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How Taxpayers Can Take Advantage Of Trump’s Tax Planning

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David M. Brenner, ChFC®, CLU®

D. M. Brenner, Inc.
Phone : (858) 345-1001
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It was breaking news on Sunday in The New York Times that President Donald Trump had not paid income taxes in 10 of 15 years.  In fact, his total 2016 and 2017 tax bill was all of $750 for each year.  Across the nation people expressed their frustration, shock, and in some instances, awe that his tax bill was so low. The news drew the partisan debate to even deeper levels. The Biden Campaign immediately jumped on the topic and had for sale in their store stickers that said, “I Paid More Income Taxes Than Donald Trump”.

But one group heard the news about the Trump tax returns and took a collective groan. After a grueling and time-intensive tax season, tax professionals are dreading what comes next after a news story like the Trump tax returns: an influx of calls and queries from clients asking if they too can take advantage of this type of tax planning.

“Most clients don’t have multi-billion dollar real estate organizations that are able to take advantage of significant loopholes in the tax code,” says Eric Hjerpe, CPA and Managing Partner, Hjerpe & Tennison CPAs in Bloomington, Illinois. “Wealthy taxpayers pay a lot to tax professionals to pay the least amount as possible under the tax code. Not saying it’s right or wrong, but in many cases the laws allow for this.”

However, just because the techniques Trump used do not apply to most taxpayers, doesn’t mean there isn’t something to learn here from his tax return.

“I hope that this news would be used as a trigger point or flash point to perhaps that they need to reevaluate their own financial situation with their tax professional,” says Eric Pierre, CPA and owner of Pierre Accounting in Southern California and Austin, Texas.

In fact, most tax professionals agree that Trump’s proactivity with tax planning is something more Americans should emulate.

Unique 2020 Opportunities

One thing was clear from the Trump tax returns: he was willing to look for all potential opportunities available to him. More Americans need to do this with their tax planning.

Further the need for planning has never been more apparent than in a tax year like 2020. The CARES Act was an extensive piece of legislation that impacted taxpayers from different backgrounds. From unemployment to the Paycheck Protection Program to the special rules regarding loans from retirement accounts, there are a lot of pitfalls that taxpayers need help with.

“This year is challenging with the PPP and the uncertainty with the deductibility of the expenses,” says Hjerpe. “We are doing planning with and without [deductibility] so the clients know the range to expect.”

This type of planning for your 2020 tax return needs to be happening before year end to maximize opportunities.

Work With A Proactive Professional

Perhaps one of the biggest mistake that taxpayers make is a passive relationship with the tax professional. It needs to be an active engagement. The expectation needs to be that by working with a professional throughout the year, a taxpayer will feel educated about the right decisions to make about their tax planning.

“There are so many missed opportunities by taxpayers to participate and implement simple strategies that can create so much in savings that long-term could make a substantial difference in their net worth and perhaps generational wealth,” explains Pierre.

For many Americans, tax seems like a different language. As a result, fear of asking for more help can also cause inertia with their planning.

Pierre challenges taxpayers to really make sure they are with the right tax person. The best way to do that is to see if there is strategy and savings. “If their tax professional isn’t able to do so, then they should consult 2-3 more and find out if the reason why is legitimate.”

Communication Is Key

If proactivity is key, it is important to know what a strong tax advisor relationship looks like. In most instances, it centers on communications. Taxpayers need to know that tax law is ever changing. When these changes occur, there is some onus on the taxpayer to alert their tax professional that there may be an issue.

“Communication is important so we can keep them informed,” says Hjerpe. “We send out multiple newsletters stating the importance of planning to avoid surprises and to help keep tax bills lower by utilizing expenses towards the end of the year.”

But what many tax professionals find is that having regular meetings with clients to have strategy discussions allows for real planning to take place.

“We have tried to “train” our clients to be proactive and have built an expectation of “no surprises” so they understand the importance of planning,” explains Hjerpe.

Active Engagement Allows For Better Tax

Regardless of how you feel about the Trump tax returns, it ultimately is a good inflection point for taxpayers to reflect how they manage their tax situation. Active tax planning is a sign of financial health. While going through numbers might be uncomfortable, the end goal might result in significant savings and opportunities.

By Megan Gorman, Senior Contributor

© 2022 Forbes Media LLC. All Rights Reserved

This Forbes article was legally licensed through AdvisorStream.

David M. Brenner profile photo

David M. Brenner, ChFC®, CLU®

D. M. Brenner, Inc.
Phone : (858) 345-1001
Schedule a Meeting