- A report published by The New York Times on Sunday reveals that President Donald Trump paid $750 in federal income taxes in 2016 and 2017, wrote off more than $70,000 for hairstyling, and owes $421 million in debt due in the next three years.
- Five tax experts spoke with Business Insider about the legal implications of these new findings, and what this could mean for the president.
- One big takeaway is that while Trump doesn’t appear to have done anything illegal, his large losses have allowed him to take advantage of tax benefits.
- Ultimately, “it’s more an indictment of the tax code than the person,” said tax expert, Robert Willens.
- Visit Business Insider’s homepage for more stories.
Money — specifically the president’s— is on everybody’s mind.
During the first primary debate between US President Donald Trump and Democratic candidate Joe Biden on Tuesday night, the sitting president said he paid “millions of dollars” in federal income taxes in 2016, the year he was elected, and 2017, the first year of his presidency.
Tax documents obtained by The New York Times, however, show that Trump paid just $750 in both years, and no federal income taxes whatsoever in 11 of the 18 years of tax information examined.
The report, published on Sunday evening, also shows that the president wrote off more than $70,000 for hairstyling during his time running “The Apprentice” and owes $421 million in debt due in the next few years.
With just about a month left until the election, the political — and legal — stakes are high. Business Insider spoke with five tax experts on the legal implications of these new findings, and what this could mean for Trump down the line.
The Trump Organization did not immediately respond to a request for comment from Business Insider.
Trump’s net worth and solvency still aren’t clear, but it does show some real losses
Robert Willens, who runs a tax and accounting service, said that it’s difficult to make an accurate, or even semi-accurate, guess on Trump’s financial status based on the report alone. Tax returns simply don’t contain information about someone’s net worth or solvency, added David Miller, tax partner at Proskauer.
That said, Trump’s net worth is probably not as high as he’s said it is, said Alex Raskolnikov, professor of tax law at Columbia University. “The clearest takeaway is that Trump really did lose a lot of money. He’s not such a good investor,” he said. “He’s a great showman — ‘The Apprentice’ was a success — but when it comes to his actual investments, not so much.”
Criminal tax lawyer Robert Barnes, though, said that these sorts of losses come with being a big real-estate investor. “The whole point of tax laws is to incentivize real estate” by providing tax benefits,” he said.
“What you’re seeing is a typical tax return of a very big real-estate developer,” Barnes added.
Trump’s tangible and intangible assets will prove key in rolling over his $421 million in debt
Many companies and real-estate investors are able to roll their debts over, so long as the creditors have reasonable prospects of repayment down the line, Willens said. He thinks there’s a “decent chance” Trump will be able to do so, since it seems that he at least has tangible assets, like the Mar-a-Lago resort in Palm Beach, Fla., and his sprawling estate in Westchester County, N.Y.
Jack Barcal, an attorney and professor at the University of Southern California’s Leventhal School of Accounting and Marshall School of Business, said that Trump’s level of debt didn’t stand out much to him compared with those of other business leaders and developers.
Aside from property, Trump also has significant intangible assets in the form of personal brand and licensing. In a second report published on Monday, the Times found that tax records show that “The Apprentice” rescued Trump financially by bringing him a $427 million lifeline and a mythic persona that ultimately helped him to the White House.
Willens said that these intangible assets could produce income for Trump even after he leaves office, and “could influence lenders’ approach to the refinancing” — especially now that his celebrity has presumably grown “tenfold” due to his presidency.
Columbia Law’s Raskolnikov agrees that this might help Trump’s case with lenders, but his licensing fees likely aren’t going to be enough to offset his $421 million debt.
“It’s a difference of a few orders of magnitude. It’s not going to solve his problems,” he said, adding that it’s also unclear whether being president has increased or decreased the value of his brand. Some people, for instance, now refuse to dine at restaurants in Trump properties.
Trump will probably have to cough up some of his property as collateral to creditors, said Raskolnikov.
“He’ll be in a tight spot,” he added.
Consulting fees paid to Ivanka Trump are fine as long as they weren’t inflated
The Times report suggests that the president reduced his taxable income by deducting consulting fees — totaling $747,622 — paid to his daughter, Ivanka Trump, as a cost of doing business.
The legal experts Business Insider spoke with said that there’s nothing inherently wrong with employing family members, as long as they actually do the work and weren’t paid for those services otherwise.
“If they’re being paid at fair market value, then it’s totally legitimate,” said Proskauer’s Miller.
He explained that if Trump inflated the consulting fees, then it would be an illegal way of circumventing the gift tax that parents must pay if they give their children assets above a certain threshold. The Times report, however, doesn’t say anything conclusive about this.
A Trump Organization lawyer did not comment when asked by the New York Times about the consulting fees.
The $70,000 write off on hairstyling won’t sink Trump’s boat
Another finding from Trump’s tax records is the more than $70,000 the president wrote off from his time running “The Apprentice.”
Lifestyle-related expenses, like food, clothing, and hair, can only be written off if it’s ordinary and necessary for your trade or business, tax experts explained. Hugh Heffner, for example, was able to have his Playboy mansion deducted from his taxes because it was found to be a key part of his business.
Barcal, the accounting professor, pointed to the Supreme Court case, Welch v. Helvering, which clarified that a business cost has to be “appropriate and helpful” to be considered necessary. In Trump’s case, hairstyling was part of his public persona while he was performing on “The Apprentice,” so it fits the bill.
“It’s appropriate and helpful to have that pomp or fluff because it’s part of his persona and brand that people recognize,” Barcal said. “And it’s ordinary in the sense that it’s commonplace and acceptable for people in the entertainment industry to have their hair done.”
In the bigger picture, tax attorney Barnes said that while there may be political consequences that arise, “where people either like or dislike what he did, from a legal perspective and a tax perspective, there are no problems with it.”
Raskolnikov also thinks that while the $70,000 figure is “questionable,” saying that “this is not going to sink Trump.”
‘It’s more an indictment of the tax code than the person’
Ultimately, tax experts agree that Trump is on firm footing from a legal perspective. Barnes said that there’s “zero risk of criminal liability” in this case. Willens agreed, “I’m almost 100% certain that nothing he did was illegal.”
Instead, Willens thinks that what the Times found is “more an indictment of the tax code than the person,” explaining that Trump, as is the case with other businesspersons, “exploited for all its worth” a tax code that “might be a little screwed up.”
The US tax code allows for taxpayers like Trump to report massive losses due to tax deductions that are designed to incentivize big investments. As Trump himself tweeted, he’s “entitled, like everyone else, to depreciation & tax credits.”
USC’s Barcal said that he thinks real-estate developer’s jobs are difficult, but that the end result is often worth it in the long run. For that reason, Trump’s losses didn’t stand out to him as unreasonable or worrisome.
Miller, the tax partner at Proskauer, thinks there was “no smoking gun” in the Times report, and that there’s instead something to be said about a flawed tax code.
The real tax story, he said, has yet to come, and would center around Trump’s ability to renegotiate and pay off the debt.
“We haven’t heard the final chapter yet,” he added.
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