President Donald Trump’s tax returns have revealed strategies that reduced his tax bills but also highlighted risks every taxpayer should avoid.
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For individuals and business owners, these records offer critical lessons about leveraging tax laws and managing risk. Here are five key takeaways to guide smarter financial decisions, blending Trump’s methods with expert-approved compliance strategies.
Trump’s tax returns demonstrated the aggressive application of net operating loss (NOL) carryforwards. This is a provision that allows businesses to deduct losses from previous years against current or future income. In 2015, he reported a $105 million loss carried forward, followed by $73 million in 2016, which significantly reduced his taxable income during his presidency, according to Politico.
When done right, this strategy offers significant tax relief for small businesses without raising red flags. While small businesses can adopt similar tactics, they must ensure losses are legitimate and well documented to avoid IRS scrutiny.
Marcus Sturdivant of The ABC Squared suggested businesses avoid consecutive years of losses, which attract audits. Consulting a professional ensures compliance, especially when navigating complex rules like IRC Sections 704(d) and 465.
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Trump’s tax returns revealed issues with mixing personal expenses with business deductions, a practice that increases audit risks. Trump’s private aircraft companies, DT Endeavor I LLC and DJT Aerospace LLC, had similar revenues and expenses in 2016, which removed their tax obligation. The Joint Committee on Taxation questioned the validity of these deductions and whether they were for personal activities, per USA Today.
Structuring your business as an LLC or S-corporation creates legal separation, shielding personal assets from liabilities. Sturdivant suggested practical steps, like opening separate bank accounts, using distinct credit cards and labeling receipts with details like “lunch with client,” to keep matters separate.
Clear separation of finances is not just a best practice but a legal necessity. Mixing personal and business accounts complicates audits and increases liability risks.
Trump’s returns revealed significant use of historic rehabilitation tax credits, which reward property owners for restoring certified historic structures. These credits offset up to 20% of qualified renovation costs. For example, Trump applied credits from the redevelopment of the Old Post Office in Washington, D.C., to reduce liabilities across multiple entities, according to Washingtonian.
