From Business Week
At least when it comes to this year's tax bite, there isn't much advice H&R Block, or any other financial professional, can give Jennings that will ease the sting. Tax professionals estimate that he'll owe nearly half of his winnings in taxes. Any savvy sheltering moves, such as setting up a 529 college savings account for his child or an individual retirement account for himself, would only help in future years.
"He may have won on Jeopardy!, but from a tax point of view, he has lost," says Ed Zelinsky, a professor of tax law at the Benjamin N. Cardozo School of Law in New York. That's because one-time, earned income game-show winnings face some of the harshest taxation there is, he says. Twenty years ago, it would have been a different story. Prior to tax-law changes in 1986, prizes and awards were tax-free. But in 2004, the new era of regulatory scrutiny means tax-sheltering schemes are a clear no-no, Zelinsky says.
That leaves Jennings with one option: "Pay your taxes, and be happy with what's left over," advises Richard Upton, a tax attorney at New York firm Patterson, Belknap, Webb & Tyler. He can lessen his tax burden by giving some of his winnings to charity, but his taxable income would only be reduced only by the amount he gave away, which doesn't net him any more in the end.
What a raw deal! I think there should be one more addition to the tax code: That nobody be forced to pay a higher tax rate than that paid by Teresa Heinz Kerry.