ACC100: Intro to Financial Accounting
After 4 years of complaints, threats, and lawsuits all aimed at trying to obtain Trump's mythical tax returns, the NYT just... tweets them out. I have thoughts about how the NYT obtained these tax returns and why it happened to align so neatly with the timing of the upcoming election, but that's a conspiracy for another time. I'm here, as Flappr's resident Accountant, to give you a crash course on what Trump's tax returns do and don't say, so you can confidently run into battle armed with knowledge.
First, you're gonna be hearing a lot of people trying to spin narratives in the coming days using phrases such as "tax avoidance" and "tax evasion" interchangeably, reject out of hand anyone who does. Tax evasion is illegal. In the name of simplicity, think of it this way: tax evasion is lying about reality to pay less taxes and tax avoidance is taking advantage of loopholes in the tax code or structuring your business activity so as to minimize your taxable income, and consequently your tax liability. One is hiding or revising what actually happened (illegal/evasion) and the other is adjusting what you're doing to minimize your income (legal/avoidance).
"But how could a billionaire pay $0 in taxes, isn't that unfair!?" Blame the tax code. I'm gonna give a simplified example to show how this works:
Donald Trump purchases an apartment complex for $10,000,000. For tax purposes, assets classified as buildings are depreciated over the course of 27.5 years, or roughly $365,000 in depreciation expense each year. If, in Year 3 (or any other year for that matter), he earns $300,000 in rental income after accounting for expenses incurred to operate the building, Trump has taxable income of $300,000. When his accountants compile his tax returns, they will net the $370,000 in depreciation expense against the taxable income of $300,000 bringing the basis for which Trump would owe taxes in Year 3 to $0, with a remaining $70,000 in unused losses to carryforward to the next year. In the next year, Trump will have $70,000 from Year 3 + $370,000 from Year 4 to do this again. *note: this is overly simplified, Trump's taxes are infinitely more complex than this but this is the principle underlying all of it.
There's more to this story than the basic accounting, like how the NYT got this info when it did and from whom, why they chose to frame it as Trump not paying his taxes rather than Trump not owing them which is the accurate framing, and whether or not Trump paid insane amounts in those 5 other years which would really undermine the story. Oh, and there's also the little fact that the returns failed to establish nefarious ties Russia. All of that can go in a separate piece. My intent here is to arm you with the basic understanding of taxes necessary to rebut the immeasurable amount of lies the media is currently spreading.