Should Taxpayers Follow Trump's Lead on Deductions?
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What is the main topic discussed in this episode?
for Thursday, October 1st. I'm J.R.
What did The New York Times report about President Trump's federal income taxes?
Whelan for The Wall Street Journal. This past weekend, The New York Times reported that President Trump used a variety of tax deductions to pay just $750 in federal income tax in both 2016 and 2017 and no income tax at all in 10 of the previous 15 years. Trump has disputed that report, but taxpayers who are inspired to look for substantial tax savings through deductions should tread carefully.
People really don't like the idea of an IRS audit.
Why should ordinary taxpayers be cautious about copying aggressive deductions?
And so often they want to be a little bit cautious or not push the envelope too much. And they rely on their tax preparers to keep them, you know, from stepping over those boundaries.
So what lessons should taxpayers take from Trump's tax return data? We'll ask our tax reporter Laura Saunders. That's after the break.
A report this past weekend on President Trump's taxes is getting a lot of attention. The New York Times reported the president has paid very little in federal income tax over the past 15 years for using various tax deductions for things like paying family members and claiming property as an investment. He was asked about it at the presidential debate earlier this week, and he disputed the report. So what kinds of deductions are allowed, and what's over the line? Our tax reporter Laura Saunders is here to discuss what everyday taxpayers should know about using deductions to reduce their tax bill. Laura, thanks for being here.
So good to be here.
How do accountants balance maximizing deductions and avoiding IRS red flags?
Thanks for having me.
So what are tax accountants you've spoken to said about the data from Trump's tax returns, according to the reports?
We don't really know because the New York Times published this very important story, and they claim to have the returns, but we haven't seen them, they haven't released them, so we have to go by what they've reported. But based on their reporting, President Trump took some pretty aggressive positions on returns. Now, I'm not really qualified to judge that because I don't have the evidence, but I went out and talked to accountants about what people can do on their own returns if they want to take some of these deductions.
Now, it's not unusual for people to hire tax accountants and not unusual for the directive to be get me as many deductions as you can. But usually the goal is not to raise any red flags at the IRS.
People really don't like the idea of an IRS audit. And so often they want to be a little bit cautious or not push the envelope too much. And they rely on their tax preparers to keep them, you know, from stepping over those boundaries.
So last weekend's report highlighted one of Trump's deductions that got a lot of attention, payments made to family members. But that's not unusual in the business world, right?
It's extremely common. When a business is closely held, that is, you know, it's a small or even large business, but it's not a public company, very often the owner will say, yeah, I want to pay my children.
When is paying family members deductible and what documentation is needed?
And that can be good in a lot of ways because if the owner is in a high tax bracket and the child is in a lower tax bracket, then that benefits the family because the business gets a deduction at a high rate and the child has income at a lower rate. And the benefit shrinks a little bit if the parent and the child are in similar tax brackets, like maybe Donald Trump and his daughter. However, if somebody is very wealthy, then paying a relative like a spouse or a child could maybe move money out of the taxable estate. But that would be for people who have more than about $12 million.
But what you pay your family members better be in line with any kind of work they're doing.
Absolutely. They've got to do real work, and it has to be for real pay that's commensurate with the work. You cannot pay your child $10,000 to sweep the floor, you know, once a month on Saturday. And so you've got to be able to show that. So if, you know, the IRS auditors were looking at maybe what he paid his children, they might ask, well, could they get this pay someplace else for, you know, for the work they're doing?
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Chapters
8 chapters
1
What is the main topic discussed in this episode?
0:05–0:08
2
What did The New York Times report about President Trump's federal income taxes?
0:08–0:38
3
Why should ordinary taxpayers be cautious about copying aggressive deductions?
0:38–1:38
4
How do accountants balance maximizing deductions and avoiding IRS red flags?
1:38–3:02
5
When is paying family members deductible and what documentation is needed?
3:02–4:41
6
Can personal properties be claimed as business assets to lower taxes?
4:41–6:22
7
Are hairstyling, makeup, and work clothing deductible for public figures?
6:22–7:49
8
What role should a tax preparer play in preventing risky or fraudulent returns?
7:49–10:06
Speakers
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