What can we learn from Donald Trump’s tax returns?

There has been considerable controversy surrounding Donald Trump’s refusal to release his tax returns. He has provided his reasons for not doing so and it does not appear that he will be releasing them any time soon. While Trump not releasing his tax returns can bring about speculation of what is contained in those returns, there are a lot of misconceptions about what types of information his returns will show. There is no question that Trump’s tax returns will disclose significant financial information, but they won’t tell us everything.

What we will be able to learn from his tax returns:

  • His income. This is the most obvious information that his returns will show us, and they will disclose his income from all sources – salaries, interest, dividends, capital gains and the income from his more than 500 businesses. But this is, ironically, probably the least interesting information. We all know he is wealthy. Seeing how much income Donald Trump earns is probably less interesting than seeing how much income your next door neighbor earns. Trump has income from rentals, real estate sales, real estate development and real estate management among other entities. For someone like Trump, his income can vary greatly between years and I personally would be more interested in seeing how his income shifts from year-to-year rather than seeing a snapshot of income from one year. In some years, he may actually have no income since the majority of his income comes from his business entities and most of these businesses are passthrough entities, meaning the income (or losses) from these entities are reported directly on his tax returns. This also means that the losses can offset (and potentially exceed) the income.
  • How much he pays in income taxes. This is what most people really want to know. It has been documented that Trump has paid no (or minimal) taxes in prior years. As I wrote about in a prior post, the amount of taxes you pay has more to do with how you earn your income as opposed to how much income you earn. Individuals who earn the majority of their income through capital gains and real estate investments will pay taxes as a lower rate than those who earn the same amount of income through regular salaried jobs or self-employment. This is how our tax system is structured.
  • How much he donates to charity. The tax deduction for charitable contributions is one of this country’s most popular tax deductions, particularly for high-income individuals. We will be able to see how much he donated to charity in a given year and we may also be able to see the charitable organizations that he donated to depending upon the level of detail disclosed in his returns.
  • If he has bank or investment accounts outside of the United States. Any U.S. Citizen or Permanent Resident who has a bank or investment account outside of the U.S. with more than $10,000 in it must report that account to the Treasury Department.
  • How much he pays in taxes to foreign countries. Anyone who pays taxes to foreign countries can generally claim those taxes paid as either a deduction or credit on their U.S. tax return. However, these amounts are usually aggregated, so if he pays taxes to multiple foreign countries, the specific countries may not be individually listed.
  • If he has DIRECT investments in foreign corporations or partnerships. If he has personal direct investments in foreign partnerships or corporations, those are required to be disclosed on his returns. However, if he is invested in foreign business entities through one of his U.S. businesses (which is most likely the case), those investments would not be disclosed on his personal tax return. They would be disclosed on his business returns.
  • Where his money is invested. While individuals are not required to list their investment holdings on their tax returns, if he sold stocks or other investments, those would be reported on his return. Also, Trump’s money is professionally managed and most money managers for wealthy individuals will invest their clients’ money in complex hedge and/or private equity funds. Many of these funds must disclose information about foreign investments held in the fund.

What we won’t be able to learn from his tax returns:

  • His net worth. The tax return will not show the value of Trump’s assets. In fact, the only time where an individual is generally required to disclose asset values or account balances on their personal tax return is when foreign financial assets have to be reported. In addition, Trump’s net worth comes from multiple layers – the value of his business interests, the value of his real estate, the value of his personal brand, etc. It is very difficult to accurately determine his net worth.
  • His debts. The returns do not disclose debt balances or amounts owed to creditors. While many people would like to know if he owes money to Vladimir Putin or if Russian businesses financed the construction of Trump Soho, his tax returns won’t show that information. Most of his debts are owed through his business entities and those debts would appear on those tax returns.
  • His foreign real estate holdings. Although he is required to disclose his foreign bank/stock accounts, he is not required to disclose his foreign real estate holdings. Foreign real estate is specifically excluded from the list of foreign assets that must be disclosed by U.S. taxpayers.
  • INDIRECT investments in foreign businesses. As noted above, most of his international investments are held through his U.S. business entities, the details of which would not appear on his personal tax returns.
  • Details about the income and expenses from his businesses. The net income or losses from his passthrough businesses are reported on his individual tax returns. However, the details of the income from those businesses are reported on the tax returns for those entities. And since almost all of those business are partnerships (even where Trump is a 99% partner), the details are disclosed on the separately filed partnership tax returns.

Tax returns are one part of the puzzle in determining an individual’s overall financial picture and there is no question that Trump’s tax returns are complex and contain a lot of moving parts. His financial disclosure report filed with the United States Office of Government Ethics provides a better picture of his overall net worth and business holdings. In the meantime, we can wait for the Warren Buffet-Donald Trump tax return showdown (which will surely be broadcast in an hour-long, prime-time television special).


The website taxhistory.org has copies of tax returns for past presidents and presidential candidates going back a number of years. In browsing through many of the returns, here are two  interesting things I noticed:

  1. The Clinton’s income jumped from $357,026 in 2000 (Bill’s last year in office) to $15.9 million in 2001. This is not unusual as former presidents make a lot of money on the lecture circuit. What I did find astounding is that even though the Clintons used a large Maryland CPA firm to prepare their taxes, there was absolutely no tax planning done. The Clintons had to write a check to the IRS for $5.9 million when they filed their 2001 tax return.
  2. Sarah Palin, while governor of Alaska in 2006 and 2007, used H&R Block to prepare her tax returns.