Win lottery how much tax

So a good first step a lottery winner could take is to hire a financial advisor who can help with tax and investment strategies. Read on for more about how taxes on lottery winnings work and what the smart money would do. The IRS considers net lottery winnings ordinary taxable income. So after subtracting the cost of your ticket, you will owe federal income taxes on what remains. Federal income tax is progressive. As a single filer and after deductions, you pay:.

Come tax time, some states will also take a piece of your lottery winnings. If you live in North Dakota, your state tax rate for lottery winnings is 2. If you live in New York, get out your wallet, because that state taxes lottery winnings at 8.

This potentially leaves a gap between the mandatory amount of withholding and the total tax you'll ultimately owe, depending on your tax bracket. If you join a pool with others to buy a stockpile of tickets, your prize will be smaller because you're sharing it.

But you're still subject to the income tax rate for the bracket your portion of the winnings places you into. If you collect the total winnings, then allot everyone else their share, the IRS may assume that you're giving the money away, which can result in the gift tax.

You might also be responsible for paying income tax on the entire winnings. Have everyone enter into the pool with a written contract defining his or her shares, which you can then provide to the IRS if necessary.

Remember, with TurboTax , we'll ask you simple questions about your life and help you fill out all the right tax forms. Whether you have a simple or complex tax situation, we've got you covered. Feel confident doing your own taxes.

And Uncle Sam is going to want his share whether you receive your winnings as a lump sum or annual payments. But there are ways to try to offset the increased tax obligation your lottery winnings will cause.

Deductions are dollar amounts the IRS allows you to subtract from your adjusted gross income, or AGI, if you meet the requirements.

This lowers your taxable income, which in turn can reduce your tax obligation. Here are two possible deductions if you itemize.

Ask the lottery agency to cut checks for each person in the pool instead of having one person collect and distribute the winnings.

This may help ensure you only pay taxes on the amount you actually receive. Winning the lottery could change your life by giving you a certain level of financial freedom.

But before claiming your prize, consider speaking with a financial or tax adviser who can help you understand the potential tax impact of your winnings and plan the best way to manage your windfall.

But if your objective is to ensure a steady stream of income, annual payments may be more appealing to you. Relevant sources: Topic No.