All taxpayers, to avoid having their income squandered in D.C., should go above and beyond the call of duty to minimize the amount they send to the IRS.
Which is why today’s column is a bipartisan love fest for Donald Trump and Joe Biden – both of whom have been very aggressive in limiting their tax liabilities.
Here are some details from the report in the New York Times about Trump’s leaked tax returns.
Donald J. Trump paid $750 in federal income taxes the year he won the presidency. In his first year in the White House, he paid another $750. He had paid no income taxes at all in 10 of the previous 15 years — largely because he reported losing much more money than he made. …His reports to the I.R.S. portray a businessman who takes in hundreds of millions of dollars a year
yet racks up chronic losses that he aggressively employs to avoid paying taxes. …They report that Mr. Trump owns hundreds of millions of dollars in valuable assets, but they do not reveal his true wealth. …Most of Mr. Trump’s core enterprises — from his constellation of golf courses to his conservative-magnet hotel in Washington — report losing millions, if not tens of millions, of dollars year after year. …Business losses can work like a tax-avoidance coupon: A dollar lost on one business reduces a dollar of taxable income from elsewhere. The types and amounts of income that can be used in a given year vary, depending on an owner’s tax status. But some losses can be saved for later use, or even used to request a refund on taxes paid in a prior year.
It’s worth noting that the leaked returns didn’t show any unknown business ties to Russia. Nor do they suggest any criminality.
Instead, Trump appears to have relied on using losses in some years to offset income in other years – a perfectly legitimate practice.
Now let’s look at some of what CNBC reported about Joe Biden’s clever tactic to save lots of money.
…consider borrowing a tax-planning tip from Joe Biden. The former vice president…reported about $10 million in income in 2017 from a pair of S-corporations… The two entities were paid for the couple’s book deals and speaking gigs.
…both S-corps generated a lot of income, they paid out modest salaries in comparison. …In 2017, the two companies paid the couple a combined $245,833 in wages. …any amounts the Bidens received as a distribution wasn’t subject to the 15.3% combined Social Security and Medicare tax. …Tim Steffen, CPA and director of advanced planning at Robert W. Baird & Co. in Milwaukee. “…if you don’t report that income to the business as wages, then that portion of the income avoids Social Security and Medicare taxes,” he said.
The article doesn’t do all the math, but it certainly seems like the Biden household avoided having to cough up any payroll taxes on more than $9.75 million.
There’s a “wage base cap” on Social Security taxes (thankfully), so it’s possible that their tax avoidance only saved them about $283,000 (what they would have paid in Medicare taxes – 2.9 percent rather than 15.3 percent).
But that’s still a nice chunk of change – about four times as much as the average household earned that year.
As far as I’m concerned, we should applaud both Trump and Biden. Tax avoidance is legal. Even more important, it’s the right thing to do.
Though my applause for Biden is somewhat muted because he said in 2008 that paying more tax is patriotic. So he’s guilty of tax hypocrisy, which seems to be a common vice for folks on the left (the Clintons, John Kerry, Obama’s first Treasury Secretary, Obama’s second Treasury Secretary, Governor Pritzker of Illinois, etc).
For all his flaws, at least Trump isn’t a hypocrite on this issue (though all his spending may pave the way for future tax increases).
P.S. Here’s a story about the greatest-ever tactic for escaping taxes.
P.P.S. And here’s my favorite adults-only story about tax avoidance.
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