Imagine if you, like President-elect Donald Trump, didn’t have to pay a nickel to support the government he’s now preparing to lead.
Trump, who has refused (unlike every other presidential candidate in recent history) to release his tax returns, made his last known payment to the IRS in 1977.
In fact, thanks to a tax trick quietly deployed by a bunch of rich Americans a quarter-century ago, I calculate that Trump will not owe income taxes until at least 2042, when he would turn 96 years old. At that point, he’ll be well into his post-presidential pension, ponied up by Americans who are not as “smart” as he said he is about the tax code.
The trick Trump used to eliminate his tax bill effectively allowed business losses to be deducted twice: Once by the banks that had to write off unpaid loans and a second time by the borrowers — in this case, Trump, who was allowed to convert the unpaid debts from taxable income into a tax loss for himself.
Many taxpayers undoubtedly aspire to be as “smart” as Trump says he was in his dealing with the IRS. Sadly, not all of us can emulate the president-elect for two reasons.
One is that, as with nearly all tax shelters, you first need to own — or owe — a very large amount of money.
Second, in 2002 congressional Republicans sponsored a law that shut down the device Trump used. Trump is still benefiting, and will continue to benefit from the tax shelter, however, because the law closing it did not terminate the benefits for those who used it before 2002.
Congress only closed the tax barn door after the money had fled.
Not to despair, though — there are things you can legally do to make sure you provide the kind of support for Trump’s administration (he says he’ll forego the $400,000-a-year presidential salary, though he does get public housing and first-class health care) that he has for his predecessors’.
And you don’t need to do anything dodgy, either.
Four tips for “smart” taxpayers
First, start a side business and sock away every dollar you can in a retirement plan. The best part is that you and your spouse can each put away $18,000 ($24,000 if age 55 plus), even if that soaks up all the profits from your business. Above that, you can put away every fifth dollar your business earns. You can also make an employer contribution (that’s you) to your employee (that’s you) and the employee’s spouse. Use all the gimmicks and you can put away more than $100,000, although you’ll need a roughly quarter-million-dollar profit to do it.
Second, enjoy the “benefits of ownership” of your business. Taking a flight for your business? Pay for first class, because the whole ticket is deductible. Buy a new computer or office furniture and write off everything up to $500,000 under Section 179.
Third, you can put your kids or grandkids on your payroll for up to $6,300 and no income tax is due thanks to the floor on taxable income and the standard deduction. If the child is under 18 you do not have to pay the Social Security and Medicare tax, either.
Fourth — and I know this sounds sleazy — your kids can legally give you back the money tax-free.
Now if your only income is from wages and salary, well, sorry.
Except for retirement savings and the small minority of Americans who qualify to deduct mortgage interest (20 percent in 2014) and property taxes, you not only have to pay income and payroll taxes, but the money comes out before you get your check.
But hey, somebody has to pay to make America great again.