You get a break on your taxes for:
- Your minimal cost of living–the “standard deduction”;
- Medical expenses (above a certain amount);
- Donating to charity;
- Investing in a business; and
- Many other reasons.
The first two reasons have to do with yourself; the money you need to live, and the money you need to keep yourself healthy that’s not otherwise covered by the first.
The third reason, donating to charity, helps others.
But the fourth, investing in a business; why is that deductible?
The simple answer is when you invest in a business, you are helping others somewhat like #3. If you have employees, they pay taxes on what you pay out to them. Your money, given to them, is taxed. Additional income, generated by the business, goes to employees–it is taxed–and to stock holders. For the stock holders, depending on what they do with the money, it is taxed as income or, if they invest it, the taxation occurs later when they take the money out.
Regardless, the money is taxed, either today or tomorrow.
And it is expected that, somewhere down the road, you expect to receive additional income from that business on which you will then pay taxes.
So, while you can give away and invest all your income–note that if you give away or invest all you money, you have nothing on which to live–you don’t pay taxes, those dollars do, nonetheless, get taxed. Just not now.
So, when Trump says he paid no taxes, he’s right but he’s also wrong.
Because he invested (and donated) that money, the donations went directly to help others while the investments, which paid employees and gave dividends to stock holders, were taxed in their incomes.
So, yes, you could say that Trump paid no taxes.
But, no, his money was and will be taxed no matter what he says.
And, what he gave away or invested, was no longer available to him–unless he’s a stock holder or employee, in which case the question of taxation comes up again, and he can choose to re-invest that money yet again and help build a business, pay salaries and pay dividends.
So, should he give his income to the government, or should he invest it in buildings, equipment and, best of all, paychecks?
You tell me?