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
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.
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