James B. Stewart, writing for The New York Times (March 23, 2017), explored the complexities of President Donald Trump’s 2005 U.S. income tax return, which was revealed publicly last week. President Trump used $103 million of net operating loss (NOL) carryforwards in 2005 to reduce his regular income tax. In a previously disclosed 1995 tax filing, President Trump reported a $916 million loss, giving rise to a net operating loss. Tax experts, whom Mr. Stewart interviewed, suggest that Mr. Trump applied other NOL carryforwards between 1996 and 2004 to offset some or all of his income in those years. By 2005, only $103 million in losses had not been previously offset against Donald Trump’s income.
This raises a small mystery: Did Donald Trump really earn about $800 million between 1996 and 2004? Probably not. Here’s what may have happened. The casino bankruptcy filings resulted in losses to creditors totaling in the hundreds of millions of dollars. These losses, discharged in bankruptcy, were not reported by Donald Trump as cancellation of indebtedness income. The “trade off,” however, was that the excluded income reduced Donald Trump’s net operating losses, leaving only $103 million for use in 2005.
As the New York Times article makes clear, Donald Trump’s tax picture was complicated by an alternative minimum tax calculation that raised his 2005 tax liability from about $5 million, based on the regular tax, to about $38 million after the alternative minimum tax was factored in. Presently, the individual income tax return has five separate tax regimes:
- The regular tax
- The Alternative Minimum Tax
- The Self-Employment Tax (for Schedule C Business Filers)
- The Net Investment Income Tax (for High Income Taxpayers)
- The Additional Medicare Tax (for High Income Taxpayers)
Our firm has experience preparing tax returns with NOL carryforwards to reduce U.S. income taxes for our clients who have suffered business losses in prior years. The calculations can often be complex. We have the skill and experience to prepare complex tax returns. We are also fully familiar with each of the five tax regimes included in the individual income tax return.
Our firm is also expert in defending the tax returns of high income individuals from IRS and state tax audits.
We would welcome your inquiry about preparing your 2016 U.S. and state income tax returns. Please click here to contact us.
For further reading, please see IRS Publication 536, Net Operating Losses (NOLs) for Individuals, Estates and Trusts.