Lower Your Taxes With These Trump Tax Strategies
Even If You Are A Biden Supporter
President Trump’s Taxes made the news a few months ago, when the New York Times reported that Trump had only paid $750 in taxes the year he was elected and the year after. They also reported that he paid no income taxes in 10 of the 15 years after 2000. Trump has not released his tax returns, but he does say that he has paid “a lot of taxes”.
While many complain that it isn’t fair that the rich use tax strategies to lower their tax bill, the truth is the tax code is the same for everyone. No one is obligated to pay more in taxes than the tax code requires. It is perfectly legal to arrange your income and expenses so that you can take advantage of the same “tax loopholes” that the rich use.
To get you started, here are three tax strategies that President Trump uses that you can use to lower your taxes. At the end, I will even throw in a Biden tax strategy that could save you thousands of dollars on your taxes!
Disclaimer: This article is for information only and nothing in the article is intended to be used as tax advice. I will be talking about complex tax strategies that may or may not apply to you. These tax strategies have many technical requirements and it is impossible to cover all of them in this article. When using advanced tax strategies always consult a tax professional about your unique tax situation.
Be A Boss, Not an Employee
When you work for someone else, you receive a salary or wages and that income is reported on a W-2. There are no tax breaks for “Ordinary Income’. With few exceptions, you are not allowed to deduct any expenses you pay out of pocket for your work, even if they are required to perform your job or maintain your professional status.
In addition to Federal and state income taxes, wages and salaries are also subject to Social Security and Medicare taxes. Many states and some cities will require other payroll deductions such as California’s state disability insurance deduction. Your employer will also be paying federal and state unemployment taxes on your wages. This makes W-2 income some of the most taxed income you can earn.
When you are the boss of your own business, you have access to many different strategies that can lower your taxable income. You can deduct necessary expenses for running your business, you can take advantage of depreciation and you are generally not subject to state unemployment or disability taxes.
Businesses that have losses are able to take advantage of the Net Operating Loss rules. (Or NOL) With a NOL the business is able to apply previous year’s business losses against current or future year’s business income.
When you hear of large corporations that have made HUGE profits and paid little or no taxes, there is a good chance they are taking advantage of previous year’s Net Operating Losses.
Turn Your Hobby Into A Business
Trump likes to golf. Trump owns golf courses. These two facts are not a coincidence. When you turn your hobby into a business, you can take something that you love to do and potentially earn money while writing off the costs of your hobby. The tax laws around hobby vs. business are strict and need to be carefully followed.
Some of the requirements are you must show an intent to make a profit and you must conduct yourself in a business-like manner, but there are no laws against making money and taking tax deductions while doing what you love!
Hire Your Kids
Three of Trump’s five children work for him or his company. Hiring your children is a way to give money to your children while creating tax deductions for your business. Like many tax strategies, it is important that you understand how the strategy works, and to carefully follow all of the rules.
Your child must do real work that is a normal and necessary function of your business.
Do the paperwork. Have your child fill out the W-4 and the I-9. Give them a W-2 at the end of the year.
You must pay your child real wages. You cannot pay your child with food, lodging, education expenses or anything that would be considered normal parental support.
Pay your child a reasonable wage. Your child’s pay should not be significantly more or less than you would pay someone else to do the same job.
BONUS TIP: Children under the age of 19 who work in their parent’s unincorporated business are not subject to social security or medicare withholding. In 2020 they do not need to pay income taxes on their first $12,400 in earnings and could contribute up to $6,000 of their wages to an IRA account.
Bonus Biden Tax Strategy -
Form an S-Corporation
Trump is not the only one to take advantage of legal tax “loopholes”. The Biden’s have been criticized for creating S-Corporations for their businesses and avoiding thousands of dollars in self employment taxes.
With an S-corporation, profits of the business can be passed to individual shareholders without paying self employment or corporate taxes. If the same business were being run as a sole proprietorship all of the profits could be subject to self employment taxes.
Forming an S-Corporation is a popular tax strategy with both large and small businesses. It can result in substantial tax savings for the business owners and shareholders.
Like most tax strategies, it is important to understand the many rules and requirements.
First, you must have a properly formed S-Corporation.
You must pay yourself a reasonable salary. Many factors go into what is considered “reasonable”.
An S-Corporation may be required to pay state taxes or fees.
An S-Corporation is both a legal entity and a tax entity and can be complicated to form and maintain.
Learn More About Tax Strategies You Can Use to Lower Your Tax Bill
If you find these tax strategies interesting and want to find out if there are tax strategies that will work for you, please call for your FREE no pressure, no obligation tax consultation. I will do a complete review your previous year’s tax return and come up with tax strategies designed just for you that will lower your tax bill.
