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.
Even if you’re not restoring a historic property, this is a good lesson about taking advantage of tax credits when you qualify.
Sturdivant pointed to the Small Business Health Care Tax Credit, which “helps employers with fewer than 25 employees offset up to 50% of health insurance premiums.” He also emphasized the Work Opportunity Tax Credit, which “offers up to $9,600 per hire for businesses employing individuals from disadvantaged groups.”
These strategies can offer a significant return on investment for small businesses and average earners alike.
In 2022, the Trump Organization faced a conviction for tax fraud and was fined $1.6 million, according to PBS News. The company was found guilty of compensating executives with off-the-books perks, including luxury apartments and cars, without reporting them as income.
Sturdivant advised staying updated on tax code changes — such as evolving Beneficial Ownership Information (BOI) rules — to avoid penalties. Businesses should benchmark deductions against industry norms. Regular third-party audits catch errors early, ensuring numbers align with filings. Transparent records are the first defense against disputes.
Trump’s tax returns highlight the risks of walking the fine line between legal tax avoidance and questionable practices. WHDH News in Boston reported that he charged his children market-rate interest on loans to avoid gift taxes, a tactic scrutinized by the Joint Committee on Taxation for potential undervaluation.
Sturdivant suggested business owners apply what he calls the “reasonable person standard” when evaluating tax strategies. “If you have to ask whether it’s ethically shaky, that’s a sign,” he explained.
Ultimately, taxpayers should do their due diligence to make sure they’re maximizing their tax savings within the law. “Reviewing tax codes thoroughly and consulting multiple professionals is needed to ensure strategies are both legal and defensible. Aggressive tax moves may offer short-term savings but can lead to audits, penalties or reputational damage,” Sturdivant said.
Editor’s note on political coverage: GOBankingRates is nonpartisan and strives to cover all aspects of the economy objectively and present balanced reports on politically focused finance stories. You can find more coverage of this topic on GOBankingRates.com.
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