For more than four years, I looked forward to getting the opportunity to review and write about Donald Trump’s tax returns. I was captivated by all the speculation on how Trump treated his business and real estate empire from a tax perspective. However, President Trump never did release his returns, and we’re not likely to ever see them in full.
Joe Biden has been in public office for close to 48 years. With such a long history in public service, you’d expect little about his life left unexposed. But, while there is no law requiring a president or a candidate for the presidency to release their returns, President Biden has released 22 years of his returns dating back to 1998, giving me my long-awaited opportunity to make observations about a U.S. President’s returns and what we might learn from them:
- President Biden files jointly with his wife Jill. The Bidens paid about $3.7 million and $1.5 in taxes for 2017 and 2018, respectively, about a third of their adjusted gross income. They gave roughly $1 million and $275,000 to charity in 2017 and 2018, respectively. Most of their income has been generated by book publishing deals. They reported earning over $944,000 in 2019 and paid about $300,000 in federal income taxes. Ironically, the Bidens benefitted from the Trump Administration’s Tax Cuts and Jobs Act, which in effect reduced their tax rate from 39 to 37 percent. Another way to take advantage of lower tax rates is by converting existing Traditional IRAs to Roth IRAs. (Note: You can read more about Roth IRAs and conversions here.)
- They collect almost $200,000 annually in pensions, the result of an extended career in public service. Most private employers no longer pay pensions; today’s employer-sponsored retirement plans are typically defined-contribution plans where employees make their own contributions to their plans and employers match those contributions up to a certain percentage of the employee’s wages or salary. However, you can create something similar to a pension for yourself using a guaranteed income product from an insurance company.
- Their payments from Social Security amount to nearly $53,000 annually. The annual figure suggests that Joe Biden delayed taking social security benefits until age 70 to maximize the annual amount received. Waiting past the Full Retirement Age—for President Biden, that would be 66—increases your benefits by 8 percent annually to age 70. When developing Social Security strategies for our clients, we often use Social Security as a hedge against longevity risk (living a long time) and recommend delaying filing to age 70.
- The Bidens’ taxable IRA distributions in 2019 were a little less than $1,000. The tax return does not specify who the IRA distribution belongs to, Joe or Jill. However, my guess is it is Joe’s 2019 required minimum distribution (RMD) from his IRA. Such a low RMD suggests a low IRA balance. I suspect he has a large retirement balance, but tied up in his government retirement plan. And as he is still employed with the Federal government, he can defer RMDs from that plan until he is retired. If your retirement funds are in a 401(k), 403(b) or 457 plan, you can delay taking your first RMD until April 1 of the year following the year you retire from service with the plan’s sponsoring employer.
- The Bidens use an S-Corp structure for their book/publishing and speaking businesses. The S-Corp receives the income and pays salaries to its members, which allows S-Corp owners to avoid paying self-employment tax on any income that remains inside the S-Corp. This is a common strategy among business owners and should be discussed with a tax professional when setting up a new business.
Being able to decipher financial information and opportunities from a tax return has always interested me. As U.S. Presidents come and go, we can use those returns—with maybe the exception of Donald Trump—to get a glance into their personal financial lives.
The information included in this document is for general, informational purposes only. It does not contain any investment advice and does not address any individual facts and circumstances. As such, it cannot be relied on as providing any investment advice. If you would like investment advice regarding your specific facts and circumstances, please contact a qualified financial advisor.
Any investment involves some degree of risk, and different types of investments involve varying degrees of risk, including loss of principal. It should not be assumed that future performance of any specific investment, strategy or allocation (including those recommended by HBKS® Wealth Advisors) will be profitable or equal the corresponding indicated or intended results or performance level(s). Past performance of any security, indices, strategy or allocation may not be indicative of future results.
The historical and current information as to rules, laws, guidelines or benefits contained in this document is a summary of information obtained from or prepared by other sources. It has not been independently verified, but was obtained from sources believed to be reliable. HBKS® Wealth Advisors does not guarantee the accuracy of this information and does not assume liability for any errors in information obtained from or prepared by these other sources.
HBKS® Wealth Advisors is not a legal or accounting firm, and does not render legal, accounting or tax advice. You should contact an attorney or CPA if you wish to receive legal, accounting or tax advice.