CCH Logo
Contact Us | CCH Online Store | Site Map    

  
navigation tabnavigation tab Home 
navigation tabnavigation tab About Us 
navigation tabnavigation tab Order Products 
navigation tabnavigation tab Press Center 
navigation tabnavigation tab Customer Service 
navigation tabnavigation tab Career Opportunities 
navigation tab
   HomePress CenterPress Releases
 
Press Releases
List By Date
Banking/Finance Institutions
Business Law
Corporate
Health Care and Entitlements
Human Resources
Securities
Tax
News Archives
 

Contact Information

Leslie Bonacum
847-267-7153
mediahelp@cch.com
Neil Allen
847-267-2179
neil.allen@wolterskluwer.com

Powerball Winners Beware: Uncle Sam's Waiting For His Share

CCH Explains the Tax Consequences of Being Lucky

(RIVERWOODS, ILL., August 24, 2001) – Winning Saturday night’s $280 million PowerballŪ jackpot certainly will bring you in touch with old friends and relatives, many of whom you never knew you had. But you can be sure that first in line, ready to collect his share of your winnings, will be some one very familiar to you – Uncle Sam.

"While the odds are only one in 80 million to win the jackpot, the odds are 100 percent that you’re going to have a hefty tax bill to pay on the proceeds," said Mark Luscombe, JD, CPA and principal tax analyst for CCH INCORPORATED (CCH), a leading provider of tax law information and software.

One of the first choices the winner is required to make – within 60 days of claiming the prize under current tax law – is whether they want to take the lump-sum cash option of $162.9 million or take the annuity option, which pays out the full amount over 25 years.

From a tax standpoint, the benefit of the annuity is that it allows you to take advantage of the lower tax brackets for declaring your winnings for each of the 25 years you receive a payment, whereas if you choose the cash option, you can only take advantage of the lower tax bracket in 2001.

However, if you’re like most, you’ll choose the lump-sum cash option. In which case, expect to hand over about $63.7 million to the IRS this year, assuming your taxable income is only the cash-option lottery winnings. That leaves you with a little over $99.2 million – and that’s before you pay any applicable state income taxes.

Still a nice chunk of change, but you’ll have to stay alive to benefit from it fully. If you don’t survive the shock of winning, you’re looking at estate tax rates of as high as 55 percent for 2001 on transfers in excess of the $675,000 estate tax exclusion. If you’re able to stave off death until 2010, your heirs will be much better off as that’s when the estate tax is scheduled to be repealed under the Economic Growth and Tax Relief Reconciliation Act of 2001. But you don’t want to wait until 2011, because that’s when the estate tax is scheduled to return.

If you survive the shock of winning, you’ll also continue paying more taxes as you invest and spend the winnings over the years. The luxury tax will certainly hit you when you go to replace the clunker in your garage with a vehicle more suitable to your new position in life. For 2001, the luxury tax applies to cars that exceed $38,000. If you can delay some of the purchases until after 2002, you could save on some of your winnings since that’s when the luxury tax is currently set to expire.

Despite your best efforts, it’s also likely that you won’t be able to spend all the cash in one year, meaning you can either put it under your mattress or invest it. If your investments payoff, you’ll have to pay federal income tax each year on the gains, unless you’ve invested in tax free bonds.

But It’s Not All Taxes: The Deduction

If you’re concerned that your winnings are quickly dwindling from all these taxes, there’s still hope, according to CCH. Gambling losses, including those from the lottery, are tax deductible up to the amount of gambling winnings. So, if you spent $100 dollars this year on Powerball, and never won until you hit the jackpot, that’s deductible as a loss.

About CCH INCORPORATED

CCH INCORPORATED, headquartered in Riverwoods, Ill., was founded in 1913 and has served four generations of business professionals and their clients. The company produces more than 700 electronic and print products for the tax, legal, securities, insurance, human resources, health care and small business markets. CCH is a wholly owned subsidiary of Wolters Kluwer North America. The CCH web site can be accessed at www.cch.com. The CCH Federal and State Tax group web site can be accessed at http://tax.cchgroup.com.

-- ### --

nb-01-97

       


   © 2024, CCH INCORPORATED. All rights reserved.   

  Back to Top | Print this Page   
spacer