Donald Trump’s 1995 tax return revelations are all over the news. Some think it’s a smart play, while others think are incredulous that he can get away with paying so little. I’m not here to judge morality or try to sway you with respect to politics. Instead, there are things we can learn from the man in how to structure our own taxes so that we can only pay as much as we’re legally required to, as many defend him for doing. Many of these tips are covered in detail in my book, if you’re interested.
- Earn your income from capital gains and dividends, rather than from wages. Working doesn’t pay anymore. Returns from existing wealth and investments are taxed at much lower rates, with a cap of 15-20%, with a surcharge for high earners. Oh, there are no payroll taxes charged on investment income.
- Write off “business” expenses and losses and take advantage of generous categorizations of housing depreciation as losses. Offset as much business income with expenses and deductions as possible.
- Take advantage of legal tax shelters like IRAs and 401ks. In this category I would also include HSAs and 527 plans. Remember that if you’re self-employed, you can shelter up to $53,000 in income rather than the $18,000 401k limit.
- Use the backdoor Roth. I’ve written about it before.
Lest you forget, Mitt Romney used these very tricks to pay a 14% income tax. To do the same, you have to earn your money in the same fashion and from the same sources as these billionaires.