G
Ganardo
Guest
Actually, there are several potential tax strategies lottery winners can utilize to try to reduce their overall tax burden:
1. Take the Annuity Option
Rather than a lump sum, taking the annuity payout option allows you to spread the tax liability over many years as you receive annual payments. This can prevent being pushed into the highest tax brackets all at once.
2. Max Out Retirement Accounts
Make deductible contributions to 401(k), IRA, etc. up to the annual limits to shelter some income from taxes in the win year.
3. Adjust Tax Withholdings
Have proper withholding done from the lottery winnings themselves to avoid underpayment penalties.
4. Gifting to Family/Charities
Gift up to $17,000 per recipient tax-free annually. Charitable donations are also deductible.
5. Create Trusts or Funds
Certain irrevocable trusts and funds may allow deferring taxes on lottery winnings growth.
6. Buy Municipal Bonds
Interest earned on municipal bonds is exempt from federal income tax.
7. Invest for Long-Term Growth
Unrealized investment gains aren't taxed until sale, allowing tax deferral.
8. Relocate to Tax-Free State
Moving to a state with no income tax can substantially reduce your total tax burden.
9. Income Averaging
In some cases, winners may be eligible for income averaging over several years.
10. Donate Appreciated Assets
Instead of cash, donate appreciated stocks, property, or other assets to charity. You get the deduction for the full fair market value while avoiding capital gains tax.
11. Set Up a Charitable Trust
Establish a charitable remainder trust which allows deferring capital gains taxes while retaining income stream.
12. Purchase Municipal Bond Funds
Municipal bond mutual funds and ETFs provide tax-free income from state/local bonds across multiple jurisdictions.
13. Installment Sale Tax Rates
For very large winnings, negotiate installment sale treatment to be taxed at advantageous rates.
14. Move Money Into Tax-Deferred Annuities
Non-qualified annuities permit tax-deferral on earnings until withdrawal in retirement.
15. Accelerate Deductible Expenses
Pay outstanding medical bills, property taxes, etc. before year-end to maximize itemizable deductions.
16. Qualifying Business Deductions
For self-employed winners, maximize all eligible business expense deductions.
17. Hire Tax Professionals
Don't try to handle it alone. Hire experienced tax attorneys/CPAs to properly execute planning strategies.
The best strategies depend on the win amount, payment option chosen, marginal tax rates, residency, and individual financial situation. Working closely with tax professionals is highly recommended for lottery winners.
1. Take the Annuity Option
Rather than a lump sum, taking the annuity payout option allows you to spread the tax liability over many years as you receive annual payments. This can prevent being pushed into the highest tax brackets all at once.
2. Max Out Retirement Accounts
Make deductible contributions to 401(k), IRA, etc. up to the annual limits to shelter some income from taxes in the win year.
3. Adjust Tax Withholdings
Have proper withholding done from the lottery winnings themselves to avoid underpayment penalties.
4. Gifting to Family/Charities
Gift up to $17,000 per recipient tax-free annually. Charitable donations are also deductible.
5. Create Trusts or Funds
Certain irrevocable trusts and funds may allow deferring taxes on lottery winnings growth.
6. Buy Municipal Bonds
Interest earned on municipal bonds is exempt from federal income tax.
7. Invest for Long-Term Growth
Unrealized investment gains aren't taxed until sale, allowing tax deferral.
8. Relocate to Tax-Free State
Moving to a state with no income tax can substantially reduce your total tax burden.
9. Income Averaging
In some cases, winners may be eligible for income averaging over several years.
10. Donate Appreciated Assets
Instead of cash, donate appreciated stocks, property, or other assets to charity. You get the deduction for the full fair market value while avoiding capital gains tax.
11. Set Up a Charitable Trust
Establish a charitable remainder trust which allows deferring capital gains taxes while retaining income stream.
12. Purchase Municipal Bond Funds
Municipal bond mutual funds and ETFs provide tax-free income from state/local bonds across multiple jurisdictions.
13. Installment Sale Tax Rates
For very large winnings, negotiate installment sale treatment to be taxed at advantageous rates.
14. Move Money Into Tax-Deferred Annuities
Non-qualified annuities permit tax-deferral on earnings until withdrawal in retirement.
15. Accelerate Deductible Expenses
Pay outstanding medical bills, property taxes, etc. before year-end to maximize itemizable deductions.
16. Qualifying Business Deductions
For self-employed winners, maximize all eligible business expense deductions.
17. Hire Tax Professionals
Don't try to handle it alone. Hire experienced tax attorneys/CPAs to properly execute planning strategies.
The best strategies depend on the win amount, payment option chosen, marginal tax rates, residency, and individual financial situation. Working closely with tax professionals is highly recommended for lottery winners.
