his taxable income, another 13%, or $ 43.6 million, would be due to the IRS ($ 124 million total).
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That would leave the winner with $ 211 million before state taxes. This tax varies from zero to more than 8%, depending on the place of purchase of the ticket and the place of residence of the winner.
In other words, combined federal and state taxes could absorb more than 45% of gains.
However, you can use strategies that reduce your taxable income, and therefore the amount you pay in taxes.
For example, you can make a cash donation of up to 60% of your adjusted gross income and carry forward any surplus up to five years. Some lottery winners created their own charitable foundation and donated a portion of their profits.
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