This might work if you actually owned the company, because you could write off all the losses and you would have a net operating loss.
However, if you are simply an investor in a company, then all of your losses would be capital losses, which can only be written off $3,000 per year. (Unless you had capital gains to offset them.)
So if you lost $50m “betting” on a cancer research company, then it would take you 16,667 years to write off the capital loss. (And FYI - you don’t get to take it after you die. It dies with you.)
Are lottery tickets considered a valid investment that can be held in a tax deferred account or insurance policy? If so, that would be the easiest way to avoid taxes, but I suspect the IRS would either judge it a non-valid investment or issue a PLR to allow it to collect taxes.
In practice, you’d have to have a custodian who would allow it, and that would be hard to find.
Second, all IRA contributions must be made in cash. And I know of no other TDAs that might even remotely have “lottery tickets” as part of the fund choices.
I guess you might be able to hold it in a Defined Benefit Plan or Cash Balance Plan, but I feel like you have to make cash contributions to them, too.
And also, in practice, the IRS would challenge the value of the ticket. That is, how much is the ticket worth? If you know it’s worth $760m, then that’s how much you would be contributing, and it would exceed the contribution limit. If you know it’s worth $1, then why did you put it in the tax-deferred account in the first place? Do you really think the IRS believes that you put a $1 ticket into a TDA today, and tomorrow it was worth $760m? Doubtful.
Right, I guess I’m thinking that if you are the type of person that regularly buys lottery tickets then it would be worth it to buy them all in a TDA if possible. If you could show you bought hundreds of losing tickets before the winning one then that could provide some cover that this is your chosen investment strategy, but I still suspect something that high profile would cause the IRS to crack down with a ruling if this issue is not currently fleshed out in US tax law.
If you can hold lottery tickets in some sort of TDA, it would be an interesting business plan to provide the service of setting these up and administering them for the millions of people who buy lottery tickets. It’s obviously a huge value add for the winners.
A shockingly high amount of lottery winners end up broke, dead or unhappy. I think the common thread in these cases is that they end up buying ridiculously expensive toys (that of course don’t really bring any lasting happiness) and after quitting their job they end up drifting aimlessly without any real gravity or purpose to their life. Don’t get me wrong – I would quit my job and I would buy a second home in Hawaii… but I would also find some kind of work (volunteer work or a passion project) to bring some sort of purpose and routine to my life as well.
Come on, we’re the research type. The classy intellectual finance bros. We’re not the S+t or ibd guys, wanting to front about that stuff so much. We just imply it.
This is a great convo starter. Most people would donate to charity. but when I ask them to break it down by percentage of winnings. They don’t know. One of them said every fam member would get 5 mil lol. But even I think I wouldn’t do that. Lol
