Higher Incomes Bear Biggest Tax Burden

Released on: Tuesday, January 24, 2006 8:00 AM

Higher Incomes Bear Biggest Tax Burden

The brunt of the tax burden is carried by a few, say researchers. The tax code remains confusing and the rules and provisions can border on Byzantine.  Physicists Albert Einstein noted, “The hardest thing in the world to understand is the income tax.” Charitable contribution deductions and business mileage rates may vary but two items remain constant; more than half of Americans say they are paying too much federal tax and those who earn the most continue to bear the income tax burden for most of America.

Who Pays The Most And Least:  According to the Internal Revenue Service data, the top one percent paid 34.3 percent of all federal income tax in 2003, up from 33.7 percent the previous year. To qualify for the top one percent group, an adjusted gross income of $295,000 was required. Adjusted gross income is the amount used in the calculation of an individual's income tax liability; one's income after certain adjustments are made, but before standardized and itemized deductions and personal exemptions are made.

The top five percent paid 54 percent of total income tax and made 31 percent of the adjusted gross income. They had an income of $130,000 or more. The top 10 percent of all filers, those with an adjusted income of a least $94,900, bore 66 percent of the income tax burden. The bottom 50 percent of filers paid just 3.5 percent of total income tax. This number is so low because payroll taxes aren’t included in the figures and because many of them receive tax relief from earned income credit. 

Adjusted Gross Income	Percent of People	All Federal Income Tax
$295k	Top one percent	34.3%
$130k	Top five percent	54 %
$94.9k	Top ten percent	55 %

Source: IRS

Items of Interest

Business Mileage Rate: Standard mileage rate for 2005 was 40.5 cents per mile through August 31^st and 48.5 cents per mile for the last four months.  Note: The 2006 standard mileage rate will be 44.5 cents per mile.

Higher Charitable Contributions: The 50 percent of adjusted income limit on charitable contributions is suspended for any cash donations made after August 27, 2005, but before year end.  This includes donations made to qualified organizations not involved with Katrina relief efforts.

Normal Retirement Age for Social Security is Rising: Those who turned 62 in 2005 must wait until they are age 66 to get full benefits.

2006 Tax Schedule

Tax brackets remain the same: The tax brackets   of 10%, 15%, 25%, 28%, 33%, and 35% respectively will remain the same.

The tax bracket thresholds increase: Tax brackets for thresholds will increase for each filing status. For married filing a joint return, for example, the taxable income threshold separating the 15% bracket from the 25% bracket will be $61,300, up from $59,400 in 2005.

Online Filing Update – Electronic filing was introduced 1998. Thirty four million federal and state returns were filed electronically that year.  Last year more than one hundred million state and federal returns were filed electronically.  The IRS reported that the average tax return refund was $2,614 (www.irs.gov).  The largest group represented by online filing is of individuals who filed returns from their home computers and who prepared their own returns.  Professional tax preparers are also submitting more online returns.

Picking the right tax preparer can be an important part of tax preparation.

Tips for Choosing a Tax Preparer

1. If you are an entrepreneur, choose a tax preparer with significant experience in this area. 
2. Consider whether the individual or firm will be around to answer questions about the preparation of your tax return months, or even years, after the return has been filed.
3. No matter who prepares your tax return, you are ultimately responsible for all of the information on your tax return.
4. Avoid preparers who base their fee on a percentage of the amount of the refund.
5. Use a reputable tax professional who signs your tax return and provides you with a copy for your records.
6. Is he or she an Accredited Tax Preparer, Enrolled Agent, Certified Public Accountant (CPA), Licensed Public Account, or Tax Attorney?
7. Find out if the preparer is affiliated with a professional organization that provides its members with continuing education and resources and holds them to a code of ethics.

Direct all specific questions to your tax preparer or contact the IRS.

---

    Print this page   E-mail this page