The New York Times article on the President’s taxes received a great deal of attention… and mislead many people. Forget for a moment who they investigated or what you may think of him. That is irrelevant. What is relevant is the tax code and how it operates … the same for every American.
The article created false impressions about our taxes, who pays what and why. It was, in essence, well timed political propaganda.
In 1987 I bought a vacation home. To afford that property I rented it during the summer and my personal use was limited by the IRC. The house was new construction so I had to buy appliances and furnish the entire house. All those expenses were tax deductible because it was rental property. I also took depreciation and deducted mortgage interest and the property taxes. The rent I collected was income. My expenses always exceeded the income. Does that sound familiar?
In the late 1970s I started a very small part-time business out of my home. I deducted against earnings the expense related to that business including a small percentage of my electric, internet and other bills for running the house. Those modest expenses offset a small portion of the small profit.
I invest in municipal bond mutual funds … for tax-free earnings. You can too.
I used a 401(k) and IRA for tax deferred or tax-free earnings, I used a flexible spending account for tax-free payment of medical bills. While working I paid health insurance premiums with tax-free dollars. All like millions of other Americans.
I take every deduction allowed under the law. I carry life insurance to leave to my heirs because the benefit is income tax free. Do you?
I did estate planning to minimize the chance of paying an estate tax although in the absence of winning the lottery, that’s no risk for me.
You see there is no difference between me and Donald Trump … except an awful lot of money. And there is no difference between you, me and Trump either. To one degree or another we can all take advantage of the tax laws. We all should honestly pay the minimum amount of taxes possible and it is up to the IRS (and our integrity) to assure that honesty.
Keep a few things in mind about our taxes.
- Congress writes the tax code
- The tax laws are about creating incentives
- To buy a home or invest in real estate
- To take financial risk for capital generation to drive our economy
- To support municipal spending at the lowest cost possible
- To start a business
- To donate to charity
- To help fund college
- To encourage non-profit even religious organizations for social betterment.
- To offset health care costs
- And much more
- The tax code applies to everyone and each person or organization tries to maximize the advantages it provides.
- The tax code limits the benefits available to upper middle class workers.
- There is no such thing a tax loophole. Every part of the IRC is there for a reason good or bad.
While the wealthy receive all the attention, because of that scrutiny and the high likelihood of an audit, they are least likely to commit tax evasion. That distinction falls to average Americans, especially those who work in businesses that deal with cash. Ever hear of “under the table?” Why do you think some businesses don’t take credit cards or are willing to “waive” the sales tax if you pay cash or make a check out to the individual and not the business?
Finally, keep in mind that nearly 44% of Americans pay no income tax because they are lower income or have deductions or losses to offset taxable income.