Yes it’s Friday the 13th, but it might just be somebody’s lucky day today.
The Mega Millions lottery jackpot is now at $400 million dollars. Of course if you do win, you won’t get anywhere near that.
Steven Matlock’s lucky day was in 2001. After playing the same lottery numbers for 15 years, he and four friends won $6 million.
“We had to pay an extraordinary amount in taxes, it was unbelievable,” he recalls. “When we started out it was about [$1.2 million] for each of us, and when all was said and done we ended up with just about half.”
Matlock took his winnings as a lump sum as opposed to having it drawn out over several years. If the winner of the Mega Millions lottery takes a lump sum, she or he will get $216 million (out of a total of $400 million). If they take incremental payments over 30 years, they’ll get close to the $400 million -- but again spread out over 30 years.
The winner will also do better by his or her taxes, says Janet Stanzak, president elect of the Financial Planning Association.
“If you take it all at once, the bulk of the money is all taxed at the highest bracket,” she says. “Whereas if you take some money each year, each year you get the benefit of those lower tax brackets.”
Every dollar you make after reaching $450,000 a year gets taxed at the highest tax bracket of 39.6 percent. Every dollar under that amount is taxed at lower rates. So if you take the lump sum, the bulk of your money is taxed at the highest rate. If you take annual payments, you get to pay less in taxes on $450,000 of every year’s income. It adds up.
Other pitfalls: unscrupulous investment brokers, a deluge of charities, and moocher friends. Stanzak says it’s critical to get a financial planner to help. “It’s like being dropped into the middle of New York City for the first time and being expected to know how to get to Washington, DC,” she says. "You need help."
But the real advice to hanging on to your money? “Sit on it!” says Matlock. “Sit on it for probably a good six months before you decide what you wanna do,” says Matlock. “Stay away from the impulse purchases.”
Buying a new home in a nice neighborhood or getting a luxurious car -- “all those things cross your mind,” he says. “We sat down and decided what we wanted to do and we realized it wasn’t gonna go as far as we thought, we had kids in college, we slowed down.”
They didn’t move, and while they did some extensive remodeling, they didn’t buy another home.
“You can move into a fancy neighborhood and not like your neighbors if they’re uppity or snooty. I had great neighbors and we stayed right here.”
Not all winners are as restrained. Stanzak says typically after 3 years, most lottery winners are back right where their started. “Their lottery winnings are typically gone.”
A couple of years ago, a woman walked into the Trak Shak, a running specialty shop near Birmingham. She was shopping for a new pair of running shoes. She tried on a bunch, finally settled on a pair, and headed toward the register with the sales guy.
"And by time they got to the counter with the shoes to make the purchase, she had found a pair online, " says Scott Strand, managing partner at the Trak Shak. "She said, 'Well, I don't want those. I just bought some online,' on her phone."
And that was the moment Scott Strand decided he had to do something. So he put up a sign.
"It says 'Please do not accept our service then buy online. Support your local retailer.'"
Translation: don't showroom here. The sign is still up, but Strand estimates his store still loses tens of thousands of dollars each year to online retailers like Amazon.
One recent poll showed that more than half of showroomers make their purchases at Amazon.com.
Big stores like Target and Best Buy are fighting back.
"Now what brick and mortar retailers have done is they are trying to reduce that competitive disadvantage," says Shankar Ganesan, who teaches marketing at the University of Notre Dame and edits the Journal of Retailing.
He says big box retailers give incentives like price matching. And they offer same-day pickup for items ordered on their websites. Now we're seeing reverse showrooming, or webrooming as it's known.
"That is, they go online first, check out things, and then buy it in the store," Ganesan says.
He says retailers realize people are going to do their homework online -- people like Laura Kate Whitney, a mom and community activist in Birmingham. When she was shopping for a leaf blower, she went online first to read customer reviews.
"And so then I went to the store about a mile from my house to buy it," Whitney says.
She says she's an immediate gratification kind of gal. "Rather than waiting for it to be delivered to my house, I just get in my car and go find it locally."
Even if it cost a little more.
This story about 55 tax breaks about to expire starts in an unlikely place: Barn 63 at the Belmont Race Track in Belmont, N.Y., at the stall of a pretty brown horse with a white star on her forehead.
She’s a two-year-old filly named Under the Moonlight, and her owner is Steve Zorn. When he’s not tending to the horse, he’s a tax lawyer. Under the Moonlight cost Zorn $15,000 up front, plus another $30,000 a year or so to train -- expenses offset in part by one of the expiring tax breaks. Zorn says those tax breaks figure into local jobs.
“If we have the horse business here,” he says, “there’s going to be a groom for every four horses.”
Plus an exercise rider for every 10 horses. And so on.
Zorn and his partners get a 3 year tax break that lets them recover some of the money they put into their horse. But on December 31st, it expires, along with breaks for teachers who buy classroom supplies, owners of NASCAR tracks, buyers of electric motorcycles, even a credit for rum in Puerto Rico and the Virgin Islands.
These 55 little bits of tax policy are akin to legislative orphans, though that comparison only goes so far, says Roberton Williams, who is senior fellow at the Tax Policy Center at the Urban Institute.
“The problem with your orphan analogy is these folks really love their tax credits,” he says. “To them they’re not orphans. They’re little children who need loving care.”
Usually Congress gives them that care -- extending tax breaks for people and industries year after year. This year, they've been too busy fighting, which has complicated the job for lobbyists.
“We find our champions, and then we count on them to make sure the job gets done,” says the Farm Bureau's lobbyist, Patricia Wolff. “I’m here in Washington, and I’ll be spending time in the offices of the tax writers.”
And there’s work to be done -- some in Congress say they want to reform the whole tax code soon.
CORRECTION: An earlier version of this story incorrectly stated the title of Roberton Williams. He is a senior fellow at the Tax Policy Center. The text has been corrected.
It may be the country’s most thankless job. The Senate Finance Committee is expected to vote on a new leader of the Internal Revenue Service Friday. If confirmed by the full Senate, John Koskinen faces a tough road ahead, helping the agency recover from scandal and carrying out part of the new healthcare law.
In his confirmation hearing this week, Koskinen pledged to restore faith in the IRS.
“In every area of the IRS, taxpayers need to be confident that they will be treated fairly, no matter what their background or their affiliations,” he told the committee in prepared testimony.
He’s referring, of course, to revelations earlier this year that the agency gave extra scrutiny to Tea Party groups applying for tax-exempt status.
Koskinen has turnaround experience. He was brought in to rebuild mortgage giant Freddie Mac after the credit crisis. The new commissioner will also have to address the grim mood among employees in the IRS.
“What really builds morale are stories about how they’re doing a good job, or they’ve reduced errors, or they’re helping us try to solve some particular problems,” says Eugene Steurele, who follows tax policy at the Urban Institute.
The spotlight is only likely to intensify as the new healthcare law rolls out. From next month, the IRS is charged with policing who gets tax credits to buy health insurance.
If you can pronounce that long word, you'll be cured of any Friday the 13th fears, according to some. NPR's Korva Coleman offers an audio pronunciation guide.