Republican presidential candidate Donald Trump defended his personal income tax strategies during the second presidential debate, saying:
Now, the taxes are a very simple thing. As soon as I have — first of all, I pay hundreds of millions of dollars in taxes. Many of her [Clinton’s] friends took bigger deductions. Warren Buffett took a massive deduction.
(I’ve fact-checked and annotated the second presidential debate. You can read my live blog coverage here.)
Trump was alluding to the nearly $1 billion loss on Trump’s state income tax returns made public by the New York Times. That loss, suggested the Times, could mean that Trump did not owe federal income taxes for years. During the second presidential debate, Trump acknowledged that he took massive deductions on his returns, but would not answer specific questions about his tax picture, saying, “I pay hundreds of millions of dollars in taxes.”
Trump invoked Buffett’s name twice, saying the while he took advantage of the tax laws, “so did Warren Buffett and so did George Soros and so did many of the other people that Hillary is getting money from.” Forbes ranks Buffett, CEO of Berkshire Hathaway, at #3 on the Forbes 400, just behind Bill Gates and Jeff Bezos, with an estimated net worth of $65.3 billion. In September, Forbes pegged Trump’s worth at $3.7 billion.
Today, Buffett fired back at Trump, releasing a statement specifically addressing information in his own tax returns. Noting that Trump has not seen those tax returns, he says, “I am happy to give him the facts.”
Buffett has, he says, paid federal income tax every year since 1944, when he was 13. He added, parenthetically, “Though, being a slow starter, I owed only $7 in tax that year.” In those 72 years, Buffett says he has never used a carry forward.
A carry forward is a tax technique that allows you to apply a tax benefit in a future year if you are unable to use the full amount in the current tax year. It’s a pretty valuable tax provision especially for high-income taxpayers who may generate huge deductions in one year which can offset high tax bills in future years. (You can find out more about carry forwards as they apply to net operating losses here and other kinds of losses here.)
Specifically, Buffett says that “My 2015 return shows adjusted gross income of $11,563,931. My deductions totaled $5,477,694, of which allowable charitable contributions were $3,469,179. All but $36,037 of the remainder was for state income taxes.” Buffett lives in the state of Nebraska where income tax rates range from 2.46% to 6.84%.
Buffett says that his total charitable contributions for the year were $2,858,057,970 (not a typo), of which “more than $2.85 billion were not taken as deductions and never will be.” He notes that “Tax law properly limits charitable deductions.
By law, the amount you can deduct for charitable contributions cannot be more than 50% of your adjusted gross income (AGI) for the year: your deduction may be further limited depending on the nature of the donated property and the type of charitable organization. If your contributions are more than those limits, you can carry over those deductions for up to five years (limits on contributions are also carried forward each year) though Buffett specifically says that he will “never” carry his 2015 charitable deductions forward. Typically, that’s the result when your charitable contributions each year are so high that carrying those forward would be impossible. Here’s a quick example using smaller numbers:
Let’s say that your AGI is $100,000 and that you have $75,000 in charitable contributions in year one. You can deduct 50% in year one ($50,000) and carry the remaining $25,000 forward to year two. Let’s say that in year two, your AGI remains the same and you contribute $50,000 to charity. Under the current rules, you must apply your current year charitable contributions before you apply any carry forward. So since you’ve hit your 50% of AGI limit ($50,000) in year two, you can’t use the excess deduction, so it gets rolled to year three. Let’s say in year three, your AGI remains the same and you again contribute $50,000. You still can’t use that carry forward. And so it goes until the carry forward hits the five year mark and simply disappears. Got it?
Buffett goes on to say that his federal income tax for the 2015 tax year was $1,845,557. That amount is, he says, not unusual since his “returns for previous years are of a similar nature in respect to contributions, deductions and tax rates.”
Buffett also notes that he, too, has “been audited by the IRS multiple times and am currently being audited.” That’s not a coincidence but rather a nod to the Internal Revenue Service’s “Wealth Squad.” The so-called “Wealth Squad” (which is a lot easier to say than its official name, the “Global High Wealth Industry Group of the IRS Large Business and International Division”) was created by the IRS in 2010 to focus audits of high-income/high-wealth taxpayers like Buffett and Trump. You can read more here.
However, unlike Trump, Buffett says, “I have no problem in releasing my tax information while under audit,” adding, “Neither would Mr. Trump – at least he would have no legal problem.”
Buffett has previously challenged Trump to reveal his returns, offering to show his returns in exchange. Buffett offered to meet Trump for the document exchange in Omaha, Nebraska (where Buffett lives); Mar-a-Lago (the opulent historic Palm Beach estate of Marjorie Merriweather Post which Trump bought in 1985); or any other place. So far, Trump has yet to take Buffett up on his offer.
Publicly, Trump has declared that he will not release his tax returns, citing advice from his attorneys because of an ongoing audit. At last night’s debate, Trump added, “But — but as soon as my routine audit is finished, I’ll release my returns. I’ll be very proud to. They’re actually quite great.”
Here is Buffett’s statement in its entirety:
Answering a question last night about his $916 million income tax loss carryforward in 1995, Donald Trump stated that “Warren Buffett took a massive deduction.” Mr. Trump says he knows more about taxes than any other human. He has not seen my income tax returns. But I am happy to give him the facts.
My 2015 return shows adjusted gross income of $11,563,931. My deductions totaled $5,477,694, of which allowable charitable contributions were $3,469,179. All but $36,037 of the remainder was for state income taxes.
The total charitable contributions I made during the year were $2,858,057,970, of which more than $2.85 billion were not taken as deductions and never will be. Tax law properly limits charitable deductions.
My federal income tax for the year was $1,845,557. Returns for previous years are of a similar nature in respect to contributions, deductions and tax rates.
I have paid federal income tax every year since 1944, when I was 13. (Though, being a slow starter, I owed only $7 in tax that year.) I have copies of all 72 of my returns and none uses a carryforward.
Finally, I have been audited by the IRS multiple times and am currently being audited. I have no problem in releasing my tax information while under audit. Neither would Mr. Trump – at least he would have no legal problem.
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