RICHARD NIXON IS best known for the infamous Watergate scandal. But how many of us remember that, prior to Watergate, he got caught up in another scandal over a suspect tax deduction?
In 1969, Nixon donated more than 1,000 boxes of his official papers to his presidential library and attempted to claim a $576,000 charitable deduction. This caused an uproar, and served to start turning much of the nation against the president.
Congress got involved, created an investigative panel and eventually disallowed the deduction. Nixon felt his strategy was legal, and voluntarily provided three years of income-tax returns to Congress for the panel’s review. This set the precedent for presidents—and presidential candidates—to submit their tax returns for public scrutiny.
This anecdote, and many more, are contained in a fascinating new book entitled All the Presidents’ Taxes, written by Charles Renwick, a Chartered Financial Analyst and Certified Public Accountant. Renwick’s goal is to expose readers to some of the more interesting stories of presidents, and presidential candidates, and their tax challenges.
But the book isn’t just an exposé of suspect tax strategies. The author highlights legal tax-cutting strategies that are used by our highest leaders, but that are also available to everyday taxpayers.
Part One consists of four chapters. The first provides a concise and informative overview of the history and construction of our tax system. The second chapter asks the question, “How can we assess a president’s taxes?” The author proposes four questions:
Renwick then adds a fifth question to help readers with their own taxes: What can we learn and borrow from presidents and presidential candidates? The author uses this framework to look at President Jimmy Carter; Senators John Kerry, Ted Cruz and Mitt Romney; President Joseph R. Biden, Jr.; and President Donald Trump.
Chapter No. 3 provides an excellent overview of two of the key underlying concepts in the tax code, namely nuance and context. Our tax code is riddled with nuance, especially when it comes to a business. The facts and circumstances of the tax situation provide the context to interpret the law.
A good example, which may impact some retirees, is the difference between a business and a hobby. The IRS has rules addressing this, but they’re open to interpretation depending on the facts and circumstances of the case. Hobbies can’t take tax deductions; businesses can.
For example, the regulations state that if you make money in three out of five years, you have a business. The author cites an example of a travel business opened in 2018. It lost money in the first two years due to startup costs. It then lost money in 2020 and 2021 because of the pandemic. Despite those losses, it’s still considered a business and qualified to deduct expenses.
Chapter No. 4 discusses the critical difference between avoiding and evading taxes. Avoiding taxes—taking steps to pay less than might otherwise be owed—can be a sound and legal strategy. We’re all free to structure our financial lives to take advantage of the tax code and thereby trim our taxes. For the average salaried employee, things like contributing to a tax-deferred 401(k) or health savings account come to mind.
Tax evasion happens in small and large ways. Failing to report income is common, and cash transactions are one of the methods employed to evade the taxman. Many businesses want to avoid the complexity and fees associated with third-party credit card companies. But running a cash business can be a big temptation to fudge your income.
Part Two consists of chapters five through 10. These chapters provide an in-depth review and analysis of Biden’s and Trump’s tax returns. The final two chapters address two important tax topics: fringe benefits and estate tax.
The fifth chapter analyzes Biden’s taxes in 2017 and 2019. Subsequent to his term as vice president, and prior to being elected president, he and his wife used an S Corp to legally reduce their tax bill. An S Corp strategy avoids payroll taxes on pass through income, and is something accessible to citizens who have rental or partnership income.
Trump has the most complex financial situation of any modern president. Chapter Nos. 6, 7 and 8 delve into three specific aspects of President Trump’s tax strategy. These chapters examine the use of deductions for business expenses, using a business to pay family members, and using depreciation in a real estate business. The author makes the case that these are common strategies used by business owners, and explains how the reader might take advantage of them.
The final two chapters are a brief discussion of how to use fringe benefits to provide tax-free income, and strategies to use favorable asset valuations to reduce estate taxes. Both chapters provide interesting background information and an assessment of how these strategies can drift into legal gray areas.
The author ends with a call to arms of sorts—to make it a legal requirement to disclose the tax returns of presidents and presidential candidates.
The reader can enjoy this book on a number of levels. The historical context and tax code philosophy are interesting and informative. The analysis of president and presidential candidate tax returns provide insight into each person. It also offers a glimpse into the political calculations that candidates make in deciding how much personal information to provide.
More important, the book prompts readers to think more deeply about the role of the tax code in our country and our lives. What should be taxed and at what rates? What’s considered a fair share? When does tax avoidance slip into tax evasion? These are important questions that affect all of us.
Richard Connor is a semi-retired aerospace engineer with a keen interest in finance. He enjoys a wide variety of other interests, including chasing grandkids, space, sports, travel, winemaking and reading. Follow Rick on Twitter @RConnor609 and check out his earlier articles.