Today it flickered across the news tickers of the world. According to the New York Times, US President Trump pays only 750 euros in income tax. It gets even better, according to the New York Times Trump paid no income tax in 10 of 15 years from 2000 onwards. Are these questionable tax saving strategies or just tax optimization? Tax optimization / tax avoidance / tax saving, whatever you call it. Everybody does it, already with the submission of the own tax return for the annual income tax. Again, all the methods he uses are legitimate and legal. How does he do it?
Almost no Income Tax: New York Times
I myself have been dealing with finances for a long time. Why? Finances are a matter for the boss. Your tax advisor is often only “consultant”, not “designer”, I know that from my own experience. Then the New York Times had a headline yesterday:
Story: 750$ Income Tax
“Donald J. Trump paid $750 in income taxes (or federal income taxes in the United States) in the year he won the presidency. He paid another $750 in his first year in the White House. In 10 of the previous 15 years, he had paid no income taxes at all-mainly because he reported losing much more money than he earned.”
While the president is leading a re-election campaign, which according to polls is in danger of losing, his finances are under stress, he has suffered losses and hundreds of millions of dollars in debt, which he has personally guaranteed, are coming due. He is also under pressure from a decade-long dispute with the Internal Revenue Service over the legality of a $72.9 million tax refund that he demanded and received after declaring large losses. A negative ruling could cost him more than $100 million. – Extract New York Times.
At a briefing at the White House on Sunday, Trump denied the New York Times story and claimed that he pays “a lot” in federal income taxes.
“I pay a lot, and I pay a lot of federal income taxes” – Donald Trump
Trump added that he is willing to release his tax returns as soon as he is no longer audited by the Internal Revenue Service, which, he said, “treats me badly.”
Must a US president disclose his tax return?
Importantly, the President is not required to keep his tax returns during the audit, despite his repeated assertions to the contrary. Trump also refused to answer in the briefing how much he paid in federal taxes.
Tax Avoidance: How does he do that? 4 examples
The Times article describes a number of corporate and transactional tax claims that could raise significant audit issues for the president and his business organizations. It also points out ways in which the tax laws provide for entrepreneurs to reduce their taxes.
Note, for further details see the full article on Investopedia. Here are 4 examples from the article:
Casino ‘Waiver’ Loss
The Times’ research puts certain tax reduction strategies on Trump’s tax returns in the spotlight.
The $70.1 million refund received for 2005-2007 appears to be due to the recovery of approximately $700 million in business losses claimed for 2009. These losses were probably based on the allegation that Trump Atlantic City’s casino business was completely “abandoned” (Source: IRS. “Publication 544 (2019), Sales and Other Dispositions of Assets. Accessed Oct. 1, 2020).
They would be permissible provided Trump received nothing in return for giving up its interest in the business. However, records of the bankruptcy proceedings show that Trump received 5% of the shares of the successor company, which would have disqualified any loss from the abandonment and limited its deduction to a loss of $3,000 for the year (source: IRS. “Part I, Section 165. Losses.” Accessed Oct. 1, 2020)
Consulting Fees vs. Employee Compensation vs. Gift
Unspecified “consultancy fees”, which can be seen in tax returns, may indicate a common strategy for reducing corporate income and taxes. The $747,622 in consulting fees paid to Ivanka Trump raises several questions. As an employee of the Trump organization, Ivanka should not be paid as a consultant, that is, as an independent contractor.
Unlike employee compensation, consultant fees avoid withholding taxes that are payable by the payer. But in order to be deductible, they must be reasonable, marketable amounts. Although a consultant is subject to reporting and taxation, Ivanka may be able to avoid any tax liability. As a real estate professional, Ivanka may have enough real estate losses to offset the payment. This fee deduction may cause the IRS to raise another issue. Officials may question that the fee – which far exceeds the annual gift tax exemption of $15,000 for 2020 – is in fact a transfer of assets to a family member on which the transferor owes gift tax (source: IRS. “Publication 950.” Accessed Oct. 1, 2020).
Business vs. Personal Expenses
Although not all Trump’s business expenses are explained, the article lists items that may be non-deductible personal expenses (source: IRS. “Publication 529.” Accessed Oct. 1, 2020)
It is noted that on this basis, the IRS may not allow deductions for aircraft used for personal travel and television entertainment expenses. Since the deductions for attorneys’ fees are stated as a lump sum, The Times wonders if the total amount includes fees paid to attorneys representing Donald Trump, Jr. in investigations and the President’s personal legal agreements to obtain confidentiality agreements from the plaintiffs.
Residence or Investment?
The Trump Seven Springs housing estate in Bedford, N.Y., asks additional questions. Although Forbes reported that Eric Trump described the property as a personal residence, Donald Trump called it an investment and deducted the $2.2 million property tax as a business expense. Wealth tax deductions for personal residences are subject to a $10,000 cap on state and local tax deductions (IRS. “Topic No. 503 Deductible Taxes.” Accessed Oct. 1, 2020).
Reading tips: Asset Accumulation & Co.
Here I have some reading tips for you:
- “Billion-dollar gift: shares largely tax-free”
- Taxes & Assets: learning from investor experiences
“Billion-euro Gift: Ahares Largely Tax-Free”
“Billion dollar gift for Döpfner – largely tax-free?” – this headline is not from me, but from the morning mail. In fact, Matthias Döpfner has turned the publishing house upside down as boss. While owner Friede Springer stands confidently behind his decisions. Print shares were sold, new online media such as Business Insider, Idealo, Immowelt and StepStone were acquired. Already in 2012 Döpfner has received a big share package for more than 70 million Euro, now a “billion-dollar gift” for the Axel Springer boss is going to go, according to Manager Magazin. The 57-year-old media manager is increasing his previous stake in Axel Springer SE from just under three percent to a total of around 22 percent.
Tip! How does it work that you can get a block of shares almost tax-free? A little further down in the article I explain the methodology, or rather the law behind it.
- Give away shares: largely tax-free?
Understand and Convert Taxes & Build up Assets
Tax optimization, tax-free, the most popular buzzwords when it comes to wealth accumulation. But how do you actually convert private wealth into taxes? My tip, as before, is to learn from professionals who have all been through it.
Always remember: taxes are a matter for the boss.