Why doesn’t Trump have to pay taxes?

By Bonnie Lee | For The Sun — Donald Trump may have gotten away with not paying taxes for 18 years. Is this a loophole or the IRS not doing its job?

It’s a loophole and it’s a completely valid opportunity for those who have lost money establishing a business to get a little help from Uncle Sam.

A Net Operating Loss is created when a business owner suffers more expenses than income in a given tax year. The tax return will then show negative income and no tax liability. But instead of this being just water under the bridge, the taxpayer is allowed to carry this loss back for two years against income from those years and recalculate the tax due for those years. Because the income for those two years will be reduced, the tax will be lower and the taxpayer will enjoy a refund.

If the Net Operating Loss is not absorbed in those two years, the taxpayer is allowed to carry forward the remainder into future years to reduce taxable income in those years for up to a total of twenty years.

And yes, the little guy can do it too. This “loophole” is available to them just as it is available to the likes of Donald Trump. So let’s say you start a business, and use up all your savings to get it off the ground but you don’t make any money for the first five years. In fact, your expenses exceed your income by say $50,000. But you have no other taxable income because you are living off withdrawals from your savings account and maybe your family is helping you out – none of that is taxable. So your income tax return shows negative income of $50,000. To encourage business owners to continue pursuing the American Dream, the IRS allows for the carrying of that loss back two years to when you were making money. You basically redo your tax return using form 1045 and subtract that $50,000 from the income for the two years prior and get a refund of the taxes you paid that year. if you don’t use up all the loss in that year (maybe you only made $30,000 that year so you have $20,000 leftover) then you keep carrying the loss to future tax years until you use it up.

One of the first tax returns I did as a tax professional way back when was for a guy who owned a body shop. He was living upstairs in that shop and losing money trying to make a go of it. I was able to get him a refund of $3,000 by carrying back the loss to the prior years. Those additional funds helped him get the business off the ground.