Let’s say I’m a struggling, but very well off, businessman in the resort and hospitality industry. I have golf resorts around the world, but all of them are losing millions of dollars every year, such that it almost seems intentional. On the bright side, I don’t have to pay much (or anything) in taxes, since I’m losing money every year.
Why not run a profitable resort? Is the tax penalty for running a successful business really that much worse than the millions of dollars in losses?
How am I enriching myself here? Am I actually just laundering money? How does this stuff work?
**Edit:** Ok, this is making a lot more sense after just a few responses. Followup question, what kind of criminal charges might be brought against me, if it turns out I am actually lying about my business’s profitability and, my tax liability, and have been doing so for years?
In: Economics
Let us say I am a crooked business man with political influence, with some clever accounting I can make it look like my business isn’t making any profit in years when taxes are relatively high, then I can get someone elected who will lower business taxes and then with more creative accountancy have those profits from earlier years show up in the years of low taxation.
a lot of Trump’s businesses are financed by third parties. so whether or not they make money, doesn’t really matter in the grand scheme of things, since it’s someone else’s money that’s at risk. if business doesn’t make money, it’s harder for him to get loans in the future. but that’s another issue. Due to how taxes work, Trump can claim deductions on his personal income based on the losses of the business.
so while, no one would purposely lose money just to offset taxes, it does happen. running a business is hard, and a lot fail. so when his businesses fail, all those losses are deducible on his personal income (ie other sources of income).
so lets say he has two resorts. one has a net loss of 20M, the other has a net profit of 20M. and he has the corporation structure setup so the profits and losses are “passed through”. because one business lost 20M, and the other made 20M. his effective income is 0. so he pays no taxes.
now the resort that lost 20M, is financed by other people, so none of his own money was at risk.
so because his net income is 0. he has avoided having any tax liability. tax avoidance is not a crime, everyone wants to avoid paying tax, by taking advantage of all the deductions the IRS allows.
tax evasion is a crime, when you purposely alter/falsely report/misreport/or through fraudulent means hide your actually income or inflate your losses. and at this point, no one is says he’s guilty of tax evasion. they’re all using the world tax avoidance.
Trump is simply, through his lawyers, using the rules allowed in the tax code to avoid or reduce his taxable income.
the media is taking advantage of the situation by implying he’s commiting a crime, b/c the masses are not informed about what tax avoidance/evasion is. and if he’s paying $750 in taxes, then he must be guilty of something! but that is not true.
I think we need to be clear that there is a difference between running an unprofitable business and making it LOOK like you are running an unprofitable business.
Does it make sense to intentionally run an unprofitable business? No. Does it make sense to make it LOOK like you run an unprofitable business? Oh yes, absolutely. The tax savings are tremendous. Now, its terribly immoral and unpatriotic, but…certain people…certainly have the capacity to run such a scheme.
*Why not run a profitable resort?*
Because that’s actually *hard* to do. It takes skill, courage and the willingness to risk it all.
*How am I enriching myself here?*
Because you’re **lying** about how much you’re making.
Example: Let’s say the rich businessman employs a family member. Say it’s his daughter. But his daughter also runs a totally separate consulting business. The rich man pays his daughter a fee for “consulting” on his project. This fee is tax deductible.
But remember, his daughter works for *both* companies. To do this, he will literally take money *out* of one of his daughter’s bank accounts and put it in *another* of his daughter’s bank accounts, and then claim he “lost” the money because it was paid as a “fee.” And his tax bill went down.
And there’s nothing stopping the daughter from giving the money back to her father — possibly in the form of another “fee” paid *to* the rich person from the “consulting business.” And then the daughter will claim *that* as a tax deductible expense. Lather, rinse, repeat.
Here’s a great thread on how the self-dealing works.
[https://twitter.com/adamdavidson/status/1310929478030426112](https://twitter.com/adamdavidson/status/1310929478030426112)
*The thing everyone reports is the losses–the shareholder (Trump) has lost more than £7M. But the interesting stuff is the fixed asset value and the creditors–over one year. Trump is all of them: he owns the asset, lends the money, owes the money, is owed the money.*
Latest Answers