Former Vice President Joe Biden used a major tax loophole to dramatically reduce his overall tax burden shortly after leaving the White House in 2016. He used the loophole months after former President Barack Obama tried to eliminate the exotic tax structure during his final year in office.
Biden directed money he made from books and speeches through an S-corporation, allowing him to reduce his taxable income, tax returns he filed in 2019 show. People who own S-corporations can legally avoid paying a roughly 3.8% tax on revenue provided they pay themselves reasonable compensation.
The tax strategy allowed Biden and his wife, Jill Biden, to accrue $500,000 in tax savings, compared to what he would have paid had Obama’s plan to eliminate the loophole come to fruition, The Wall Street Journal reported in 2019. Biden earned roughly $13.5 million.
Obama expected the proposal to raise $272 billion between 2017 and 2026.
Biden fully released his 2019 tax returns following a September New York Times report showing President Donald Trump paid only $750 in federal income taxes in 2016 and 2017. Biden is the Democratic Party’s presidential nominee and is facing a bruising general election battle against Trump.
By contrast, Biden paid nearly $300,000 in federal taxes that year, the returns show.
Biden’s decision to use an S-corporation to reroute some of his income was done for only one reason, according to Tony Nitti, an accountant at RubinBrown LLP. “There’s no reason for these to be in an S corp—none, other than to save on self-employment tax,” he told The Wall Street Journal.
S-corporations is a type of corporate structure wherein profits flow through an owner’s tax returns – using such a strategy becomes complicated when the IRS must determine what is and what is not deemed a just compensation, according to the Wall Street Journal report.
Biden rerouted the income through S-corporations CelticCapri Corp. and Giacoppa Corp., which reported roughly $13 million in profits in 2017 and 2018. They paid the Bidens less than $800,000 in salary during that period, the report showed.
“The salaries earned by the Bidens are reasonable and were determined in good faith, considering the nature of the entities and the services they performed,” a Biden campaign statement said at the time. Biden’s campaign has not responded to requests for comment about his use of the strategy.
How Did Biden Make His Money After Leaving The White House?
Biden made the bulk of his money through sales of his 2017 book, “Promise Me, Dad,” which walks readers through the final months before his son Beau’s death. The former vice president’s 2016 tax returns show he made $400,000 in 2016, which ballooned in 2017.
Biden pulled in $11 million that year, and $4.6 million in 2018, according to his 2017 tax returns. He also made about $4.29 million in fees from about 47 speaking engagements he made from January 2017 until the end of May 2019, Fox Business reported in July, citing Biden’s tax returns.
Biden Lost Big After Trump Put A Cap On Local And State Tax Deductions
The former vice president also lost out in 2019 on an opportunity to claim tax exemptions on income he and his wife made that year, CNBC reported in September. They could only claim $10,000 on $94,349 in state and local taxes, in addition to the $17,368 in real estate taxes they paid that year, the report noted.
All told, Biden appears to have lost out on $100,000 in deductions due to the Tax Cuts and Jobs Act, a piece of legislation Trump signed that reduced income taxes and capped the amount taxpayers could claim on state and local levies to just $10,000. Citizens living in high taxed states were disproportionately impacted by the law.
Biden supports repealing the $10,000 so-called SALT cap, while at the same time proposing tax increases totaling over $3.2 trillion over a decade. Wealthy Americans on either coast would likely face a combined federal and state tax rates of 62% under Biden’s tax plans, according to a Tax Foundation report published Monday.