US President Donald Trump addresses the press as he walks towards Marine One from the south  White House Lawn in Washington, DC on September 24, 2020 – Trump is on a two-day campaign swing through North Carolina and Florida (Photo by MANDEL NGAN / AFP) (Photo by MANDEL NGAN / AFP via Getty Images)
Haven’t seen President Trump’s tax returns I’ll start there No matter how many times I’ve been asked today to offer my ‘take’ about the returns, I can’t give a more honest answer than, I haven’t seen the returns ????
However, I read the very detailed New York Times article
, which can be found here I’m not inclined to summarize it for you – you can read it yourself – and I’m not going to do an editorial on the article If you are a regular reader you will know this is is not my style of playing guessing games But as I continued to be asked about the article tonight, what occurred to me was that there are a number of issues raised in the article which may be confusing for ordinary taxpayers like you and me
So here are some answers to frequently asked questions by some of the titles that are sure to hit you this week. I’ll update my answers as the story progresses
That’s what President Trump said in 2016, saying, « You don’t learn anything from a tax return »
But that’s not what I said I wrote the exact opposite in 2016, noting that a tax return is not just a bunch of numbers It’s a snapshot of your financial life ???? Not only do you have a better understanding of where taxable income comes from, but you can also see potential failures in terms of losses and worrisome positions with investments and loans. As for taxpayers detailing, you can learn about charitable deductions (not just how much but where they are distributed), property taxes, real estate, etc. You can also glean information about the existence of offshore accounts, household employees, rental properties, etc.
I tweeted, however, that « income tax returns (even officially filed) are not wealth-decisive ???? I stick to that One of the flaws in tax return review of income by themselves is that they are not a reliable measure of a person’s net worth
No, if Trump wanted to release his tax returns – even in the middle of an audit – he could There is no ban Former IRS Commissioner Koskinen agreed there was in 2016 Whether this was a good idea or not is another matter: many tax professionals like me weren’t so sure that making a tax return public while it is under audit was a good idea
The Times said records show there is an audit of Trump’s reimbursement in 2009 The reimbursement request remained in committee, unresolved, with the limitation period repeatedly pushed back.
By law, the IRS cannot review your returns forever There are deadlines and the IRS must resolve reviews and other issues within a certain amount of time If the IRS does not resolve the issue at the end of the period they are finished BUT Sometimes there is an advantage to extending the time limit – but this is usually done by written agreement (you may have already seen Form 872, Consent to Extend the Calculation Time tax)
If you don’t sign the consent, the IRS can issue its findings.Once this happens, the timer will start running again on your options, which usually means – at this point – going to court if you don’t. disagree So if you think you might be able to come to a settlement you can sign the consent to buy some more time You can also do this to keep the case out of court (which could be what’s going on here)
Line 56 – total tax after adjustments but before factoring in taxes like self-employment and household employment taxes – existed in 2014 But if you search for it now, you’re out of luck: it There is no line 56 on the IRS Form 1040 for tax years after 2018 due to form revisions due to, among other things, the Tax Reductions and Jobs Act (TCJA)
Trump has previously touted the benefits of depreciation, suggesting that losses on his tax returns don’t translate into losses in a portfolio.There is some truth to this because depreciation is a tax and accounting construct: you don’t actually lose value each year on the property when you depreciate it
For federal income tax purposes, depreciation is a deduction that allows you to recover the cost or other basis of certain assets. This can be tricky but usually you start to depreciate your asset when you do so. put into service for the first time IRS considers property « put into use » when it’s ready and available for use, not when you actually start using it So, for example, if you buy a car for your business, it’s ready and available once it’s yours, not necessarily the first time that you take a tour You depreciate the cost of the item over its useful life (depending on the type of good) unless an exception applies
Here’s how it works Let’s say you bought a commercial property for $ 1 million in 2000 You usually can’t claim the deduction in the first year, even if you paid cash for the whole thing Instead, you have to depreciate the property over its useful life (in this case, 39 years) – which means you deduct a little bit each year until its useful life is over
And when you sell or transfer depreciated property, you may need to recoup the depreciation, which can increase your tax bill. It can be complicated
This is why The Times noted that « depreciation, however, is not a magic wand … » It doesn’t just create losses out of thin air You can read more about depreciation here
According to The Times, Trump has not repaid at least $ 287 million since 2010 Normally, failure to repay this type of debt would result in a taxable event
If you have a debt cancellation for an amount less than the amount you owe, the amount of debt canceled is considered income and may be taxable unless an exclusion applies. common include bankruptcy, insolvency, and qualifying primary residence debt
If you don’t qualify for an exclusion, you usually have to report the income and pay tax in the year of the remission
The Times says Trump was able to offset part of the income with losses and expand tax payment by taking advantage of a provision as part of an era bailout Obama who allowed the income from the canceled debt to be deferred over a period
That’s a tall order But here’s the bottom line: Business losses are sometimes referred to as Net Operating Losses (NOL) A NOL typically occurs when your tax deductions exceed your taxable income If this number is negative in a year – ???? but has been positive in other years resulting in tax payable that doesn’t seem quite right The NOL exists so you can balance that inequality In other words, you can use the loss in one year to lower your taxable income and lower your tax burden in another year
Under existing tax laws, if you have a NOL you first carry over the entire NOL amount for a number of years and if you still have a NOL left after you carry those losses back, you can carry losses forward You can also choose not to carry a NOL back and only carry it back for up to 20 years. A carry forward means you can apply the loss to your income in a future year
NOLs can be tricky (you can find out more here), and it’s not unusual for the rules to change during an economic crisis
The Times says Trump has claimed huge business losses a total of $ 1.4 billion of its core business for 2008 and 2009 Before the rescue, these losses could only be carried back two years But the bailout extended the return to four years: The Times says this allowed Trump to recover the taxes he paid when The Apprentice was profitable This resulted in a large refund: this is the problem that would have led to the refund audit
If you pay too much tax, you may be eligible for a refund – but you already know that
That’s just what the Trump camp claims happened here.But the Times article seems to suggest it’s more complex: by piling up losses (the legitimacy of which may be questioned), it was able to generate a tax refund of $ 72$ 9 million (taxes paid for 2005 to 2008, plus interest)
By law, refunds over $ 2 million for individuals ($ 5 million for corporations) must be approved by the IRS and a report is sent to the Joint Committee on Taxation This can lead to an audit: this is what apparently happened here
Abandonment occurs when a taxpayer deliberately relinquishes ownership of property (including an interest in a partnership) The IRS looks at a few factors to determine if the property has been relinquished, including ownership before abandonment, whether there is intention to abandon and the actual stages of abandonment
The Times thinks Trump may not have abandoned his property in his Atlantic City casinos, causing losses He walked away from them in 2009, telling the Securities and Exchange Commission that he Hereby « gave up » its stake
If a loss is considered a loss through abandonment, it is generally deductible as an ordinary loss: this means that the full value of the loss can be deductible It’s huge
But instead, if this qualifies as a sale or trade – meaning you got something in exchange for leaving – it is treated as a capital loss These losses are limited to 3,000 $ Trump reportedly received interest in new company after bankruptcy of company he claimed to have abandoned
Trump’s abandonment losses for 2009 – which resulted in the repayment – were reportedly $ 700 million To quote Jon Lovitzâ ???? character, Ernie Capadino, in A League of Their Own: That would be more, wouldn’t it?
It’s pretty simple: you usually can’t fully deduct expenses related to maintaining your home, whereas you can with investment property Good examples of limited deductions include property taxes and mortgages , which are capped for houses (but not generally for investment properties)
You can’t deduct an expense just because it’s desirable or makes you look more professional: this applies to hairstyles, makeup, accessories, etc.
The same is generally true for uniforms and costumes (believe it or not, this article referring to ABBA costumes remains one of my most popular to date)
To claim a deduction for business expenses, Article 162 of the Tax Code requires that the expense be – ordinary and necessary ???? According to the IRS, an ordinary expense is one that is common and accepted in your trade or business The IRS defines a necessary expense as a useful and appropriate expense for your trade or business ???? (You can read more about business expenses here)
As a tax lawyer, I cannot claim that hair styling expenses – even though I need to look professional inside a courtroom – are ordinary and necessary But could someone appearing on TV? Maybe But only for TV / Appearance bits – not for personal comfort or any other unrelated business use
(Note that all unreimbursed employment expenses for employees were eliminated for the 2018-2025 tax years as a result of the TCJA, but business expenses remain deductible for the self-employed and companies)
The same rules generally apply for hairdressing costs as legal costs Yes, for real Legal costs must also be ordinary and necessary in your trade or business to be deductible
Believe it or not, even the fees paid to a criminal defense attorney can be deductible As lawyers and judges have argued over the details over the years – even removing public policy exceptions – the rule is that if the share otherwise meets the criteria of a valid business expense, it is deductible
However, there is one notable exception: no deduction is allowed for legal costs incurred in the context of a purely personal dispute
Again, I haven’t seen any feedback and can’t speak to the validity or timeliness of consultant payments.But what caught my eye – and I’m sure other professionals tax as well – is the alleged consistency of the size of payments (20%) regardless of the transaction There may be a valid reason for such a thing and this is an example of where additional documentation is essential
One of the things I tell my clients is that your records should always support your deductions: rounding or guessing is not enough And this is especially the case when those numbers indicate a pattern Numbers that look too good to being true is almost always a red flag The IRS knows as well as you that your office phone bill isn’t always $ 100 and that your office cleaners don’t earn 10% of your monthly receipts
I’ve been asked this question a lot Some taxpayers think their tax returns are private which is only partially true
No Internal Revenue Service (IRS) employee has the right to simply browse taxpayer files: it is illegal to inspect tax returns without permission Congress says it « considers any unauthorized inspection of income tax return information as a very serious offense, « passed the Taxpayer Navigation Protection Act 1997 (Public Law No. 105-35), which made such inspection a crime
And the Internal Revenue Code states, in section 6103, that « returns and return information must be confidential » unless expressly permitted
Under Section 7213 of the Tax Code, the willful unauthorized disclosure of any statement or feedback by a federal employee (and certain other persons) is a crime; and under Article 7431 of the Tax Code, civil damages may also be appropriate in cases of intentional or negligent infringement, depending on the circumstances.In addition, if convicted of such a crime, a federal employee can be suspended or fired But these rules apply to federal employees, not private citizens A private citizen – such as a spouse and / or ex-spouse – can legally have access to a taxpayer’s tax return And, once your tax return information is disclosed to a third party, that information is no longer protected by federal tax laws.
According to the Times, the newspaper obtained tax return data spanning more than two decades for Mr. Trump and the hundreds of companies that make up his business organization, including detailed information about his first two years in office. The Times refused to provide the files for review to a lawyer for the Trump organization – in order to protect its sources.
So I don’t know if they got the documents legally, but just having someone else’s tax or financial information is not a crime
(Update to add: The Times separately issued an editor’s note confirming that the feedback was obtained legally You can read it here)
It can be fun playing armchair detective (fiscal), but reading this week’s articles do me two favors:
In addition to Forbes, you can find me on my own blog, Taxgirlcom, which has been
In addition to Forbes, you can find me on my own blog, Taxgirlcom, which has always been recognized by the ABA Journal as one of the best blogs written by lawyers. You can also subscribe to my newsletter – which contains blog posts and Forbes – here
I am a member of the Bars of Pennsylvania and New Jersey and licensed to practice in the US Tax Court I am also licensed to engage in pro bono practice in my home state of North Carolina, thanks to legal aid from NC
Finally, I am a mother of three children, so I can add to my CV a science fair expert, a pastry chef and a sports mom
Donald Trump, The New York Times, Income Tax
World News – US – The Ordinary Taxpayer’s Guide to the Extraordinary History of Trump’s Tax Return
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