IRS Issues Spring 2010 Statistics of Income Bulletin

The IRS issued a new press release yesterday, announcing their Spring 2010 statistics of income bulletin. The bulletin includes high-income taxpayer statistics, such gift tax returns and trust income for various tax years.

For example, taxpayers filed over 4.5 million returns with adjusted gross income of $200,000 or more for 2007, up from over 4 million returns in the prior year. These high-income returns represent over 3 percent of all returns filed for 2007.

This issue of the quarterly Bulletin also contains articles about the following:

• Individual taxpayers who itemized reported $59 billion in deductions for noncash charitable contributions in 2007. Of these nearly 24 million taxpayers, almost 7 million reported close to $53 billion in deductions on Form 8283, Noncash Charitable Contributions. The number of Form 8283 filers increased 12 percent from 6 million in 2006, and the amount claimed in donations increased to nearly 13 percent from $47 billion.
• About 257,000 gift tax returns were filed in 2008, 96 percent were nontaxable. The reported total amount of gifts was $45 billion. Cash was the predominant type of asset gifted, representing 46 percent of the total, while corporate stock accounted for 24 percent and real estate 17 percent. The majority of gift tax returns, almost 52 percent, were filed by female donors.
• Of the more than 400,000 simple trusts analyzed in a panel study, total income was $15 billion in 2002 and reached $26 billion in 2006. Total deductions grew from $12 billion to $15 billion over the same period for simple trusts. For the more than 700,000 complex trusts analyzed in the panel study, reported total income increased from $28 billion in tax year 2002 to $60 billion in tax year 2006. Total deductions increased from $15 billion in 2002 to $20 billion in tax year 2006 for complex trusts.

Tax Info For New Grads

Spring is here and many students are getting ready to graduate from college. Let me commend all you grads for your outstanding accomplishment. You have laid the foundation for a successful life ahead. As you get ready to land your first job, there are a few things you should know about filing your income taxes. Klipinger.com published a great article a couple years ago, but here’s the most relevant and up to date information:

First, you need to file your taxes. One of the first things to find out is whether your parents qualify to claim you as a dependent or if you can claim your own $3,650 exemption. To find out, answer these questions: Will you be under age 24 at the end of 2010? Were you a full time student for at least five months of the year? Did you live with your parents more than half the year without proving more than half your own support? If the answer is yes, your parents can still claim you as a dependent and that means they get the $3,650 exemption. If you are older or provided more than half your financial support, then the exemption is yours.

What do most college students have in common? Student loans. Once you start claiming your own exemption, you can also start deducting the interest you paid on your student loans. You can deduct up to $2,500 in student loan interest by filing the regular 1040 form. This deduction phases out if you earned more than $60,000 for single filers ($120,000 for joint filers) so talk to a tax professional to be sure you qualify.

If landing your new post-college job means a move you may be able to deduct those expenses. So long as the job makes you move more than 50 miles from your previous home and your new company does not reimburse you for the costs, you should be able to claim the deduction for the costs of a moving van, mileage, and any other normal moving expenses. You don’t have to itemize to claim this deduction, just make sure you keep receipts and records.

Millionaires Go Missing

From the Wall Street Journal.com:

Here's a two-minute drill in soak-the-rich economics:

Maryland couldn't balance its budget last year, so the state tried to close the shortfall by fleecing the wealthy. Politicians in Annapolis created a millionaire tax bracket, raising the top marginal income-tax rate to 6.25%. And because cities such as Baltimore and Bethesda also impose income taxes, the state-local tax rate can go as high as 9.45%. Governor Martin O'Malley, a dedicated class warrior, declared that these richest 0.3% of filers were "willing and able to pay their fair share." The Baltimore Sun predicted the rich would "grin and bear it."

One year later, nobody's grinning. One-third of the millionaires have disappeared from Maryland tax rolls. In 2008 roughly 3,000 million-dollar income tax returns were filed by the end of April. This year there were 2,000, which the state comptroller's office concedes is a "substantial decline." On those missing returns, the government collects 6.25% of nothing. Instead of the state coffers gaining the extra $106 million the politicians predicted, millionaires paid $100 million less in taxes than they did last year -- even at higher rates.

No doubt the majority of that loss in millionaire filings results from the recession. However, this is one reason that depending on the rich to finance government is so ill-advised: Progressive tax rates create mountains of cash during good times that vanish during recessions. For evidence, consult California, New York and New Jersey (see here).

The Maryland state revenue office says it's "way too early" to tell how many millionaires moved out of the state when the tax rates rose. But no one disputes that some rich filers did leave. It's easier than the redistributionists think. Christopher Summers, president of the Maryland Public Policy Institute, notes: "Marylanders with high incomes typically own second homes in tax friendlier states like Florida, Delaware, South Carolina and Virginia. So it's easy for them to change their residency."

All of this means that the burden of paying for bloated government in Annapolis will fall on the middle class. Thanks to the futility of soaking the rich, these working families will now pay Mr. O'Malley's "fair share."

What is your socioeconomic status?

From the New York Times. Check out this interactive chart where you can choose your occupation, education, income, and wealth and then displays your status level using these commonly used factors for gauging class. Where do you fall?



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AMT Advice

The alternative minimum tax was created in 1969 to catch wealthy Americans who were avoiding paying their fair share of income taxes. Today, the AMT is now a taxing mechanism that adversely affects middle class Americans. For more information on the AMT check out Yahoo News.