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.
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? "
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
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
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?
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.
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
According to the IRS:
The Taxpayer Advocate Service is Your Voice at the IRS!
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
www.irs.gov/advocate. You can also call our toll-free number at
8. As a
taxpayer, you have rights that the IRS must abide by in its dealings with you.
Our tax toolkit at
www.taxtoolkit.irs.gov 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
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
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
track of your individual meals and entertainment receipts.
there is even an App available to help you track
your expenses based on the per diem rates. Go to
www.gsa.gov/portal/content/302273 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.
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
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
For 2010, the personal exemption is $3,650.
Individuals will claim a personal deduction for themselves, their spouse, and
The maximum earnings subject tosocial security taxes is $106,800
for 2010 and 2011.
The standard mileage rateis $.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
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.