and it is very common in most "first world" countries. (I have a co-worker from Australia who lived in the UK for years and he said both countries have similar laws)
If your business loses a huge amount of money in one year, you can carry the loss forwards or backwards. Of course, if you go backwards, you would need to re-file your taxes from previous years.
Let's say the ABC Company makes a profit of $1,000,000 in 2007 and pays 30% in federal income tax, or $300,000
However, due to the economic crash in 2008, ABC Company loses $2,000,000. Rather than get a tax refund of $600,000 in 2008, they elect to carry the loss forward into future years to offset future profits. (I'm not a tax law expert, but there may be a maximum they could claim each year...) The claim $200,000 of losses in 2008 and carry forward $1,800,000 to future years.
In 2009, the company recovers somewhat and makes a small profit of $300,000. They can then use a portion of the $1,800,000 loss to offset that $300,000 profit. However, the amount cannot exceed the profit for that year, so the maximum offset n 2009 would be $300,000. In 2009, they claim the maximum of $300,000 and now have 0 income tax liability for 2009, and still have $1,500,000 in losses for future years ($1,800,000 minus $300,000)
The scandals, to me, are:
1) Trump lost nearly $1 billion in a booming economy
2) The $1 billion was used over almost 20 years to offset his earnings and giving him 0 in taxes paid. That means that for 20 years, his total income averaged a "mere" $50 million/year. If his earnings had gone over that $1 billion, he would have paid taxes on the excess earned. Since he paid 0, it means he is far less wealthy than he claims, and certainly not in league with Mark Cuban, Michael Bloomberg and Mark Zuckberberg. Probably more in line with Paris Hilton.
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