There are two ways that expenses can be claimed in order to reduce your taxable income. One way is to itemize your expenses on your personal income tax return. Since the standard deduction increased to $24,800 for married couples filing jointly a household would have to have more than $24,800 in deductions in order to itemize. There are only certain expenses which can be deducted:
* Medical & dental
* State & Local taxes
* Mortgage interest
* Charitable giving
*Casualty & theft
You can't deduct for things like haircuts or car repair, for example. The other way expenses can be deducted from your taxable income is if you own a business and those deductions are legitimate business expenses. For instance, if you buy a color printer - it's not a deductible expense if you use it for personal use, but if you buy it for your business, you can claim it as a legitimate business expense. Here's where dishonest people can commit fraud. My traveling companion from years ago was using not only his own non-work-related meals as a business expense, but expenses of other people. Federal tax returns do not require you to itemize your business expenses. You lump them together according to category: meals, supplies, car expenses, advertising, etc. Unless you're audited, no one knows that you've deducted things that were for purely personal use as business expenses. This appears to be what Trump did. Repeatedly.
Trump's business isn't just one company, it's at least 500 limited liability companies (LLCs). An LLC shields the owner or owners from personal liability if the company is sued and all profit "flows through" to the owners and is taxed on their personal income tax return. One example is certain tax credit programs which award credits based on expenditures on something that the government wants to encourage. If the tax incentive program awards a tax credit of 10% of expenditures, it is usually only looking at one LLC out of potentially dozens (or in Trump's case, hundreds) and ignoring all other LLCs owned by the same person. The main LLC can then pad their expenditures with payments to other LLCs owned by the same person. LLC-1 can pay LLC-2 a "consulting fee" of 20% of total expenditures - the IRS will treat LLC-1 and LLC-2 as separate entities even though they share ownership and the income from both flow through to the owner. So if the total expenditures are $1,000,000, including a $200,000 consulting fee to LLC-2, in this scenario where a 10% credit is awarded, LLC-1 receives $100,000 in tax credits which includes $20,000 for doing nothing but transferring money from one pocket to the other. This is also something that Trump appeared to do. Repeatedly.
One thing that isn't a problem with Trump's taxes is depreciation. Depreciation is one of the most misunderstood parts of accounting. There's a movie that I've seen a few times (I forget the name) where a farmer is regaling his daughter and her friend about the wonders of depreciation. He explains that each year he deducts a percentage of what he paid for a piece of equipment and after a certain number of years, he has recouped the entire cost of the equipment. This is not how depreciation works! You do not receive, over a number of years, what you paid for a piece of equipment. Depreciation is the method by which you spread out the cost of an asset over several years (it varies depending on the type of asset) instead of claiming the expense at the time you purchased it. For example, if you bought a computer for your home business and paid $500 for it. If you "expensed" it, you would deduct $500 from your year's revenue as a business expense. However, by depreciating it, you would claim a depreciation expense of $100 in each of 5 years. (That's for 'straight-line' depreciation, there are other methods, and there are different timelines for different classes of assets). It's not a magic method of getting your money back, it's merely spreading out over time the tax deduction for the expense.
Another thing that often gets misunderstood is the tax strategy of losing money to avoid paying taxes, or incurring expenses just to get the tax deduction. A frequent delusion is that a "write-off" means that something is free. Let's say your effective tax rate is 15%. You buy a piece of equipment for $1000, planning to use it for your business and deduct the expense. You don't get $1000 back! You get to reduce the amount of income that will be taxed by $1000. What you have saved is the tax, which in this case is $150. If you have made this purchase in order to save money on taxes, you actually have $850 less.
Not every dollar of a loss for tax purposes means that money is actually lost. Some of that loss is on paper. A depreciation expense for a building that was purchased years ago and is increasing in value and can be sold for more than the purchase price and tax credits of various kinds. But it appears that many of Trump's properties are losing real money, shoveling out more in cash every year than they take in. So, what is Trump living on? The New York Times article pointed out an extremely large amount of debt. A mortgage taken out on Trump Tower and various other loans totaling over $400 million. That's what he's living on. Compare his situation to a person who is getting by by running up credit card debt, but has no real plan to pay it down.
Trump apologists like to bring up how he donates his $400,00/year salary, but seldom acknowledge how his businesses have benefited from his visits as president. A president is certainly entitled to personal travel or vacation time, but for this president, the cost of housing Secret Service agents, renting golf carts and all of the myriad security arrangements go back into Trump's pocket. Something not touched upon was how much the Trump for President campaign pays for what will likely turn out to be personal expenses.
Trump was elected partly by portraying himself as a successful businessman, while, as it turns out, he is an especially inept, businessman. Not only that, he has kept his house of cards standing by tax fraud.
Anyone who has watched Trump over the decades is not surprised. Now we have the evidence.
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