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KS: Cash Powerball tickets before the tax man raises the stakes

By   /   November 29, 2012  /   No Comments

By Gene Meyer | Kansas Reporter

LOSING BET: Big Powerball winners could lose millions going over the fiscal cliff. Nearly nine million others could suffer, too.

FAIRWAY – Powerball winners should cash their tickets now, or be prepared to pay.

The two, still-unidentified parties holding winning tickets for the $587 milllion jackpot  — the tickets were bought in Arizona and the Kansas City area — might have to pay between $6 million and $8 million in additional taxes, if they don’t act soon.

Nearly nine million other Americans, who won smaller prizes Wednesday, have skin in the game, too.

Blame the so-called “fiscal cliff,” which may force taxes four percentage points higher, to 39 percent for higher earners — or, according to the Obama administration, “the wealthiest Americans.”

“And you will be wealthy (if you are holding a winning Missouri ticket),” predicts David Jackson, a certified financial planner with Waddell & Reed Inc. in Kansas City, Mo., and media relations director of the Financial Planning Association of Greater Kansas City.

Find a good attorney or two and an accountant to help with new estate planning and to run interference against a presumable army of sudden new friends, investment opportunity providers and the media, Jackson suggests.

“Then park the money until you know what you want to do with it,” he said. “It will be safe.”

Many of the 8.9 million other Powerball players in the U.S. who won smaller prizes, including 60 who won $1 million each matching five numbers and six in Kansas who won $10,000 apiece, should be careful with their windfalls, of course. But they should watch the fiscal cliff, as well.

Many of the bigger prizes “will bump you right to the top of the tax brackets, which is 35 percent this year and may go to 39 percent next year,” said Sandi Weaver, president of Financial Security Advisors in Prairie Village.

Thursday, before Powerball raised the calculated potential cash payout for jackpot tickets at $384 million, Weaver calculated that federal taxes on a $324 million payout would increase a bit more than $6 million for winners who waited until Jan. 1 to cash in.

“That is a pretty nice chunk of change, which you could cash in now and give to charity if you didn’t want to keep it,” Weaver said.

Kansas winners have an additional tax-planning complication. State income tax rates drop Jan. 1, to a maximum 4.9 percent from the top 6.45 percent now. Cashing in now to avoid higher federal taxes later will cost winners more state income tax than if they waited.

Details of people’s tax situations are as unique as their fingerprints, but for big winners, cashing in sooner rather than later is still a better choice, Weaver said.

“You gain more in federal tax savings than you lose in state tax,” she said.

Kansas general fund revenues will get another bump from Powerball besides winners’ taxes. Lottery players in the state shelled out a record $5.4 billion to pursue their prizes. They spent nearly $3.5 million of that Wednesday, matching the previous weeklong record for a $656 million MegaMillions drawing in March, said Sally Lunsford, press secretary for the Kansas Lottery Commission.

Kansas’ general fund typically gets about a 30 percent cut of lottery ticket sales each year, money that’s left over after prizes, marketing costs and administration costs. Some $50 million of what’s left supports problem gambling programs, economic development and corrections department and juvenile justice building funds. What’s left goes to the general fund.

It’s too soon to tell how much this week’s record lottery income will bring to the state, “but last year we transferred $72 million, which is a record,” Lunsford said.

Contact Gene Meyer at gene.meyer@kansaswatchdog.org

— Edited by John Trump at jtrump@watchdog.org

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