I'm feeling a bit left out when it comes to taxes. The problem is that I seem to pay them. Apparently, I'm doing something wrong.
In the last few months, there's been a lot of attention on the reported 51 percent of folks who've figured out how to avoid paying income taxes. A good portion of this group is low-to-middle-income earners and they've taken advantage of the many refundable tax credits sprinkled throughout the tax code to wipe out their tax bills and even get some money back from the Internal Revenue Service.
Now, however, we learn that Americans making a lot more money also have figured out how to avoid paying income taxes when they file their returns.
In the IRS's latest Statistics of Income report issued this week, agency data reveals that the percentage of people who reported incomes of at least $200,000 and paid no U.S. taxes almost doubled in 2008 (0.429 percent) from 2007 (0.231 percent ). IRS data are always a few years behind since it takes a while to compile all the figures.
What do those fractions mean in real numbers? Of the almost 4.4 million individual income tax returns in 2008 that reported adjusted gross income of $200,000 or more, 18,783 people were able to get by on April 15 without owing anything on their 1040.
OK, the raw numbers, like the percentages, aren't that big. Still, the IRS calculations reveal that the number of high-income taxpayers owing no taxes in 2008 is the biggest percentage of nonpayers going back over data collected since 1977.
And since I wasn't a no-tax filer back in 2008 (I checked my records), I was curious as to how these high-earners managed to escape that April 15 without owing anything on their 1040s.
Just like their lower-earning counterparts, the high-income return filers used legal deductions, exemptions and credits to avoid owing any income taxes.
The tax breaks that contributed the most in higher-income filers' reduction of their tax liability to nothing were, according to the spring Statistics of Income report, total miscellaneous deductions (including casualty theft losses from income-producing property), the taxes paid deduction (for real estate, state income and sales taxes), partnership and S corporation losses and tax-exempt interest.
Between 2007 and 2008, these specific tax break claims increased by 1,241.7 percent, or 447 returns, for miscellaneous deductions; 771.2 percent, or 933 returns, for taxes paid; 364.1 percent, or 1,216 returns, for business losses; and 295.9 percent, or 5,929 returns, for tax-exempt interest claims.
OK. Enough numbers. Let's look at what the figures tell us: Everyone, at all income levels, gets tax breaks that help them reduce or even eliminate their tax bills.
And that brings us back to the dilemma facing Congress, and ultimately all of us: Which tax benefits are we willing to give up in exchange for reducing the federal deficit and simplifying the tax code?
It's easy to get angry and point fingers at other taxpayers at all income levels, but we better have a mirror handy. Almost all of us -- including corporations -- are benefiting some way from all the various tax breaks woven through our current tax system. Do we really want to change that?
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