2007-01-04 08:38:20 · 8 answers · asked by dianemiller 1 in Business & Finance ➔ Taxes ➔ United States
Assuming it is all paid at one time figure 35% for federal tax and whatever the top rate in your state is. I usually estimate 40% in total since the state tax will be deductible on your federal return.
2007-01-04 08:41:42 · answer #1 · answered by waggy_33 6 · 1⤊ 0⤋
Stephen F has the closest answer.
There is no gift tax to a recipient. And lottery prizes aren't gifts. There is no "luxury tax" in the US except on certain purchases of cars.
The final answer depends on your TOTAL income from all sources, not just the prize money. The prize will be reported on Form 1099-MISC and is NOT subject to self-employment taxes. The majority of the prize will be taxed at the top rate of 35%, but if you were in the 35% bracket not including the prize, the whole thing will be taxed at the 35% rate. Worse, most of your itemized deductions will be phased out (disallowed), and certainly all of your exemptions will be zeroed.
And of course, if you are subject to state and local taxes, you'll be at their top rates as well.
You can't do much about taxes, so if you DID win the biggun', start looking at PROTECTING the egg and investing wisely. Make the nest egg WORK for YOU, not the other way around.
WealthBuilder
Enrolled Agent / Tax Specialist
2007-01-05 01:53:09 · answer #2 · answered by WealthBuilder 4 · 1⤊ 0⤋
The top Federal Income Tax rate is currently 35%. About 85% of the prize would be subject to that rate. For simplicity use $2.5mil x 35% = $875,000.
If your state and/locality has an income tax, add their rates as well. If I had a lottery ticket worth $2.5 million, I'd see a tax attorney before I claimed the prize.
2007-01-04 11:53:47 · answer #3 · answered by STEVEN F 7 · 0⤊ 0⤋
The tax is entered in the "Other" column of your return. The prize amount will no doubt be entered on a 1099-MISC form that the prize company should send you. Unless you figure a way to avoid it, you could pay nearly half in taxes. In the 45% bracket the tax is 1.125 million.
2007-01-04 09:00:34 · answer #4 · answered by Anonymous · 0⤊ 0⤋
One thing nobody mentioned though - most states that have income tax do exempt their residents from paying state income tax on state lottery prizes.
2007-01-04 15:46:39 · answer #5 · answered by Judy 7 · 0⤊ 0⤋
That would depend on your filing status, number of exemptions, any other income (interest, dividends, wages), deductions. and also the state you are filing in.
A good rough estimate would be 40-45%.
2007-01-04 08:41:43 · answer #6 · answered by jseah114 6 · 0⤊ 0⤋
I believe it falls in the category of luxury tax at 45% but there are ways to avoid some of the tax.
1st and foremost, consult a tax lawyer. there may be ways to defer some of the taxes.
2007-01-04 08:42:29 · answer #7 · answered by Robert L 2 · 0⤊ 2⤋
you have to pay a gift tax, and or 40%
2007-01-04 09:05:18 · answer #8 · answered by MS.LADY 1 · 0⤊ 1⤋