President Trump's tax returns show he has company: How rich Americans avoid taxes
Nathan Bomey, USA TODAY•September 28, 2020
Details of President Trump's tax returns have been revealed by reports from New York Times
Like President Donald Trump, rich Americans often deploy sophisticated tax-avoidance strategies to maximize their wealth.
Not to be confused with tax evasion, which is illegal, tax avoidance is entirely legal, even if many view it as unfair. .
A sweeping New York Times report published Sunday revealed numerous tax reduction strategies used by Trump. He's not alone. Affluent taxpayers often have more avenues than ordinary Americans to avoid paying Uncle Sam.
Wealthy Americans are the largest source of under-reported income, according to IRS data analyzed by researchers. The top 1% of American taxpayers account for about 34% of misreported income, according to one study published in the National Tax Journal.
Still, many wealthy Americans deploy complex, arcane but wholly legal strategies to minimize their tax obligations. Some use fairly straight-forward strategies that allow them to minimize their taxes under the tax code.
President Donald Trump points to a question as he speaks during a briefing with reporters in the James Brady Press Briefing Room of the White House.
Here are some of the most common tax-avoidance strategies deployed by the wealthy:
Growing wealth through investments
It's much harder to avoid taxes on your paycheck than on your investments.
In general, the federal government taxes regular wages at higher rates than investment income. The long-term capital gains tax rate maxes out at 20%, while the highest income-tax rate is currently 37%.
In other words, if you make a salary of $1 million, the government keeps $370,000. But if you make $1 million on stocks or similar investments, the government keeps $200,000.
Selling assets at strategic times
Taxes on assets like stocks and real estate investments aren't owed until they are sold. That helps people like Jeff Bezos, the Amazon CEO, founder and richest person in the world, to grow their wealth rapidly while avoiding a huge tax bill. Then they can be strategic about when they sell.
By stockpiling assets without selling, rich investors can minimize their tax burden.
"Wealthy individuals can wait to sell until it makes the most sense for them, such as a year in which they will have large capital losses to offset the gain," according to the Center on Budget and Policy Priorities.
Unrealized capital gains accounted for more than one-third of the assets held by the richest 1% of Americans in 2013, according to a Federal Reserve analysis. By comparison, the bottom 90% of Americans have only 6% of their assets in unrealized capital gains.
Using business income loopholes to reduce personal tax liability
The 2017 tax bill passed signed into law by Trump allowed for a 20% deduction on certain business income that passes through partnerships, sole proprietorships and S-corporations.
This is income that individuals report on their personal IRS returns, but the tax break allows them to reduce the tax rate on that money by up to 7.4 points, according to the CBPP.
This setup is most likely to help the wealthy: 61% of the benefits go to the wealthiest 1% of Americans, according to the Joint Committee on Taxation.
Lisa De Simone, associate professor of accounting at the McCombs School of Business at the University of Texas at Austin, said many tax breaks that are available for business owners were put in place to stimulate risk-taking and innovation.
“There’s a notion that there are lots of tips and tricks that only the wealthy can take advantage of,” De Simone said. “The provisions weren’t written to try to help the wealthy get away with things.”
Instead, she said, new businesses can benefit when they’re able to deduct early losses from income.
“You don’t have to be super-rich in order to claim a business loss," she said.
Taking advantage of death tax policies to enrich their heirs
The tax code allows Americans to build wealth through deferred capital gains and then pass those assets tax-free along to their heirs upon death.
Called the "stepped-up basis" tax break, this loophole "encourages wealthy people to turn as much of their income into capital gains as possible and hold on to assets until death, when a lifetime of gain becomes permanently exempt from tax," according to the CBPP.
To be sure, the inheritor could be subject to paying the estate tax if the total value of the estate exceeds a certain threshold. But that threshold has been substantially increased.
The 2017 tax law doubled the amount of a deceased person's wealth that's shielded from the estate tax from about $5.5 million to more than $11 million. The limit is poised to reset to its original amount in 2025 unless Congress takes action.
Contributing: Susan Tompor of the Detroit Free Press
Follow USA TODAY reporter Nathan Bomey on Twitter @NathanBomey.
This article originally appeared on USA TODAY: Trump tax returns: How rich Americans avoid taxes
Report: Financial records appear to show Ivanka Trump got 'consulting fees' to reduce father's tax bill
Catherine Garcia,
The Week•September 27, 2020
Tax records obtained by The New York Times appear to show that President Trump reduced his taxable income by treating his eldest daughter, Ivanka Trump, as a consultant, then deducting this as a business expense.
The Times reports that Trump Organization tax records show between 2010 and 2018, President Trump wrote off as business expenses $26 million in "consulting fees." The consultants are not listed by name, but the Times compared the tax records to financial disclosures Ivanka Trump filed when she started working at the White House in 2017 as a senior adviser to her father. Ivanka Trump reported receiving $747,622 in payments from a consulting company she co-owned — the same exact amount in consulting fees the Trump Organization claimed as tax deductions for hotel projects in Hawaii and Vancouver.
As an executive officer with the Trump Organization, Ivanka Trump managed the Hawaii and Vancouver hotel projects, "meaning she appears to have been treated as a consultant on the same hotel deals that she helped manage as part of her job at her father's business," the Times said. Ivanka Trump earned a salary of about $480,000 while serving as an executive with the Trump Organization, and the amount jumped up to $2 million after her father became president, the Times reports; since leaving to work in the White House, she has not received a salary from the company.
The tax filings also show that Trump collected $5 million for a hotel deal in Azerbaijan and reported $1.1 million in consulting fees and made $3 million in Dubai while reporting a $630,000 consulting fee. People with direct knowledge of the deals told the Times they were not aware of any consultants or third parties who would have been paid in connection with the projects. When asked about the matter, Alan Garten, a lawyer for the Trump Organization, did not comment.
The Internal Revenue Service said for consulting fees to be deducted as an expense, they must be an "ordinary and necessary" part of running a business, and the recipient must still pay income tax.
Trumpworld is imploding
Rick Newman
Senior Columnist,
Yahoo Finance•September 28, 2020
Donald Trump has many well-known enemies—and some stealthy ones, as well.
The main takeaway from a New York Times report on Trump’s tax records is that Trump claims to be a billionaire, yet in some years pays little or nothing in federal income taxes. Trump uses many legal tax credits to lower his bill, but may also break the law by exaggerating his business expenses or mischaracterizing payouts to family members.
There’s also an unstated revelation in the Times expose: Somebody close to Trump turned on him, leaking financial information that could be both politically damaging and legally treacherous. The Times isn’t saying where it got the detailed information on nearly 20 years of Trump tax returns, and isn’t even releasing the documents, to protect the source. But it seems obvious that a Trump insider is trying to damage him, flouting Trump’s famous demand for loyalty from anybody who works with him.
Trump is in a close reelection race, and it’s possible he could beat Democrat Joe Biden once the ballots are counted in November. At the same time, however, a more ominous scenario is unfolding. Trump’s notoriety as a combative president has brought unprecedented scrutiny to a family business that for decades was a black box, its inner workings secret. Trump is now facing more legal scrutiny than ever, including criminal probes into possible felonies. There are even signs his supposedly iron grip on the Republican Party could shatter if there’s an opportunity to dispatch Trump and move on.
First, the legal cases. The Manhattan district attorney is investigating Trump and his businesses for various types of fraud, probably including some of the tax-avoidance strategies described in a 2018 New York Times feature. The DA investigation is secret, so it’s not clear what the exact focus is. But city, state and federal prosecutors have an obligation to investigate possible crimes if they become aware of them, and the intense scrutiny of Trump’s finances since he became president may have surfaced plenty of trouble. Trump’s former lawyer, Michael Cohen, went to jail in part for his role facilitating a campaign-finance felony: the hush-money payments to Stormy Daniels and Karen McDougal. Trump signed the checks, meaning he’s at least as complicit as Cohen.
The New York State attorney general is mounting a separate investigation into whether Trump has misstated asset values to lower his tax payments or defraud lenders or insurers. The New York AG initiated this probe after Cohen testified before Congress in 2019 and accused Trump of fraud. Cohen might seem like an old story at this point, but the information he revealed after the FBI raided his office in 2018 could fuel investigations into Trump for years, and possibly lead to convictions.
It’s obviously tricky to investigate a sitting president, one reason the federal Justice Dept. has had no apparent role in probing Trump since William Barr became attorney general in 2019. But Trump won’t be president forever, and federal investigators could join the city and state probes of Trump at some point. The Justice Department’s Southern District of New York led the Cohen prosecution, which culminated in Cohen’s 2018 guilty plea on eight criminal counts. If Cohen provided incriminating information on Trump as part of that case, it would be logical for the Justice Dept. to pick up the probe once Trump is no longer president and certain legal privileges of the office expire.
Here are some of the most common tax-avoidance strategies deployed by the wealthy:
Growing wealth through investments
It's much harder to avoid taxes on your paycheck than on your investments.
In general, the federal government taxes regular wages at higher rates than investment income. The long-term capital gains tax rate maxes out at 20%, while the highest income-tax rate is currently 37%.
In other words, if you make a salary of $1 million, the government keeps $370,000. But if you make $1 million on stocks or similar investments, the government keeps $200,000.
Selling assets at strategic times
Taxes on assets like stocks and real estate investments aren't owed until they are sold. That helps people like Jeff Bezos, the Amazon CEO, founder and richest person in the world, to grow their wealth rapidly while avoiding a huge tax bill. Then they can be strategic about when they sell.
By stockpiling assets without selling, rich investors can minimize their tax burden.
"Wealthy individuals can wait to sell until it makes the most sense for them, such as a year in which they will have large capital losses to offset the gain," according to the Center on Budget and Policy Priorities.
Unrealized capital gains accounted for more than one-third of the assets held by the richest 1% of Americans in 2013, according to a Federal Reserve analysis. By comparison, the bottom 90% of Americans have only 6% of their assets in unrealized capital gains.
Using business income loopholes to reduce personal tax liability
The 2017 tax bill passed signed into law by Trump allowed for a 20% deduction on certain business income that passes through partnerships, sole proprietorships and S-corporations.
This is income that individuals report on their personal IRS returns, but the tax break allows them to reduce the tax rate on that money by up to 7.4 points, according to the CBPP.
This setup is most likely to help the wealthy: 61% of the benefits go to the wealthiest 1% of Americans, according to the Joint Committee on Taxation.
Lisa De Simone, associate professor of accounting at the McCombs School of Business at the University of Texas at Austin, said many tax breaks that are available for business owners were put in place to stimulate risk-taking and innovation.
“There’s a notion that there are lots of tips and tricks that only the wealthy can take advantage of,” De Simone said. “The provisions weren’t written to try to help the wealthy get away with things.”
Instead, she said, new businesses can benefit when they’re able to deduct early losses from income.
“You don’t have to be super-rich in order to claim a business loss," she said.
Taking advantage of death tax policies to enrich their heirs
The tax code allows Americans to build wealth through deferred capital gains and then pass those assets tax-free along to their heirs upon death.
Called the "stepped-up basis" tax break, this loophole "encourages wealthy people to turn as much of their income into capital gains as possible and hold on to assets until death, when a lifetime of gain becomes permanently exempt from tax," according to the CBPP.
To be sure, the inheritor could be subject to paying the estate tax if the total value of the estate exceeds a certain threshold. But that threshold has been substantially increased.
The 2017 tax law doubled the amount of a deceased person's wealth that's shielded from the estate tax from about $5.5 million to more than $11 million. The limit is poised to reset to its original amount in 2025 unless Congress takes action.
Contributing: Susan Tompor of the Detroit Free Press
Follow USA TODAY reporter Nathan Bomey on Twitter @NathanBomey.
This article originally appeared on USA TODAY: Trump tax returns: How rich Americans avoid taxes
Report: Financial records appear to show Ivanka Trump got 'consulting fees' to reduce father's tax bill
Catherine Garcia,
The Week•September 27, 2020
Tax records obtained by The New York Times appear to show that President Trump reduced his taxable income by treating his eldest daughter, Ivanka Trump, as a consultant, then deducting this as a business expense.
The Times reports that Trump Organization tax records show between 2010 and 2018, President Trump wrote off as business expenses $26 million in "consulting fees." The consultants are not listed by name, but the Times compared the tax records to financial disclosures Ivanka Trump filed when she started working at the White House in 2017 as a senior adviser to her father. Ivanka Trump reported receiving $747,622 in payments from a consulting company she co-owned — the same exact amount in consulting fees the Trump Organization claimed as tax deductions for hotel projects in Hawaii and Vancouver.
As an executive officer with the Trump Organization, Ivanka Trump managed the Hawaii and Vancouver hotel projects, "meaning she appears to have been treated as a consultant on the same hotel deals that she helped manage as part of her job at her father's business," the Times said. Ivanka Trump earned a salary of about $480,000 while serving as an executive with the Trump Organization, and the amount jumped up to $2 million after her father became president, the Times reports; since leaving to work in the White House, she has not received a salary from the company.
The tax filings also show that Trump collected $5 million for a hotel deal in Azerbaijan and reported $1.1 million in consulting fees and made $3 million in Dubai while reporting a $630,000 consulting fee. People with direct knowledge of the deals told the Times they were not aware of any consultants or third parties who would have been paid in connection with the projects. When asked about the matter, Alan Garten, a lawyer for the Trump Organization, did not comment.
The Internal Revenue Service said for consulting fees to be deducted as an expense, they must be an "ordinary and necessary" part of running a business, and the recipient must still pay income tax.
Trumpworld is imploding
Rick Newman
Senior Columnist,
Yahoo Finance•September 28, 2020
Donald Trump has many well-known enemies—and some stealthy ones, as well.
The main takeaway from a New York Times report on Trump’s tax records is that Trump claims to be a billionaire, yet in some years pays little or nothing in federal income taxes. Trump uses many legal tax credits to lower his bill, but may also break the law by exaggerating his business expenses or mischaracterizing payouts to family members.
There’s also an unstated revelation in the Times expose: Somebody close to Trump turned on him, leaking financial information that could be both politically damaging and legally treacherous. The Times isn’t saying where it got the detailed information on nearly 20 years of Trump tax returns, and isn’t even releasing the documents, to protect the source. But it seems obvious that a Trump insider is trying to damage him, flouting Trump’s famous demand for loyalty from anybody who works with him.
Trump is in a close reelection race, and it’s possible he could beat Democrat Joe Biden once the ballots are counted in November. At the same time, however, a more ominous scenario is unfolding. Trump’s notoriety as a combative president has brought unprecedented scrutiny to a family business that for decades was a black box, its inner workings secret. Trump is now facing more legal scrutiny than ever, including criminal probes into possible felonies. There are even signs his supposedly iron grip on the Republican Party could shatter if there’s an opportunity to dispatch Trump and move on.
First, the legal cases. The Manhattan district attorney is investigating Trump and his businesses for various types of fraud, probably including some of the tax-avoidance strategies described in a 2018 New York Times feature. The DA investigation is secret, so it’s not clear what the exact focus is. But city, state and federal prosecutors have an obligation to investigate possible crimes if they become aware of them, and the intense scrutiny of Trump’s finances since he became president may have surfaced plenty of trouble. Trump’s former lawyer, Michael Cohen, went to jail in part for his role facilitating a campaign-finance felony: the hush-money payments to Stormy Daniels and Karen McDougal. Trump signed the checks, meaning he’s at least as complicit as Cohen.
The New York State attorney general is mounting a separate investigation into whether Trump has misstated asset values to lower his tax payments or defraud lenders or insurers. The New York AG initiated this probe after Cohen testified before Congress in 2019 and accused Trump of fraud. Cohen might seem like an old story at this point, but the information he revealed after the FBI raided his office in 2018 could fuel investigations into Trump for years, and possibly lead to convictions.
It’s obviously tricky to investigate a sitting president, one reason the federal Justice Dept. has had no apparent role in probing Trump since William Barr became attorney general in 2019. But Trump won’t be president forever, and federal investigators could join the city and state probes of Trump at some point. The Justice Department’s Southern District of New York led the Cohen prosecution, which culminated in Cohen’s 2018 guilty plea on eight criminal counts. If Cohen provided incriminating information on Trump as part of that case, it would be logical for the Justice Dept. to pick up the probe once Trump is no longer president and certain legal privileges of the office expire.
SEPTEMBER 28th 2020: According to a report in The New York Times, Donald Trump paid $750 in federal income tax in both 2016 and 2017. - File Photo by: Dennis Van Tine/STAR MAX/IPx 2016 4/17/16 Donald Trump campaigns in Staten Island, New York City. (NYC)
All of this comes as Trump’s businesses are apparently under mounting financial pressure. According to the latest Times report, most of Trump’s properties lose money, and he owes $421 million in loans, much of that due in the next few years. Trump’s hotels, resorts and golf courses are struggling amid a travel rout, and while the presidency has elevated Trump’s visibility, his unpopularity may have harmed the brand.
Some of Trump’s legal woes stem from the decision of his niece, Mary Trump, to spill secrets of the family business to the New York Times for its 2018 expose on the Trump Organization’s aggressive tax strategies. Mary Trump is now suing the president and other family members for fraud relating to the family inheritance. Unless the various Trumps settle the suit, it could make public even more damaging information about Trump and his clan.
Matching these business and family mutinies are defections by former Trump aides now openly opposing his reelection, such as former national security adviser John Bolton and former spokesperson Anthony Scaramucci. Trump also faces unprecedented opposition from within his own party, with many moderate GOP officials endorsing Biden, funding anti-Trump ads and posting testimonials describing how Trump has let them down. More than 75 former Republican national-security officials have signed an open letter declaring Trump a threat to the nation.
Trump has manhandled most Republican elected officials, largely because he can mount furious opposition to their candidacies if they cross him. But this superpower is waning, too. Several otherwise loyal Senate Republicans, including Majority Leader Mitch McConnell, pushed back on Trump after he suggested he wouldn’t leave office if he loses to Biden. Some Republicans privately loathe Trump and fear he’s wrecking their party. They might not have the guts to oppose him publicly, but they might not help him, either, in a tight election that could bring Trump’s political end.
Nobody should count Trump out. He’s a renowned escape artist who has bounced back from four bankruptcies and many scandals. What’s different now, however, are growing fissures in the facade that for decades protected Trump’s family and business. Prosecutors and the public are getting a look inside, and it’s messy. People turn on the boss when it becomes a matter of survival, and the closer the scrutiny, the more trouble there’s likely to be. Trump’s downfall may not be imminent, but it is starting to look inevitable.
Rick Newman is the author of four books, including “Rebounders: How Winners Pivot from Setback to Success.” Follow him on Twitter: @rickjnewman. Confidential tip line: rickjnewman@yahoo.com. Encrypted communication available. Click here to get Rick’s stories by email.
No comments:
Post a Comment