Since my retirement plan is winning Powerball. The real question is what to do when I win to minimize taxes. The big difference is that as an individual I get taxed on income but as a corporation I get taxed on profit so my plan.
1 Form a corporation (I’m not sure if it makes a difference if it is C or S) and the corporation cashes in the ticket. The corporation is basically an investment company specializing in real estate.
2 Pay myself a nice first year salary (Half a mil?). Pay full taxes on the salary. Buy house, car, donate, give to friends and family, take a trip, etc.
3 The rest of the money gets invested by the corporation into income producers like rental housing, tax liens, etc. Keep reinvesting the income.
4 Anything left over at the end of the year gets invested in something liquid like gold. The corporation ends up with zero profit.
5 Lather, rinse, repeat. The salary I pay myself each year can be less because of no mortgage or car payments.
Well, first of all you ought to find out if a corporation can win a lottery at all. The laws may be that only a person can claim a ticket. Second, is it true that a corporation would have lower taxes than an individual? If you’re talking about taxes on income vs taxes on profits, wouldn’t those be the same on the lottery win itself? Third, look into what Brad Duke did with his lottery winnings. He won a $220 million Powerball jackpot in 2005. He took the cash payout ($125 million before taxes or about $85 million after) and is working with investment advisors to increase his fortune to a billion dollars. I’m not sure how far along he is, but this article says that he was up $15 million after one year.
The initial will will be taxed the same no matter who/what cashes in the ticket. As for the rest, the initial idea is sound(-ish), but why bother? Just pull out a couple million for living expenses for the next few years and invest the rest. It doesn’t matter how much the investments are worth tax-wise until you cash them out. Zero income tax because you didn’t have any income year 2 and on. Long-term capital gains rates are substantially lower than the income tax rate.
Which leads me to a question for the pros: If I did the above (pay initial tax on winnings, stash 2 mil in bank and invest the rest), when I cashed out long-term, could I take advantage of the fact that the long-term tax rate for minimum bracket folks is zero? Since I didn’t have any income other than interest on the bank account for 5 years or so?
I’d think you’d need to set up the corporation now, before you buy the ticket.
That … plus many of your expenditures aren’t deductible. Example: buying gold or real estate would be an investment.
Also…the government is going to take a little extra out of your salary payments for payroll taxes. That would help your social security benefits though.
I was going to mention this. In order for the ticket to be a business expense, it would have to have been purchased by Cadco not Saint Cad.
I’m not a CPA but my understanding is that annual profits for an S Corp flow through to the owners so you wouldn’t gain anything by using one unless you spent all the winnings on properly deductible expenses for the corporation. Anything you didn’t spend on business expenses would be reported on your schedule K and you as the owner would have to pay income tax on it.
What I don’t get about your hypothetical scheme is that it seems designed for tax avoidance. IMO, taxes in the US are not so onerous that this should be your primary consideration. Instead, you should seek to maximize your profits and secondarily seek to minimize the taxes. (For example, the long-term capital gains tax rate is either 15% or 20%, depending on your tax bracket. Even twenty percent is not that much.)
Your second sentence in no way follows from your first sentence. Your C Corporation would be taxed on all its profits, and it wouldn’t have any cash to pay if all its assets were invested in gold. If you got over that hump, it would either retain the profits or pay them out to you in a dividend, which you would personally pay taxes on. If you made an S election you’d have the exact same problems except the taxes would pass through to yourself as an individual instead of filing and paying as a corporation and an individual.
If I understand correctly you seem to be thinking that if you had $1,000,000 in revenue, say from rental income (and miraculously no bona fide expenses), and you buy $1,000,000 in gold, that you can deduct the $1,000,000 gold purchase to yield $0 profit.
That is completely mistaken. Your corporation will owe taxes on the $1,000,000 profit and simply won’t have any cash available because it’s all gold. Investing in gold isn’t an expense at all, let alone a deductible one.
Its goal may be tax avoidance, but the hypothetical scheme is in no way designed to avoid taxes.
You have spent a lot of effort on minimising taxes compared to your plan of ‘winning the lottery’. 
I have to state my admiration for the, er, enthusiasm and optimism of the OP, which is entirely based on the premise that the lottery is already won. This is what makes America great, if not terribly bright!
Personally, I would look at some other options too – involving offshoring the money, renouncing your citizenship, and looking for a foreign tax haven.
Oh I spend a lot of time on that. One of my groups of numbers has the powerball number as the sum of my kids’ ages so twice a year I need to fill out a new form. Tons of work.
I see no holes in this plan, aside from step 0, winning the lottery.