Former US President Donald Trump on November 15, 2022.
Eva Marie Uzcategui/Bloomberg via Getty Images
Former President Donald Trump paid millions in state and local taxes from 2015 to 2020, according to Tax returns released on Friday by the House Ways and Means Committee.
But while filings show associated tax deductions were capped at $10,000 a year starting in 2018 — due to a tax law that went into effect that year — experts say Trump may have be able to circumvent the cap via a workaround involving certain business entities.
It would have given him a bigger federal tax break — and circumvented controversial tax policy in one of his signature legislative achievements, known as the Tax Cuts and Jobs Act, experts said.
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“Just because there was a cap of $10,000, there are ways for him to get around that cap after 2017,” said Richard Winchester, tax policy expert and associate professor of law at Seton Hall University School of Business. Law.
A spokesperson for President Trump did not return a request for comment.
A 2017 tax law capped SALT deductions at $10,000
The House Ways and Means Committee’s release of six years of Trump’s tax returns follows a long struggle to make them public.
State and local taxes — called SALT — can include property, income, and sales tax. Trump paid at least $5 million in those taxes each year from 2015 to 2020, according to a breakdown of itemized tax deductions on Schedule A of his tax returns.
Prior to 2018, taxpayers generally received a dollar-for-dollar tax deduction for state and local taxes they paid.
This tax benefit has been diluted or removed for some households due to the “Alternative Minimum Tax”, a separate mechanism which aims to ensure that well-to-do households pay at least a certain amount of tax and to prevent them from taking excessive advantage of certain deductions, such as the one for SEL.
It appears the alternative minimum tax limited Trump’s ability to write off millions of dollars in state and local taxes from 2015 to 2017, some experts have said.
Then, in 2017, Republicans passed a tax law that rewrote large parts of the personal and corporate tax code.
The law imposed a $10,000 limit on SALT deductions from 2018 – a controversial move that some have claimed particularly affected individuals in high-tax, left-leaning states like California, New York, and New Jersey.
In 2018, Trump paid $10.5 million in state and local taxes but was only able to deduct $10,000 from the total, for example, according to tax records. The dynamic was similar in 2019 and 2020, when Trump listed $8.4 million and $8.5 million of SALT on his tax returns, respectively, but could only write off $10,000 per year.
New state rules provide SALT workaround
However, tax returns don’t paint the full picture, experts said.
Here’s why: many states issued rules after 2017 which provide a workaround for some business owners impacted by the $10,000 SALT cap.
“He put this [$10,000] limit on SALT in the Tax Cuts and Jobs Act, and probably said on occasion that it really hurt him,” said Robert Lord, senior tax policy adviser at Patriotic Millionaires, a group left tax. him?”
Trump likely took advantage of workarounds, tax experts said.
The workarounds would apply to business income that Trump derives from partnerships, S corporations and certain LLCs after 2017. Schedule C of his tax returns lists several such entities.
You only have the tip of the iceberg here.
Martin Shenkman
lawyer and CPA
At a high level, the rules – that the IRS green light in 2020 – allow these business entities to deduct state and local tax payments from their business income. These entities are not subject to a $10,000 limit.
Since the income of these “intermediate” businesses is passed through to their owners’ individual tax returns, business owners effectively receive tax relief for these state and local tax payments, thereby circumventing the 10 $000.
While it is likely that Trump took advantage of these tax rules, it is impossible to know without additional information such as company tax returns whether he did so and to what extent he may have benefited. said experts.
They would only apply in states that have passed such laws and for businesses with taxable income.
“You can’t tell one way or another based on what you have here if he did,” Hall Tera certified financial planner and tax partner at Withum, Smith and Brown, said of tax returns released Friday by the House Ways and Means Committee.
Since the workaround only applies to certain business owners, it’s “something [Trump] would have gotten an advantage that most people wouldn’t have,” said Martin ShenkmanCPA and lawyer who does tax and estate planning for wealthy clients.
“You’re just the tip of the iceberg here,” said Shenkman, who added that despite the release of Trump’s tax returns, others like corporate, trust and donation tax returns have not been released. have not been made public. “Much of what he does will remain a mystery.”