Trump business deductions: sketchy, normal or in-between?

NEW YORK (AP) — The massive losses Donald Trump has claimed on his tax returns were reportedly due at least in part to the huge deductions he took against the income his businesses made before and after he became president.

A key question is whether those deductions reported by The New York Times were excessive and possibly illegal; they enabled Trump to avoid millions of dollars in taxes.

Trump reportedly wrote off millions of dollars for taxes and other expenses on real estate properties that he used personally but claimed were businesses or owned as an investment. He also deducted millions of dollars in unexplained consultants’ fees, including fees paid to his daughter Ivanka. Other notable deductions included $70,000 for hairstyling and expenses for Trump’s private aircraft. It would be up to the IRS, which is auditing some of Trump’s returns, to decide whether the deductions are legitimate.

According to the IRS, businesses may deduct expenses if they’re ordinary and necessary. The agency defines an ordinary expense as one that’s common and accepted in a company’s trade or type of business. Expenses are considered necessary if they’re helpful and appropriate in a trade or business.

Consider dinner expenses, for example. It wouldn’t be unusual for a financial adviser to spend $25,000 or more a year to take wealthy clients out. But the IRS would frown on a small retailer or printing company owner trying to deduct a similar amount.

The standards of ordinary and necessary are open to interpretation — and also abuse.

“Some activities and transactions are perfectly legal. Then it goes on to aggressive but OK and then it starts to get shady, followed by malfeasance, tax fraud and criminal tax fraud,” says Steven Rosenthal, a fellow at the...