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Donald Trump's tax returns tell us a lot of about the tax strategies that the ultra high net worth use to build their tax-free wealth!
Background
During his time in office, Trump's tax returns became a significant subject of debate, as the former President consistently refused to release them to the public. This decision broke with decades of precedent, as most presidential candidates and sitting presidents have voluntarily released their tax returns to demonstrate transparency. However, this remains private taxpayer data and the IRS cannot legally release this information without consent. A CPA can also never release information to the public.
As a result, the release of Trump's tax returns was eagerly awaited by both his supporters and critics.
The Release
After a long legal battle, six years of Donald Trump's federal tax returns were finally released to the public by the House Ways and Means Committee. The documents spanned the years 2015 through 2020 and provided a complex web of information about Trump's finances. This data raised questions from the public but for many in the tax strategy community, it was a just a showcase of tax planning.
One of the most striking revelations from Trump's tax returns was that the former President paid very little in federal income taxes during his time in office. This can be attributed to the large losses he claimed, which helped limit his tax bill. For example, in 2015, he carried forward a $105 Million loss and $73 million loss in 2016. This strategy allowed him to reduce or even eliminate his tax burden during certain years.
Why? Real Estate! Real Estate is the preferred tax strategy vehicle for many entrepreneurs. There is often confusion as a tax loss is not a “real loss”. This was on full display.
Trump's tax returns also revealed several claims that auditors may find questionable. The Joint Committee on Taxation (JCT) flagged numerous items on his tax returns, including significant amounts of interest he claims to have received from loans to his children. The JCT argued that an auditor should investigate these loan agreements, as they could potentially be considered disguised gifts for tax purposes, which would require Trump to pay a higher tax rate on the money.
The tax returns also disclosed that Trump held foreign bank accounts between 2015 and 2020, including accounts in China, the United Kingdom, and Ireland. This information is noteworthy because it highlights the global nature of Trump's businesses and their compliance with various local tax laws and regulations. This is normally for high net worth individuals as we typically see clients with bank accounts in several countries BUT it is very important to disclose there properly.
Interestingly, the 2017 Republican tax plan championed and signed by Trump appears to have reduced the amount he was able to deduct from his tax bill. The law capped the state and local tax (SALT) deduction at $10,000 a year, limiting the amount he could claim in certain areas of his tax returns.
Trump's tax returns have demonstrated the significance of proactive tax planning in building tax-free wealth. By claiming large real estate based tax strategy losses and deductions, the former president was able to minimize his federal income tax obligations.
Individuals and businesses must employ tax optimization strategies that comply with tax laws while maximizing financial benefits to achieve tax-free wealth. This can include:
Partnering with seasoned tax planners like Anomaly CPA is essential for effectively executing these wealth strategies. Their expertise and tailored guidance are instrumental in achieving tax optimization and fostering tax-free wealth growth, all while maintaining compliance with tax laws. By collaborating with professionals, both individuals, and businesses can confidently navigate the complex tax landscape and secure a prosperous financial future.
The release of Donald Trump's tax returns has placed a spotlight on the importance of tax optimization and wealth strategies. As a tax planner and CPA, I encourage individuals and businesses to engage the services of a professional tax strategist to help navigate the complex world of taxes and build a solid foundation for financial success.
With base level subscriptions starting at $400/month, our engagements are relationship based, combining initial strategy, implementation and ongoing support. We work with our clients throughout the year to help them transform their business. Please answer the questions on the following page so we can determine if we are a mutual fit.
