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IRA Financial Blog

Trump’s Tax Returns – A Tax Attorney’s Take – Episode 250

Adam Talks

IRA Financial’s Adam Bergman Esq. gives his take on the news of President Trump’s tax returns and how the president was able to pay so little in federal income taxes.

As you are probably well aware, a recent NY Times article detailed President Donald Trump’s tax returns. In this podcast, Adam Bergman, a former tax attorney with a masters in taxation, wanted to share his take on the findings. Granted, the report should be taken with a grain of salt. No one knows, other than Trump himself, how accurate the report is. Trump has called the story “fake news.” Here’s Mr. Bergman’s objective, bi-partisan take on the matter. He will share his opinions of what he thinks the president has done to have such a low federal income tax return for many years.

The Times Report

Although it’s not required, most presidents have voluntarily released their tax returns. Donald Trump has not been one of them and has even taken legal action to protect them. According to the report, Trump paid $95 million in taxes over the 18 years they studied. However, he recouped almost $73 million in federal refunds. Further, he pocketed another $21.2 million in state and local refunds. His average annual tax bill was around $1.4 million. In contrast, the average tax bill of those in the top 0.001% of earners paid about $25 million each year between 2000 and 2017.

Further, his deductions were on the aggressive side, including his homes, aircraft and $70,000 on hair styling while doing “The Apprentice.” The report also talks about his failing business ventures, including $315 million in losses from his golf courses. He also wrote off $26 million in unexplained consulting fees from his businesses. These fees were said to have been paid to family members.

Mr. Trump seems sure to face heavy financial pressures from the enormous pile of debt he has absorbed. The Times said the president appears to be responsible for $421 million in loans, most of which will come due within four years. On top of that, a $100 million mortgage on Trump Tower in New York will come due in 2022.

This has led to Mr. Trump’s tax returns of $750 the year in which he entered the White House and another year. Many years that were studied, no federal income taxes were paid.

Trump’s Tax Return – How Does He do It?

Not much is known about the details of Mr. Trump’s filings. These are ways that some people can use deductions, losses and other methods of lowering his or her tax bill. Trump may have used some of these strategies, however, we don’t know if he used any or all of them. There’s just not a lot of information to be found out there. His returns are a well-guarded secret.

Individuals are taxed differently than corporations. There are all sorts of income types out there depending on what type of job you have, and more importantly, the type of business you own. S & C corps are taxed differently than LLCs or partnerships. Some businesses are taxed both on an individual level and the corporate level. Other businesses are protected from higher tax rates. Mr. Bergman explains this all in the podcast, so we won’t linger here.

The biggest factor of the tax bill may be the real estate investments Trump has made. As a real estate investor, you can take advantage of various deductions, such as depreciation, mortgage expenses, repairs and the like. Most commercial real estate developers deduct large interest payments on their debts from taxable income, thereby lowering their tax bills. Typically, they also often avoid capital gains taxes by plowing profits from the sale of one building into the purchase of another by utilizing the 1031 exchange.

The Trump Organization is a corporation – not sure if it’s an S or a C Corp – either way – clearly, the losses from the Trump investment flows through the passthrough entities controlled by Trump. Whether the Trump Organization is a general partner of minority owner of the underlying LLCs and Trump and his family are the majority members – what seemingly is occurring is that the real estate deductions/losses are passing through to Trump’s 1040.

Mr. Bergman also explains how basis and net operating losses work and how they can lead to a smaller tax bill.

More Information

There’s a lot to pore over concerning Mr. Trump’s tax returns. So much so, Mr. Bergman also did a condensed version of his podcast and a short, five minute video on the same. Check those out if you don’t have time to listen to the full-length podcast in its entirety.

The election is heating up and Mr. Bergman will be here every week to talk about it and other important topics. As always, thanks for listening and be sure to check out our previous episodes of Adam Talks.


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