We know that no one can be as smart as Donald Trump. The Teflon candidate ― whose favorite slogan after “Make America great again” is “I love depreciation” ― has reportedly not paid any federal income tax for as many years as the country’s youngest voter has been alive. All legal, of course. Well, we don’t actually know that since he’s the first presidential candidate in 40 years not to release his tax returns.
So how can you ― Joe or Jane Blow retiree or future retiree ― be as “smart” as the GOP nominee? Here are some ideas:
1. You could love depreciation too, a la The Donald.
This is the provision ― did you just call it a loophole? ― that allowed Trump to use one year of his business losses of $916 million to offset income in other years. That’s a mighty big loss, you’re thinking. Well, shed no tears. The guy milked the waters of his so-called financial ruin from three Atlantic City casinos, his airline business and his poorly timed purchase of the Plaza Hotel in Manhattan and turned it into a business upside. Yes, he proudly paid no taxes because he is smart, he said. Yet taxes support our schools, our military, our government.
Funny, isn’t it, how your mistakes ― like not enrolling in your company’s matched 401(k) because you were busy paying your bills with the money ― didn’t result in any tax benefits for you? Clearly you need to fail bigger if you want to run for president. In the meantime, sock away every nickel you can if you are still working. You can contribute to your 401(k) up to $18,000 per year pre-tax or $24,000 if you turn 50 or older this year. And about the only thing close to a free ride you’re going to get would be an employer match of up to 6 percent.
Or: Go Roth, young man, go Roth.
If you meet the income limits, you can also contribute up to $5,500 (or $6,500 if you’re turning 50 or older this year) to a Roth IRA. All withdrawals from the Roth IRA become tax-free after you’ve had the account for at least five years and you’re over age 59 ½.
2. Your home is your castle.
OK, maybe your house isn’t as big as any of Trump’s myriad homes ― we know of six, but there are likely more. But it could still help you be “smart” on your taxes.
Just based on the fact that you live in it, you are receiving free money, according to a concept called imputed rent. This “income” is tax-free.
You can also downsize to a cheaper house and live off some of the equity in your house. As long as you’ve lived in the home as your primary residence for two out of the last five years, you pay no capital gains tax on up to $250,000 of gain (or $500,000 for a married couple that files jointly). Like other investments, the home can also pass on to heirs with a step-up in cost basis, which can reduce or eliminate any tax on your lifetime gain if the property is sold.
And lastly, there is the old reverse mortgage. Instead of you paying your mortgage company, the mortgage company pays you and it’s not considered taxable income. You stay in your home as long as you live in it. But the big downsize is that when you move out or die, the house will be used to pay back the mortgage company, plus fees. Tread lightly on this one. Not everyone loves reverse mortgages.
3. Give until it hurts.
If you have a large amount of taxable investments that you’d like to generate income from and are charitably inclined, consider a charitable remainder trust, an irrevocable trust that generates an income stream for you ― the donor ― with the remainder of the donated assets going to your favorite charity or charities. The trust can sell the investments with no capital gains tax and pay you an income that could be higher than what you would have received if you had to pay taxes on the investments. The remainder would then be paid out to the charities of your choice when you pass away. Except for the “charities get the rest” part, it sounds like a Trump plan, doesn’t it?
4. Social Security can be tax-free if you are sufficiently broke.
Social Security ― that trusty safety net that is going broke ― is taxable. Astonishing, isn’t it? The exception is that if your combined gross income is low enough, you may not have to pay taxes on your Social Security benefits. If you collect the average Social Security benefit of about $16,000 per year, you can have up to $17,000 per year of adjusted gross income without paying any taxes on your Social Security.
How you live on $17,000 a year, however, is another question altogether. Maybe Trump has the answer.
Editor’s note: Donald Trump regularly incites political violence and is a serial liar, rampant xenophobe, racist, misogynist and birther who has repeatedly pledged to ban all Muslims — 1.6 billion members of an entire religion — from entering the U.S.
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