Advisers call Trump prudent with taxes in avoiding years of payments

Though the tactics were legal, some debate his use of 'fiduciary' in defending them and his business moves that led to such dire losses

Oct 4, 2016 @ 1:00 pm

By Mark Schoeff Jr.

Donald Trump
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Donald Trump

Republican presidential nominee Donald Trump may pay a political price if he avoided paying taxes for nearly 20 years after declaring a nearly $1 billion loss in the mid-1990s, but investment advisers say he was following tax laws and being prudent.

The New York Times revealed in a story Saturday that Mr. Trump filed a $916 million loss on his 1995 tax return due to real estate management setbacks. Under the tax code, Mr. Trump could have shielded up to an equivalent amount of taxable income for 18 years.

In a speech in Colorado on Monday, Mr. Trump defended his tactics and neither confirmed nor denied the report about his tax return from more than two decades ago, which was given anonymously to the paper.

“I have a fiduciary responsibility to pay no more tax than legally required — or, put another way, to pay as little tax as legally possible,” Mr. Trump said. “I was able to use the tax laws of this country, and my business acumen, to dig out of this real estate depression when few others did.”

Several financial advisers said Mr. Trump was operating in bounds on his tax moves.

“What Donald Trump did is what millions of Americans do — work with tax professionals to work within the tax code to pay what they owe and no more and take advantage of deductions and credits they may be eligible for,” said John Gugle, principal at Alpha Financial Advisors.

Herb Schechter, managing director of Minneapolis Portfolio Management Group, said Mr. Trump's move “falls under the laws of the land” that govern real estate investments.

“There's nothing sinister about following the law,” said Mr. Schechter, who is a CPA. “I don't know many people who leave deductions off their tax returns.”

(More: Advisers sound off about who, Hillary Clinton or Donald Trump, they are voting against)

Taking tax advantage of losses — although it was done to a much greater extent by Mr. Trump than the ordinary taxpayer — is a common practice.

“Anyone who has an investment account understands the strategy, or their adviser does,” said Thomas Balcom, founder of 1650 Wealth Management. “I don't think it's a fiduciary duty. It's a prudent financial move to harvest losses.”

Brent Perry, founder of Piedmont Financial Advisors, agreed that Mr. Trump went too far in calling his efforts to reduce substantially his tax bill a “fiduciary duty.”

“In this particular case, I don't believe Mr. Trump has a fiduciary duty to avoid or minimize his own personal taxes,” Mr. Perry wrote in an email. “I'm not sure how a person applies a fiduciary duty to themselves. It's a misuse of the term. It is, of course, a prudent idea to legally avoid or minimize one's tax liability.”

RAISING EYEBROWS

Mr. Trump's use of the tax code isn't necessarily something to celebrate, according to Chris Chen, owner of Insight Financial Strategists.

“It's perfectly legal. Is it moral or ethical? That's a completely different issue,” Mr. Chen said. “He's moral in an Ayn Rand sort of way, but I'm not sure he goes beyond that.”

The fact that he took a nearly $1-billion loss also undermines Mr. Trump's claim to be a corporate paragon.

“The question it raises is what's his business acumen to start with?” Mr. Chen said.

The political problem for Mr. Trump will not revolve around his tax strategy but rather his refusal to release his tax returns, according to Mr. Balcom.

“By not being transparent, that's what's raising eyebrows,” he said.

The controversy over Mr. Trump's taxes is also highlighting the issue of tax reform.

“He's working within the tax code, and the tax code is incredibly complex,” Mr. Gugle said. “Personally, I wish we had a flat tax.”

In Colorado, Mr. Trump promised to tackle tax reform.

“I understand the tax laws better than almost anyone, which is why I am the one who can fix them — and that's what I commit to doing,” he said.

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