Wednesday, March 15, 2017
Ind. Gov't. - Ticket bought in Tippecanoe County won the $435.3 million Powerball jackpot - local tax implications
Supplementing the earlier ILB posts re "Should Hoosiers be allowed to claim lottery winnings anonymously?", Jillian Ellison has this interesting story today in the Lafayette Journal-Courier. Some quotes:
LAFAYETTE, Ind. — When an anonymous winner from Tippecanoe County won the $435.3 million Powerball jackpot, the state and federal government took out $246.2 million in taxes.ILB: Likely the tax impact from creation of the LLC would have been the same, whether or not the winner had elected to keep his/her name private. Additionally, the $435.3 would be decreased by about half if the winner elected, as most do, to take the lump sum.
But the county may not see its share — in the form of its 1.1 percent income tax — because the big winner claimed his jackpot as Bohemian Financial LLC.
From a taxation standpoint, that changed everything.
The winner walked away with $189.1 million in earnings. Had local income tax been paid on that, Tippecanoe County Treasurer Jennifer Weston said the county's coffers would have swelled by over $2 million.
Of the county's 1.1 percent income tax:
But due to the winner's formation of an LLC — short for "limited liability company" — that breakdown is moot. * * *
- 0.6 percent goes toward economic development
- 0.4 percent goes toward local libraries and townships
- 0.1 percent goes to homestead credits
Larry DeBoer, professor of agricultural economics at Purdue University, said the formation of an LLC is not only a way of protecting the winner, but a way of avoiding income tax, as well.
"What this is, is sophisticated tax stuff," DeBoer said. "The money would go into a fund the winner doesn't touch, but then draws income out of."
Though the Powerball jackpot winner could move away from Tippecanoe County with his winnings, DeBoer said ultimately all of the taxes will have to be paid in the end, whether that's to his current county or another.
"With the LLC, he might find himself in a lower tax bracket as a corporation," he said. "This could be a way of putting it into an account to draw interest, but it will all be accounted for in the end."
The creation of the LLC by the winner, however, was a smart financial move, DeBoer said.
"I'm sure he is getting excellent tax advice on this," he said. "With those kinds of winnings, you couldn't afford not to."
Posted by Marcia Oddi on March 15, 2017 09:23 AM
Posted to Indiana Government