The trending subject on Google, and just about everyone’s mind, is presidential candidate Donald Trump’s taxes. Firstly, the $916-million loss that Trump suffered in 1995, and secondly the fact that Trump didn’t pay taxes for 15 years afterward.
However staggering this financial loss may seem, the potential POTUS was able to use the American tax laws to his benefit, and what could have been financial ruin turned out to be the very thing that allowed Trump to get back on track when so many others filed for bankruptcy.
The real story here is not Donald Trump though. Wealthy people and companies have found loopholes in our tax laws for decades, a lot of them can be considered even worse than the presidential candidate’s write off of a near $1 billion loss. The real story here is these so-called loopholes and the tax breaks that are (perhaps unfairly) biased toward the rich.
The tax loopholes that Trump loves so much are legal. But to actually take advantage, you’d need a large team of top financial lawyers working through such an incredible amount of information that the deed isn’t financially fathomable for most Americans. That’s where the inequality lies.
It doesn’t stop there, however. The entire U.S. tax system supports the rich.
Regular income like your yearly salary is taxed at a much higher percentage when compared to income from investments.
“While higher salaries do receive higher taxes, income that’s made from investments is taxed much lighter after you’ve owned them for a year,” said Joe Garza, senior partner at Garza & Harris. “The maximum tax rate is 20% for capital gains, no matter how much you make and wealthier people are much more likely to have high-profit investments as there is usually a higher start up cost.”
The charitable-giving deduction works in favor of the rich as well. Depending on what tax bracket you fall in directly affects the amount of money you get back.
“It’s simple math actually. When you donate an amount of money to charity, whatever percent your income is taxed is the same percent you’d get back from your donation”, said Garza. “So if a person in a 20 percent tax bracket donated $10,000, they’d get back $2,000 in taxes. But the same donation from someone in the 10 percent tax bracket would only yield $1,000.”
“People can donate whole houses too,” Garza continued. “They’ll have the place completely removed and donated so they can build the house they actually want, while taking a deduction on the donation. This process only works if you pay enough in taxes, however.”
Moreover, according to USA Today, if you make a charitable donation of $100,000, you can deduct that full amount from your taxes. That’s definitely not something just anyone can afford.
Wealthy yacht owners can enjoy a break as well, since these grandiose boats are taxed as a “vacation property.”
This is where the mortgage interest deduction comes into play. It turns out that as long as a yacht includes a built-in galley, sleeping quarters and a bathroom it becomes more of a vacation property than a boat and entitles the owner to a tax deduction on the interest paid to finance it.
“I’m not a fan of using these little loopholes to cut taxes. There are smarter, less reprehensible way to retain your wealth,” said Garza.
On the corporate side of things, well-to-do CEO’s and higher-ups are enjoying major deductions as well.
Taking clients out to fancy dinners or box seats at the opera is considered a business expense and is therefore tax-deductible. The bigger scandal though, lies in the use of company cars or private jets. Huge, wealthy corporations are not only sending people to offshore meetings in private jets, which are all tax-deductible, but some insist they’re higher-ups use them for vacations as well. They can get away with it by calling it a “security measure and earn themselves another tax write-off.
While Donald Trump is getting a lot of flack for his doings, he’s not the first (or even the worst offender) and he surely won’t be the last to take advantage of the American tax codes. The American elite have hired expensive financial lawyers for decades to get a break in their taxes. We don’t think it’ll stop anytime soon.
