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September 2011


by Andrew D. Schwartz, CPA

As part of our April 2011 newsletter, I wrote an article entitled "So Who's Paying the Taxes?"  This article summarizes information posted by the IRS as SOI Tax Stats - Individual Income Tax Return (Form 1040) Statisticshighlighting the following demographics of who is paying federal income taxes:

  • Top 1 Percent:  To be in the top 1 percent of filers, your AGI needs to exceed $380k.  This group of taxpayers currently reports 20% of the country's income and pays 38% of the personal income taxes.

  • Top 5 Percent: Tax returns showing AGI of at least $160k made the top 5 percentile of all filers.  In 2009, these taxpayers reported 35% of the country's income, but paid 59% of the personal income taxes.

  • Top 10 Percent: Anyone reporting AGI in excess of $114k would be in the top 10 percentile.  This group reported 46% of the country's income, but paid 70% of the personal taxes.

  • Bottom 50 Percent: The bottom half of the income reporting population paid just 2.7% of the personal income taxes.

I closed the article ended by asking, "Can a tax system survive when only half the population pays into it? "

Well, something in this provocative question triggered the hot button within one of our readers, and here is the e-mail that I received from him.  (This person subsequently gave me permission to post his e-mail on MDTAXES.)

I read your latest newsletter with interest.  What most captured my attention was the section “SO WHO’S PAYING THE TAXES?”.  You began the section referencing an article from the New York Times that GE, who earned more the $14 billion dollars in profits [$5.1 billion made in the US], paid no corporate income taxes (presumably in 2010).*  You then ended the piece asking us “Can a tax system survive when only half of the population pays into it?  Stay tuned.” 

I found the question to be misleading.  While almost half of the US population doesn’t pay income taxes, they certainly pay into the “tax system”.  Most working people are subject to sales tax, state income tax, property taxes, municipal taxes, Medicare tax, FICA, etc.  Your question completely ignores these significant contributions.  “The Bottom 50%” pay only 2.7% of income taxes by virtue of the graduated nature of the system and by realizing deductions just like wealthy individuals and corporations.  The newsletter’s question to me inferred that “The Bottom 50%” are perhaps getting a free ride on the wealthy and perhaps are the cause of the tax system’s unfairness and brokenness.  I reject these suggestions.  The problem is much larger and nuanced. 

Perhaps you should have posed more questions for us, such as:

  • Can a tax system survive when many top corporations paid no taxes in 2010?
  • Can a tax system survive when corporations funnel billions in profits overseas to avoid taxation and then are allowed to write off overseas losses against domestic profits?
  • Can a tax system survive when corporations unfairly manipulate the system in its favor to shield assets from taxation and reap government subsidies?
  • Can a tax system be deemed fair when it subjects private citizens to the alternative minimum tax and not [free-speech loving] corporations?
  • Can a tax system survive when adjusted wages for middle class families have remained stagnant for more than a decade while at the same time the wealthiest Americans and corporations have seen substantial gains?

The relative fairness of the system depends upon the lens through which it is viewed.  Perhaps in a future newsletter you can inform us of the average total marginal tax burden realized by Massachusetts’ citizens broken down by incomes.  This would provide a more comprehensive understanding of the contribution almost everyone certainly bears to our tax system. 

I’m not an accountant and have limited education in economics.  So, I rely on you as an objective resource for information and support in helping me make decisions.  In this instance, I think you have failed me and perhaps other readers—not so much for giving direct misinformation but in your framing of the facts.  There is no shortage of sources for heavily biased information.  You could better serve your readers as a resource for sorely needed facts and information, and then leave us to draw our own opinions.

Andrew's Response:

i appreciate the honest feedback, and will try to incorporate this constructive criticism in future articles.



Having trouble getting an IRS issue resolved?  If so, consider contacting the Taxpayer Advocate Service.  According to the IRS:

The Taxpayer Advocate Service is Your Voice at the IRS!

The Taxpayer Advocate Service (TAS) is an independent organization within the IRS. We help taxpayers who are experiencing economic harm, such as not being able to provide necessities like housing, transportation, or food; taxpayers who are seeking help in resolving problems with the IRS; and those who believe an IRS system or procedure is not working as it should. Here are ten things every taxpayer should know about TAS:

1. The Taxpayer Advocate Service is your voice at the IRS.

2. Our service is free and tailored to meet your needs.

3. You may be eligible for our help if you have tried to resolve your tax problem through normal IRS channels and have gotten nowhere, or you believe an IRS procedure just isn't working as it should.

4. The worst thing you can do is nothing at all!

5. We help taxpayers whose problems are causing financial difficulty or significant cost, including the cost of professional representation. This includes businesses as well as individuals.

6. If you qualify for our help, we’ll do everything we can to get your problem resolved. You will be assigned to one advocate who will be with you at every turn.

7. We have at least one local taxpayer advocate office in every state, the District of Columbia, and Puerto Rico. You can call your local advocate, whose number is in your phone book, in Pub. 1546, Taxpayer Advocate Service -- Your Voice at the IRS, and on our website at You can also call our toll-free number at 1-877-777-4778.

8. As a taxpayer, you have rights that the IRS must abide by in its dealings with you.  Our tax toolkit at can help you understand these rights.

9. TAS also handles large-scale or systemic problems that affect many taxpayers.  If you know of one of these broad issues, please report it to us through our Systemic Advocacy Management System at

10. You can get updates on hot tax topics by visiting our YouTube channel at and our Facebook page at, or by following our tweets at



by Andrew D. Schwartz, CPA

Whenever you're on a business trip that takes you away from the general vicinity of where you live, you're allowed to deduct 50% of the cost of your meals, incidentals, and business related entertainment.  You have two ways you can calculate this deduction. 

One option is to keep track of the actual money spent during your trip.  The easiest way to do this is by keeping all the receipts together, or by charging everything on one credit card.  At the end of the trip, simply tally up what you spent.

A second option is to base your deduction on the per diem rates.  Here, the IRS actually simplifies your bookkeeping.  Each year, the federal government assigns one of six per diem rates to every metropolitan area in the country.  Currently, the rates range from $46 to $71 per day.  A listing of the per diem rates by metropolitan area for the Continental United States is available at

Please note that people looking to base their deductions on the per diem rates can only use per diem rates for their meals, incidentals and business entertainment.  Other travel expenses must be based on actual expenses incurred.  While the per diem tables do include daily rates for lodging, these rates are set to be used by companies to reimburse their employees for their lodging.

To calculate your deduction using the per diem rates, simply multiply the number of days you were in a city by that city's Meals and Incidental Expense rate.  It couldn't be easier, and it relieves you of the burden on keeping track of your individual meals and entertainment receipts.

Did you travel outside the Continental United States last year?  If so, you should be aware that the Department of Defense sets the per diem rates for travel to Alaska, Hawaii, and the US Territories, and these per diem rates are available at:  The State Department sets the international per diem rates, and you can find those rates at:

Evidently, there is even an App available to help you track your expenses based on the per diem rates.  Go to for the link to download this App onto your iPhone or BlackBerry.

Which method should you choose?  For each trip, you get to decide whether you'll base your meals and entertainment deduction on the per diem rates or on actual expenses incurred.  You can use both methods during the year, but only one method per trip.




Income Taxes

Saving and Investing




  • 3rd qtr estimates due 9/15/11
  • If you participated in the NIH LRP during 2010, you have until 9/30/11 to submit the paperwork to get back any additional taxes owed to you by the NIH. One of the MDTAXES CPAs can help you with this paperwork


2010 & 2011 TAX FACTS

  • For 2010, the standard deduction for a single individual is $5,700 and for a married couple is $11,400. A person will benefit by itemizing once allowable deductions exceed the applicable standard deduction. Itemized deductions include state and local income taxes (or sales taxes), real estate taxes, mortgage interest, charitable contributions, and unreimbursed employee business expenses.
  • For 2010, the personal exemption is $3,650. Individuals will claim a personal deduction for themselves, their spouse, and their dependents. 
  • The maximum earnings subject to social security taxes is $106,800 for 2010 and 2011.
  • The standard mileage rate is $.51 per business mile as of January 1, 2011, increasing to $.555 per mile as of July 1, 2011.
  • The maximum annual contribution into a 401(k) plan or a 403(b) plan is $16,500 in 2010 and 2011.  And if you'll be 50 or older by December 31st, you can contribute an extra $5,500 into your 401(k) or 403(b) account that year.
  • The maximum annual contribution to your IRA is $5,000 for 2011.  And if you turn 50 by December 31st, you can contribute an extra $1,000 that year.  You have until April 15, 2012 to make your 2011 IRA contributions. 


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This Month's Topics

A Reader's Rebuttal to "So Who's Paying The Taxes?"

Taxpayer Advocate Service

Per Diem Rates

The FICA Refund for Medical Residents 

2010 & 2011 Tax Facts

Tax and Financial Planning Calendar for September 2011


Browse our index of previous months' newsletter topics

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In a shocking development, the IRS recently announced that they will be honoring the FICA tax refunds submitted by residency programs and individual doctors.  The catch is that only FICA taxes paid prior to 4/1/05 qualify.

For more information, go to our April 2010 Newsletter, our January 2009 Newsletter, or our February 2001 Newsletter or read through the IRS' Chief Counsel Advice Memorandum on this issue.

Let's work together to keep current on this hugely valuable tax break.  Please post whatever you read or hear regarding this FICA issue on our new Message Board we set up just for this topic.

Copyright 2011 The MDTAXES Network by CPANiche, LLC    Email us at