Buffett Vs. Trump

I’m not a very political person. While I do have some political opinions (I’m sure everyone does), I tend to keep it to myself. I have watched both Presidential debates, primarily for entertainment purposes. In all honesty, they are pretty painful to watch. But what caught my interest yesterday was when Trump started talking about his taxes. As you probably know, Trump has not released his tax returns from last year. While it’s not required that presidential candidates release their tax returns, every presidential candidate over the past 40 years has done so. In other words, Trump should release his tax returns. And to make things even juicier, the New York Times wrote an article talking about how Trump declared a $916 million loss on his 1995 returns and that it could have allowed him to legally avoid paying federal income taxes for up to 18 years. This remains one (of many) controversial issues revolving around Trump’s campaign. Naturally this topic came up in the second debate, at which point Trump tried to shift focus away from his deductions and on to that of Warren Buffett, a Clinton backer, saying that he “took a massive deduction”. Mr. Buffett responded in kind by releasing some information regarding his 2015 taxes. I thought this was awesome and for some reason felt compelled to write a post about it. The following are some excerpts from Mr. Buffett’s release followed by some of my thoughts about them.

 

“My 2015 return shows adjusted gross income of $11,563,931.”

Way to go, Mr. Buffett.

 

“My federal income tax for the year was $1,845,557.”

Using his AGI, Mr. Buffett’s effective tax rate is about 16%. That’s pretty darn good. My effective tax rate from last year was about 26%.

 

“I have copies of all 72 of my returns…”

Geez, that’s amazing. I don’t have any of my returns from my working days before medical school. I don’t even have my returns from residency. The IRS does have some guidelines in terms of keeping tax records. It seems like the magic number is 3 years for most people, unless you plan on filing a fraudulent return. Or not filing a return.

 

“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.”

It seems that the majority of Mr. Buffett’s deductions come from charitable contributions, which I’ll touch on shortly. Also, based on these numbers, he paid $1,972,478 in state income taxes. Subtracting his deductions from his AGI would leave $6,086,237 as taxable income. One other thing to note is that he mentions “allowable” charitable contributions, which takes us to…

 

“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.”

First thought, holy crap! Almost $3 billion in charitable contributions! Second, Mr. Buffett gives a lot to charity, much more than the deduction limit. In his case, all of his charitable contributions came in the form of shares of his holding company Berkshire Hathaway. These fall under the category of Capital Gain Property, which caps the deductible amount to 30% of your AGI. Giving appreciated stock to charities has a number of advantages. First, you avoid paying any capitals gains taxes you would have incurred had you sold the stock. Second, you can take a deduction of the stock’s fair market value on the day that you give it away. While this tax strategy probably won’t apply the vast majority of people, it is something to keep in mind if you are thinking about giving to a charity.

 

Random Guy’s Final Thoughts

Again, the purpose of this post isn’t to discuss politics. I am apolitical. I just thought it was cool that Buffett responded to Trump’s comments and disclosed some of his finances from last year. It made for an interesting read. And hey, we learned a little bit about the tax code and charitable giving.

2 thoughts on “Buffett Vs. Trump

  • October 14, 2016 at 2:26 am
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    I love how transparent Warren Buffett is. While I don’t always agree with everything he says I definitely appreciate that he doesn’t operate his companies or finances in a way that are opaque.

    I wish more hedge fund managers would create company structures like Buffett so that individual investors had the opportunity to invest with them as opposed to what is going on now.

    • October 14, 2016 at 5:46 pm
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      Thanks for the comment! I think that’s why a lot of people are such huge fans of his. My father in law loves him! I agree with you in terms of hedge funds. I like how, if you were so inclined, you could buy shares of Berkshire as an individual investor as it’s a publicly traded company. It’s kind of like you’re invested in a fund with Buffett as your fund manager. Hedge funds, like you alluded to, are really only available to accredited investors.

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