This is a question of curiosity, and not a situation I am in (although one day, I could hope!). I'm self-employed for a few years now, and don't make a lot in net profit, but enough to survive on in any case. Therefore, I file a schedule C (sole-proprietor, for deductions/expenses) each year, plus depreciate business equipment/purchases if it's appropriate. I'm in the US.

I was pondering this... I can call it very-hopeful planning... Say I had the good fortune to get some large windfall of money in a given year, in some amount that exceeds the threshold of the highest tax bracket (which is, $400,000-ish?), like I win a lottery or hit that lucky slot machine, or perhaps get mega lucky in the stock market and get a tenbagger (as a short term capital gain), or perhaps get a surprise inheritance from an uncle. Lets just call the windfall $500k. What might be a strategy to offset some of a big gain like this through business investment, so as to reduce income tax liability in that year? I suppose this could apply to anyone with a highly profitable business too (also one day, I could hope!).

For example, what would my taxable income become if I took $450k and invested it in my own business? (Obviously, the type of asset makes a big difference). Or what if I bought some existing business - would that whole cost then be deductable, or piecemeal based on the assets of that business? Or what if I bought the office building I rent space in now? Or other rental property? Or, if I bought some heavy machinery or tools or vehicles that I could lease or rent out? Are there any large purchases that you can depreciate quickly, but still retain usefulness or value in? (essentially perpetually pushing the tax burden down the road). Or perhaps any monetary strategies, structuring trusts or financial products (I know nearly nothing about this category)?

Obviously, the idea of business-investment is a wide area with as may ideas as there are businesses out there, but I'm just wondering about tax benefits... Which type of investment(s) or strategies would be the best way to minimize any up-front tax burden on a big gain like this, to put the money to work rather than just lose it to taxes?

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    FWIW, if you're talking United States, that inheritance from your uncle is not taxable income. – Pete Becker Nov 21 '15 at 21:46
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    And from what I have seen most if not all US lotteries will be glad to pay you in installments over 10 or 20 years or so. In fact the advertised amounts are for such installment payments, e.g. "$1 million super jackpot" is really $50k a year for 20 years; if you choose a lumpsum payout you only get the discounted present value of that 20-year cash flow, more like $600-700k. – dave_thompson_085 Nov 22 '15 at 12:31

In the case you propose, a taxable windfall, your best hope is to marry someone who has his/her own loss of about the same amount. This advice would work if your gain is a 10 bagger, as you suggest, but not for a lottery. In the dot com bubble, I heard of more than one couple that got married under these conditions. As far as other gains, it would be tough to contrive a situation that would give you such a tax offset without taking on a huge risk, far greater that the $133K in tax you might save.

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