Brilliant or not, Donald Trump had big losses in 1995. And that means a big pot of losses than he can—and probably did—use to offset other income across many years. That’s the system, one that makes everyone file tax returns annually, but that can allow losses to span many years. A net operating loss or NOL is the excess of a taxpayer’s deductions over gross income.

You count income and expenses in only one year. After all, our tax system is annual. But then, you can use the loss in the two prior years (in what’s called a carryback) or in the following twenty years. As has been widely said, this can allow someone to legally not pay taxes for up to 20 years. You apply a portion of the NOL every year to your current year income. You can thereby immunize the current year income from tax.

Read More: http://www.forbes.com

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