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You can still win the Powerball jackpot. But it won’t mean $321 million in your bank account

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No one won.

That means you’ve got another chance at winning the Powerball on Saturday, now topping $321 million.

Before you start calculating how many Lamborghinis that will buy, remember that your home state and the IRS will both be waiting for their share. No matter the payout option you choose — spreading it out over three decades or an immediate, reduced cash option — you’ll part with 24% in federal taxes.

For the lump sum of $218.7 million, federal withholding means a further reduction of your winnings by nearly $52.5 million. However, the current top marginal rate of 37% would mean owing a lot more in the end.

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“There is still a sizable tax bill coming, for sure,” said April Walker, lead manager for tax practice and ethics at the American Institute of CPAs. “Winners have to plan for any additional amount that will be due … to the IRS and the state.”

Based on a $321 million jackpot drawing, the cash option — which most winners go with — would be $218.7 million. That 24% federal withholding of nearly $52.5 million would leave you with a cool $166.2 million or so.

Assuming you had no reductions to your taxable income — such as large charitable contributions — another 13%, or around $28.4 million, would be due to the IRS at tax time (which would be April 2021 for jackpots claimed in 2020).

So Uncle Sam would get some $80.9 million, and you’d still have the tidy sum of about $137.8 million.

However, state or local taxes would be on top of that. Those levies range from zero to more than 8%, depending on where the ticket was purchased and where the winner lives. In other words, you could end up paying more than 45% in taxes.

And, like the federal withholding rate on jackpot wins, the amount withheld for state taxes might also be less than what you’ll owe.

“They might withhold at, say, 5%, but the rate you pay might be 6%,” Walker said.

There are ways to reduce the amount of winnings that gets taxed, although not many.

The charitably inclined can lower their taxable income by making a cash donation of up to 60% of their adjusted gross income and carry forward, up to five years, any excess amount.

Some lottery winners set up their own charitable foundation or similar option, such as a donor-advised fund, and donate a portion of their windfall to it.

“That would be a way to direct charitable contributions over a period of time but take the deduction [for the current tax year],” Walker said.

Despite forking over a hefty amount to federal and state coffers, the after-tax amount would likely be life-changing. Experts say jackpot winners should assemble a team of experienced professionals — an attorney, a tax advisor and a financial advisor — to help navigate their sudden wealth.

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Source: Wealth