Headlines Blare: Trump Paid No Taxes for 11 Years.

I used to work for a law firm that was fairly high powered in tax. The firm will remain nameless but it gave tax advice to Sir Paul McCartney. I did no tax work for them. From what I hear, the firm found a way to make income from intellectual property, like rights to songs, nearly income tax free.

I conjecture that this became so popular and such an attractive idea that Apple, Google, Microsoft and others followed. Their intellectual property, like the rights to songs, could be placed in corporations domiciled in a country that did not tax royalties much. Then, as much of their income as possible would be paid as a royalty payment to their affiliate that owned the intellectual property. I think it involved Holland (called Double Dutch) or Ireland (there is a whole street of modern high tech offices in an otherwise bleary Dublin).

The whole point of this is that, if this story is true, I am in awe of President Trump’s tax lawyers. Real Estate is one of those fields where cash flow can deviate from taxable income because your property may be depreciating (loosing value) more than it is paying you in cash. On paper for taxes your are loosing money, but in reality tax depreciation is not “lost market value” of the property – it is just a fictional assumed loss. Your property could be worth more but the tax code allows you to depreciate a portion of what you paid.

A good tax advisor should minimize the taxes paid by their client. Millions of transactions every day are done because words in the tax code make the transactions advantageous. If you fund a 529 plan for your children’s education you are doing what my firm did for its clients. If you contribute to a 401(k) or other tax advantaged retirement plan, you are doing what my firm did for its clients. If you have a Health Savings Account, you are doing what my firm did for its clients.