No, you can't deduct business expenses from lottery winnings period. Well, you can deduct them but it won't go well for you and your account if you are audited.

Are you sure your CPA is the only one who doesn't get it? FYI, he can't take the $1M and invest it in his business. He can only take what's left after paying taxes and invest it in his business.

Are you sure your CPA is the only one who doesn't get it? FYI, he can't take the $1M and invest it in his business. He can only take what's left after paying taxes and invest it in his business.

I started Vault Aircraft Records last year. I’m currently about $250k in the hole, you can bet that loss is offsetting income tax!

I think one of the issues with wealth creation is that many people do not understand how to take advantage of tax laws and minimize their exposure.

Mike C's position is not without support: https://taxfoundation.org/blog/us-tax-i ... investment.

As the authors succinctly state, "Even if it were realistic to perfectly calculate and apply economic depreciation, such a system would still understate business costs, overstate business income, and bias the tax code against capital investment compared to full expensing. Any delay in taking deductions ignores the time value of money, distorts the cost of capital, and reduces economic output."

Depreciation is DESIGNED to encourage loans. It basically forces it because you have to pay taxes on money you don't have.

Mike C.

My definition of profit is money in minus money out.

I think you will find that is a very common and general definition used by many.


Really?

How does someone spend $1M for a rig, take in $500K, lose $500K in that year, and make a "profit"?

That's bogus.

You are taxing the taxpayer on the basis of the unrealize value of equipment they still hold, but they can't "pay" their taxes with that.


Not in the rig example. You paid taxes the first year on the basis that machine was still worth $900K. You ARE being taxed on its "value" despite that not being actual money.


In other words, bankers make more from this scheme and the business has the additional expense of loan interest.

Depreciation is setup to favor banks. Where else are you going to get the money to pay for your taxes on profits you don't have?

Mike C.

If you are taxed strictly on dollars in and dollars out, there is no "gaming" the system.

If you get a $1M windfall, and buy a $1M business asset, you have zero profit because you netted zero dollars in your pocket. But someday you sell that equipment and then taxes are due. You can't escape it. Meanwhile, the equipment makes you money in following years and you pay taxes on that profit. But you got a fair expensing of the asset, in today dollars, not one that is devalued in the future.

Mike C.

Some business airplane owners plan to make significantly more money next year, every year. Bonus depreciation makes a huge difference for them. Many of them are using a pass-through taxation election (S-corp) and do not pay corporate tax rates, so depreciation this year is effectively saving them up to 35%+ on state and federal income taxes. If they finance the purchase, they get to keep even more of their cash and invest it this year and write off the interest expense, so there are still incentives to borrow.

For a Fortune 500 company running a fleet of business jets, with carefully forecasted and projected growth of 4-5% per year over the next 5 years, paying a 22% corporate income tax rate, it may not make much difference at all. In fact, they care how their balance sheet reads, and have some incentives not to depreciate it all at once.

Why don't we have immediate expensing, and instead use depreciation? I don't know, above my pay grade, but I've noticed many laws seem to end up favoring big business over smaller competitors. Almost like they wrote the laws.

How about this gaming from the Australian government, taxing unrealised capital gains, got the idea from Kamala.

‘ It was one of Kamala Harris’ most controversial policies that even one of her most ardent supporters called an “economy killer” — but Tuesday’s budget reveals Labor is full steam ahead on taxing unrealised capital gains.’

https://www.news.com.au/finance/economy ... 6af7ac4a64


Andrew

Are you sure your CPA is the only one who doesn't get it? FYI, he can't take the $1M and invest it in his business. He can only take what's left after paying taxes and invest it in his business.

If you are taxed strictly on dollars in and dollars out, there is no "gaming" the system.

If you get a $1M windfall, and buy a $1M business asset, you have zero profit because you netted zero dollars in your pocket. But someday you sell that equipment and then taxes are due. You can't escape it. Meanwhile, the equipment makes you money in following years and you pay taxes on that profit. But you got a fair expensing of the asset, in today dollars, not one that is devalued in the future.

Mike C.

There are a number of reasons, but they mostly come down to influencing behavior. I would personally prefer a much more simplified tax system, but that would limit the government's influence and control over the economy. We can argue whether that is a good thing or bad, but the government folks want power.