What You Can Learn from Trump’s Taxes

Over the weekend, we learned something about GOP presidential candidate Donald Trump. And I think it is something all Americans can learn and benefit from.

Of course, I am referring to the revelations in the New York Times that in 1995, Trump declared a $916 million loss on his income tax returns that year.

That loss permitted Trump to take a tax deduction so substantial it could have allowed him to legally avoid paying any federal income taxes for up to 18 years.

Here’s how the NYT writes it:

Tax experts hired by The Times to analyze Mr. Trump’s 1995 records said that tax rules especially advantageous to wealthy filers would have allowed Mr. Trump to use his $916 million loss to cancel out an equivalent amount of taxable income over an 18-year period.

Although Mr. Trump’s taxable income in subsequent years is as yet unknown, a $916 million loss in 1995 would have been large enough to wipe out more than $50 million a year in taxable income over 18 years.

Before we delve into this topic, I want to say something for the record. That is, I am not writing this in support of either major-party candidate. While I do the respect strong advocacy of each, I just don’t share a zeal for either this cycle.

But as someone who pays very close attention to the stock markets, personal finance and the news cycle, I want to call attention to the Trump tax talk for what it is — a teachable moment for us all in taking advantage of the tax laws.

As a patriotic American, I think all citizens should pay the taxes they owe.

Yet that same patriotism makes me think that citizens should not pay more taxes than they actually owe.

If you have plenty of money left over after you pay your legitimate tax bill, and you still want to fund charitable and/or other projects with that money, then I say go for it.

What I don’t want to see happen is for anyone reading this to hand over more of his/her hard-won income to the black hole that is the U.S. Treasury.

That’s certainly what it appears Trump has done here, as his team of accountants knew they could defer losses from business failings to help offset income from future business successes.

***

As an article today in MarketWatch aptly puts it:

The tax treatment of losses, bound to become a subject of national debate, is a normal, usually uncontroversial feature of the income-tax system. The government doesn’t pay net refunds when business owners lose money, but it lets taxpayers use those losses to smooth their tax payments as they make money. That reflects the fact that "the natural business cycle of a taxpayer may exceed 12 months," according to a congressional report.

Now, regardless of what side of the political aisle you’re on, the current provisions in the tax code are what they are.

Anyone — Trump, the Clintons, you or I — would be foolish not to take full advantage of them to maximize our respective tax positions.

Of course, taking advantage of deductions from business losses is a complex subject. That’s because complexity is perhaps the salient feature of our gargantuan tax codes.

That’s why you need to make sure that you have a professional accountant, tax preparer or CPA handling your taxes and advising you on how to take advantage of every legitimate deduction, tax-mitigation strategy and "loophole" in the system that the current complexity offers.

In fact, you owe it to yourself and your family and your heirs to only pay the taxes you are legally obligated to pay.

Any more than that is essentially depriving yourself and the people you love from the fruits of your labor.

So, if you are someone with a decent income … or if you are retired, getting investment income … and are currently in a higher tax bracket than you should be, then you owe it to yourself to seek out competent tax professionals.

Do not just rely on software such as TurboTax or other similar do-it-yourself platforms. And, don’t skimp on spending money on good professional advice.

No matter what kind of expert you are in life, or how smart you are, you probably don’t have the same expertise as a seasoned accountant when it comes to maximizing your financial/tax picture. And even if you are well-versed in the tax code, you don’t want to "operate on yourself," as the medical term goes.

So don’t take a shortcut. Spend the requisite time and money on good professional services. Your bank account will thank me later.

***

What do you think about Trump’s tax situation? Are you mad that our tax code is so complex that we all are forced to hire professionals? Have you ever regretted hiring a tax professional? If want to know what you think, so leave me a comment on our website or send me an e-mail.

***

The first day of the fourth quarter saw U.S. stocks dip into the red. The Dow tumbled 100 points within the first 15 minutes of Monday’s trading session, although it managed to halve those losses by the closing bell. The Industrials closed down 0.3%.

• Bass Pro Shops reels in Cabela’s (CAB). The privately held sporting goods retailer’s $65.50-per-share cash offer sent CAB shares up 15% today, to $63.18. The deal, valued at $5.5 billion, is set to close in early 2017.

• WTI crude gained another 1.2% post-Algiers, on news that Iran President Hassan Rouhani called for other oil-producing countries to help stabilize the market and boost prices.

• Save the Date: March 2019: The UK plans to trigger Article 50 of its constitution this coming March, which gives the nation up to two years to complete its exit from the European Union. This weekend’s news of the "hard Brexit" sent the pound sterling down to a three-year low against the euro, and seven-week low against the U.S. dollar.

• The Chinese yuan became part of the International Monetary Fund’s Special Drawing Rights basket on Oct. 1. It joins the greenback, euro, yen and pound as a reserve currency. It’s the first addition to the basket since 1999, when the euro replaced the Deutsche mark and French franc.

• One last election-related note: Longwood University in Farmville, Va., will host Tim Kane and Mike Pence for the only vice presidential debate of the season at 9 p.m. Tuesday. Two more presidential debates are on the calendar, for Sunday, Oct. 9 and Wednesday, Oct. 19.

Good luck and happy investing,

Brad Hoppmann
Publisher
Uncommon Wisdom Daily

Your thoughts on “What You Can Learn from Trump’s Taxes”

  1. I do not think the issue about tax-loss carry-forwards and carry-backs was necessarily designed for wealthy taxpayers, as the New York Times insinuates. Instead, it was designed to prevent the Treasury from having to dispense money back to taxpayers just to cover business losses. I have had to use this rule myself, and it took the three years back and an additional five years forward to recoup the losses. And I was not wealthy at the time!

    However, the tax code allows people who are of modest income the possibility of the Earned Income Tax Credit, which is refundable. Business losses are NOT refundable, however. The EITC is NEVER able to be used by someone with the income of Donald Trump; however, it is a so-called loophole that lower-income people may take advantage of.

    So if these same yappers want to close the system so that everyone is on a level playing field, I say we get rid of refundable credits.

  2. It’s obvious why Trump’s legal professionals recommend he doesn’t release his current tax reports that are under audit – John Q Public has no idea of how to read them and the criminal democratic spin doctors will distort what’s in them just like they are distorting his 1995 tax disclosure. First of all, Trump’s money was earned (or lost) before he was in politics when he put his own assets at risk using his own money – unlike politicians who steel your money to fritter away paying themselves and their friends. Hillary is a case study on business ignorance – this is the person blessed (and paid) to live in the white house for 8 years only to emerge as “flat broke with massive debts” – it must have been a hard economic situation to live through, thank God only one family in the world at a time is forced to suffer through it. Hillary can’t even manage an all expense paid household budget so I can see why she could never understand how a multi-billion dollar business could loose their own money they put at risk. Hillary can’t even round big numbers honestly – her question of the day is “how can this business genius (Trump) even loose a billion dollars in a year?” Here she turns $916M into $1B (after all, losing an exaggerated extra $84M in a year is close enough for government work) and then alleges he didn’t pay any taxes for 2 decades (rounds 18 years up to 20 which would also make the write-off against the law – again not a problem for a Clinton) – with no consideration for profits or loses in future years – again – no business concept of running a dynamic business over time — this is why our current government has run up $20T in debt and have no plan to fix it before the country goes bust – politicians like Clinton consistently prove they don’t understand both sides of a balance sheet. Trump, on the other hand, has proven in this very tax example that you can grow your way back to prosperity which is why it’s true, you should look at his net worth that he provided detailed disclosure of rather than the year to year accounting (i.e. tax forms) which will only confuse you, especially after being twisted by ignorant media pushing their deceptive agendas.

    I don’t like the complex tax rules we must live under – but who better to fix them than someone who actually understands business and tax law. Who would you rather trust, Hillary, a person who made all of her money selling government access to foreign governments and wall street lobbyists, (or by directly breaking the law – remember her cattle futures trades and real estate deals?) or would you rather take a chance on someone proven to be successful in generating thousands of jobs and accumulating net worth legally (I think) — we know what Hillary will do (and it’s all about what’s good for Hillary legal or not), we don’t know if Trump will represent our best interests or not but he knows how to do it and we certainly can’t count on our current political leaders to “lead” us anywhere but down. Trump has done far more good for the country than Clinton even when his fiduciary obligation was to his business, and her obligation was sworn directly to the country – imagine how much good he could possibly do when his allegiance is directly to the country!! Hillary abused her power when she was in government office and could not follow the rules. As a military officer in a command position, I’ve personally escorted military officers in uniform to prison for doing far less than what Hillary has done with just her email server’s compromise of classified information. I say let a business genius run the country like a business – what have we got to lose?

  3. Brad, the governments provided these rules for specific reasons, just like the reasons they created charitable deductions. In the case of charitable deductions, the government realized many years ago that it could not meet all the social and other needs in our Nation. So, it created charitable deductions, charitable foundations, and other similar vehicles for our citizenry to assist one another without involving the government.

    To me, it seems what is missing in this ongoing exchange between Trump and Clinton about Mr. Trump’s tax matters is Clinton’s use of the tax laws to create the Clinton Foundation and how she uses it. Many smart people see this institution as the most sophisticated money laundering scam ever conceived. The Clinton’s have used not only US tax laws but also Canadian tax to hide what they are doing.

    Canadian law prohibits foundations from disclosing who made the contributions to their foundations. For example, foreign heads of state can make contributions to Clinton’s Canadian foundation, who in turn, after deducting an administrative fee, make a contribution to the Clinton’s US foundation. The Clinton’s US foundation reports the gift coming from the Canadian foundation, which is what is required under US law – all legal. But the US Foundation hides behind the Canadian law prohibiting disclosure of contributors as a reason for not revealing the true source of the funds. Next, the Clinton’s retain an administrative fee, which is used for various activities, including contributions to other deserving organizations, looking very magnanimous to the American people. In addition, they will make a contribution to a foreign charity, most likely established by the original contributor, for some alleged charitable purpose, which is also under the control of the original contributor.

    Now the funds have been “cleaned” or “laundered” of any stench of impropriety of the original contributor.

    Bottom line? The Clinton’s have used the US tax laws in an equally sophisticated manner as Mr. Trump. Perhaps the Clinton’s activities will come to light during her time in office, and like Richard Nixon, we’ll hear her say, as she is escorted out of Washington, ” … I am not a crook.”

    We can only hope that the FBI will follow-up on the activities and operations of the Clinton Foundation.

  4. The real issue here that everyone seems to be overlooking is how he obtained those tax losses. For someone who states he is so great a business, how is it he lost almost $1 Billion dollars in one year alone and how many small businesses and employees did he cheat out of their money? Do you want to have someone who doesn’t know how to keep a business profitable running our country? The man is nothing more than a con-artist and swindler. God help out country.

  5. The one comment I read stands out. Sometimes a business cycle extends beyond one year. Just because as a business owner you lose money, doesn’t mean being able to carry over that loss to future years is some form of loophole. Most new businesses lose money in the first couple of years until they can get established. The carryover of those losses to offset future profits is nothing more than an leveling out of the ups and downs of a normal business cycle. It is merely a twist provided by the press on the uninformed to make a candidate look bad or sell newspapers, unfortunately. If one were to look hard enough they would probably find the reporting press using the same identical principals in their own tax reporting.

  6. This story has two sides to it.
    (1) Trump is not such a smart business man if he creates a write-off of nearly a billion. Who lost that money at the end of the day?
    (2) Trump is not a genius by writing off losses. Everyone does it though his tax advisers are most probably better at it than I am.
    In my home country I do not even need a tax adviser because the “IRS” has to tell me everything. I used to go there with my documents, went with an employee through the whole stuff and knew what was going on. Shortly after that I would get my official statement. That is how a democracy works.

  7. “Anyone may arrange his affairs so that his taxes shall be as low as
    possible; he is not bound to choose that pattern which best pays the
    treasury. There is not even a patriotic duty to increase one’s taxes.
    Over and over again the Courts have said that there is nothing sinister
    in so arranging affairs as to keep taxes as low as possible. Everyone
    does it, rich and poor alike and all do right, for nobody owes any
    public duty to pay more than the law demands.”
    by:
    Judge Learned Hand
    (1872-1961), Judge, U. S. Court of Appeals
    Source:
    in the case of Gregory v. Helvering 69 F.2d 809, 810 (2d Cir. 1934), aff’d, 293 U.S. 465, 55 S.Ct. 266, 79 L.Ed. 596 (1935)

  8. The question isn’t about paying the lowest tax legally possible. The concern is that Trump isn’t paying any income tax. That means all of the things government provides that benefit him and his businesses he gets for free. That includes infrastructure, the criminal justice system, of which he uses to his advantage, national defense, and the economic environment that allows his businesses to operate without having to pay bribes to officials to get anything done. He receives so much more from the government because he has so much going on, and so much more to protect than the majority of us pay our share for these things. That’s what bothers me.

  9. Re Taxes, and who pays what; I refer you to the following;
    These Famous Tax Quotes are both from Judge Learned Hand:

    #4 Any one may so arrange his affairs that his taxes shall be as low as possible; he is not bound to choose that pattern which will best pay the Treasury; there is not even a patriotic duty to increase one’s taxes.

    Gregory v. Helvering, 69 F.2d 809, 810 (2d Cir. 1934)

    #5 Over and over again courts have said that there is nothing sinister in so arranging one’s affairs as to keep taxes as low as possible. Everybody does so, rich or poor; and all do right, for nobody owes any public duty to pay more than the law demands: taxes are enforced exactions, not voluntary contributions. To demand more in the name of morals is mere cant.

    Commissioner v. Newman, 159 F.2d 848, 851 (2d Cir. 1947) – dissenting opinion

  10. Everyone knows that wealthy people pay a far lower tax rate than the rest of us, despite higher nominal tax brackets for increasingly greater income. This is due to the plethora of tax breaks and shelters available to the wealthy. Everyone also knows that a flat consumption tax would further shift the tax burden onto the middle and lower classes, as they spend a much greater proportion of their income than do the wealthy. Unfortunately, Mr. Trump’s tax proposals further shift the tax burden to the lower income groups. However, his corporate tax proposals would benefit small businesses, while forcing all businesses to pay the same corporate tax rates through the elimination of special interest deductions (should he actually follow through on this aspect of his proposals, which lobbyists would fight tooth and nail).

  11. Tax laws are written to the advantage of the 1% who pay no or very limited taxes.
    Politicitians whose goal is to reelected and lobbyist who are paid to take advantage of the tax laws for the benefit of the rich (the 1%) determine what loop holds in the tax laws are added to benefit themselves at the expense of the middle class.
    Of course every one thinks to takes advantage of the laws, but fool themselves in believing that they benefit from this con shell game.

  12. Four Supreme court ruling have stated that it is “Unconstitutional”, or “Illegal” to collect income taxes from working citizens, Income is consider a “Trade of equal value”, labor for wages with “No Capital gain” in the process. The “Sixteenth Amendment” was never ratified by 3/4 of the states as required by law, i.e. Constitution. John Knox presented it to Congress anyway, which is another violation of the law. The “Letter of the law” has been violated at every step in trying to justify an “Income Tax”.

  13. vested interests would never allow it..but income tax being a rort perpetrated by the ‘government’ to exercise control over your income, should be abolished, to be replaced by a simple consumption tax. imagine the cry from accountants, solictors, tax office employees 🙂 most of them would head for the food stamps office. a consumption tax is fair. you work hard and get the rewards. then you SPEND at you own free will. of course big companies would hate it..no tax breaks etc. but its really quite simple. now which president or congessman/woman would have the guts to propose it? its not a free country anymore and we know it. cheers

  14. I have had no need for a CPA since retiring. They were a necessary amenity
    when the stakes were high in business but my joint return now has become much more reasonable to prepare. Previously, a CPA was a necessary way to prevent an AUDIT in such businesses as professional and franchises. So. re-
    tiring eliminated the costly deductible expense.
    R

  15. Personally, as a business owner, I make an effort to find every deduction allowed by law to pay as little tax as possible… and that includes those NOL’s! I do feel that this will be an issue that will fall on an uninformed public, to a negative effect on the Trump campaign, since the vast majority of citizens are “employees” and not “employers” and would be unaware of all the potential deductions and additional taxes that come from being one’s own boss. It is an opportunity to be a teaching moment for the greater public as to the complex tax laws of this country.

  16. As far as the “Election” goes, Mark Twain famously said “If voting made any difference, they would not let us do it!” And this was more than one hundred years ago!

  17. Tax Law: If you spend your money the way Government wants you to – you pay less taxes and may benefit from the expenditures; if you don’t spend your money the way Government wants you to – Government will take your money and spend it however it pleases.

  18. You failed to mention the New York times failed to pay taxes also. Unless you believe the government can spent your money better. I think you would be an idiot not to take advantage of all legal deduction.

  19. To do away with the carry forward of business losses to future tax years where a business makes a net profit, will be a huge tax increase for startup businesses especially, as well as other businesses that have a loss in one or more years. Also, to do away with the deduction will discourage investment in businesses and discourage entrepueners. All of us might as well work for the government…. which is exactly what Obama/Hillary/Democrats want.

  20. Not being in the heady atmosphere of Mr. trump’s earnings, I have questions. Shouldn’t business earnings /losses be separate from personal earnings/lasses? Or is this another loophole for the terribly wealthy?

  21. And that is the TOTAL PROBLEM with our tax system. Keysian Economics turned a very simple math problem into chaos and confusion. Nobody should have to hire a professional to pay taxes – and that would include the wealthy. You spend what you can afford and save a little for a rainy day. Progressive Taxation is just like the Progressive Politicians that support it. It keeps the Serfs as slaves and keeps the wealthy “Wealthy” as they do not want competition from the Serfs!!!!

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