Wealth

Someone in New York is kicking off the new year a whole lot richer.

A single ticket sold on Long Island in the town of Glen Head matched all six numbers in Mega Millions’ Tuesday night drawing, nabbing the $425 million jackpot.

Of course, the winner won’t actually end up with the advertised amount, thanks to taxes.

“Winners are surprised by how much is withheld in taxes from the initial payment, and then how much more is owed with they file their taxes the following year,” said Jason Kurland, a partner at Rivkin Radler, a law firm in Uniondale, New York.

“All of the numbers involved in these huge jackpots are staggering, and the taxes are no exception,” said Kurland, who helps big lottery winners navigate their windfall.

The person will get to choose between taking the jackpot as an annuity spread out over three decades or as a lump sum of $254.6 million.

For federal taxes, lottery officials automatically withhold 24 percent of the money. If the winner goes with the cash option — which most winners do — that withholding would reduce the amount by $61.1 million to $193.5 million.

However, with the top federal tax rate at 37 percent, the winner can expect to owe even more to the IRS at tax time. And on top of that, New York will take 8.82 percent in taxes, or another $22.5 million.

In other words, the winner will pay north of 45 percent in taxes altogether.

However, there are strategies you can employ that reduce your taxable income, and therefore the amount you pay in taxes.

For example, you can make a cash donation of up to 60 percent of your adjusted gross income and carry forward, up to five years, any excess amount. Some lottery winners set up their own charitable foundation and donate a portion of their windfall to it.

More from Personal Finance:
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Getting close to retirement? Here are six key considerations
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