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Trump has since denied the New York Times story, claiming he pays “a lot” in federal income taxes, but has not released his tax returns.
Meanwhile, in 2017, a typical nurse making an average of $ 70,000 paid $ 5,400 in federal income taxes, according to Americans for Tax Fairness, a coalition of labor groups and organizations that advocate for progressive tax reform.
Trump’s ability to pay far less than the average American worker was possible in large part due to the way he structured his businesses, a wide range of tax breaks available to real estate developers, and incredibly large business losses and charitable donations. which he took as deductions. to offset their earnings, according to the Times report.
Trump isn’t the only one seizing these opportunities, but he’s certainly the most unusual case, said Steven M. Rosenthal, a tax attorney and senior fellow at the Center for Tax Policy.
“Trump is the worst businessman in the world or a tax con man or maybe some of both,” Rosenthal said.
While some wealthy taxpayers may see the permit, why can’t I do that too? – The way Trump apparently prepared his taxes, that’s not the way wealthier Americans typically approach their taxes, according to tax experts.
How to Zero a Multi-Million Dollar Tax Bill
Rich people have money to make big bets, whether it’s their investments or their businesses. When they go big and lose, they can suffer a capital loss or a net operating loss. And if the loss is large enough, they can use it to greatly reduce or even eliminate your entire tax bill in a given year. Sometimes taxpayers can even carry over unused amounts to future tax years.
As the Times reported, Trump was able to avoid paying taxes for years due to a massive $ 916 million net operating loss in 1995 that spanned through 2005, thereby eliminating the taxes he owed.
“Can the little one do this? No,” Rosenthal said. “You need all kinds of partnerships and transfers. Even if you had them, you would have to be very aggressive to avoid taxes and be willing to take incredible losses.”
Another thing that helped Trump cut his tax bill? Staying with real estate, even when other sources of income came and went.
“People who make a living from real estate have a lot of more tax advantages than a normal taxpayer, “said Frank Clemente, executive director of Americans for Tax Fairness.
Real estate professionals can claim losses for the depreciation of their properties. Even if the property’s value increases, because the building on the property depreciates, it reduces the tax liability, he said.
Deductions on business expenses are another way for people with profits to reduce their tax burden. For Trump, such deductions included fuel and meals for his plane that took him to his various properties, more than $ 70,000 for combing his hair during “The Apprentice,” and a total of $ 95,464 for a hairstylist and makeup artist favored by Ivanka Trump, according to the New York Times.
Most wealthy people don’t earn money from earnings from work, say from filming “The Apprentice,” Clemente said. “They are coming out of the wealth they have, the growth of their businesses and stocks.”
When they pay taxes on capital gains, they do so at a tax rate of 15% to 20%, depending on your income. That’s about half the top rate of 37% on earned income, Clemente said. “It is this huge tax preference that favors people who have assets.”
Some other ways the wealthy cut their tax bill is by making direct investments abroad, Mike Savage, CEO of 1800accountant, a virtual accounting firm for independent contractors and startups. If they owe taxes to a foreign government, they are allowed to take a US tax credit. “Avoiding double taxation,” he said.
Making large donations to charities can be another lever used by wealthy taxpayers, as Trump is said to have done through conservation easements that allowed him to claim charitable tax deductions. After signing an agreement with the land conservancy, the Times reported, he agreed not to develop most of the property around a mansion he owns, for which he was able to claim a charitable tax deduction of $ 21.1 million.
Who doesn’t pay income taxes?
Most of them are low-income taxpayers, and that’s a “feature, not a bug, of the revenue code,” according to the Center for Tax Policy. By design, the system excludes many households through a combination of personal exemptions, the standard deduction, level zero amounts, and tax credits. Generally, you must file a federal income tax return if your earned income is more than $ 12,200.
But those at the other end of the income spectrum may also not pay income taxes.
“People say that Washington has a rigged system that favors the rich and doesn’t work in favor of the average American,” Clemente said. “So Donald Trump plays that to the hilt. All the time he’s the model for what’s wrong with the tax system in Washington.”
Still, to say that the super-rich are pushing the tax code to the limit would be inaccurate, according to Savage.
“Generally, you want to earn enough money to increase your wealth and pay your taxes,” he said. “That is the goal.”
Todd Morgan, president of Bel Air Investment Advisors, has been in high-net-worth wealth management for 40 years and said he never came across a client with a tax return like the ones the Times described as a Trump filing.
“If I had losses like that, I would be out of business,” he said.
Morgan said his firm works to keep clients rich for generations, not just rich now. “We try to minimize taxes for our clients. But we are not as successful [as Trump]. And that’s the best. ”
