IRS Releases Winter 2008 Statistics
IRS Issues Winter 2008 Statistics of Income Bulletin
WASHINGTON — The Internal Revenue Service today released the winter 2008 issue of the Statistics of Income Bulletin, featuring data from 134.4 million individual income tax returns filed for tax year 2005. Of those returns, 90.6 million were “taxable.” This means that they reported total income tax greater than zero. The number of taxable returns in tax year 2005 was up 1.7 percent from 2004.
Adjusted gross income on these 90.6 million returns totaled $6.857 trillion, an increase of 9.4 percent from 2004. Total income tax on these returns totaled $935 billion, up 12.4 percent from 2004. (Adjusted gross income is total income, as defined by the tax code, less statutory adjustments, which are primarily business, investment and certain other deductions.)
The average tax rate for taxable returns was 13.6 percent in tax year 2005, which was up 0.4 percentage points from 2004.
Taxpayers in the top 1 percent of adjusted gross income reported adjusted gross income of at least $364,657 in tax year 2005. This group accounted for 21.2 percent of all adjusted gross income reported, which was up 2.2 percent from the prior year. This group also accounted for 39.4 percent of total income tax reported, which was up 2.5 percent from 2004.
Taxpayers in the top 5 percent of adjusted gross income reported adjusted gross income of at least $145,283. This group accounted for 35.7 percent of all adjusted gross income reported and 59.7 percent of total income tax.
This edition of the quarterly Bulletin includes articles about the following:
- The filing patterns of split-interest trusts were relatively stable between 2005 and 2006.
- Charitable and other types of tax-exempt organizations reported unrelated business taxable income that totaled $1.3 billion in tax year 2004, up 65 percent from 2003. These organizations reported $364.6 million in unrelated business income tax, an increase of 66 percent since 2003.
- The finances of charitable and other tax-exempt organizations have grown substantially in the 20 years from 1985 to 2004. For example, the aggregate book value of reported assets for public charities and private foundations totaled $2.5 trillion for tax year 2004, an increase of 222 percent over the 20-year period.
- Another article explores patterns in individual income taxes since the modern income tax was introduced in 1913.
The Statistics of Income Bulletin is available from the Superintendent of Documents, U.S. Government Printing Office, P.O. Box 371954, Pittsburgh, PA 15250-7954. The annual subscription rate is $53 ($74.20 foreign), single issues cost $39 ($48.75 foreign).
For more information about these data, write the Director, Statistics of Income (SOI) Division, RAS:S, Internal Revenue Service, P.O. Box 2608, Washington, DC 20013-2608; call SOI’s Statistical Information Services at (202) 874-0410; or fax, (202) 874-0964. To access an electronic version of the winter 2008 issue of the Bulletin, from the “SOI Bulletins” page described above, select “Winter 2008.”
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March Madness for Stimulus Letters
Special Economic Stimulus Letters Reach Mailboxes in March
WASHINGTON — More than 130 million American households will begin receiving Internal Revenue Service letters next week reminding them to file a 2007 tax return in order to receive a 2008 economic stimulus payment.
The mailings by the IRS will begin the first week in March and continue throughout the month. The informational notice, titled Economic Stimulus Payment Notice, alerts people that they may be eligible for a one-time stimulus payment of up to $600 ($1,200 married filing jointly) starting in May. There also is a $300 per child payment for qualifying children younger than 17.
“This special letters remind people that they won’t need to do anything more than file a 2007 tax return in order to put the stimulus payment process in motion,” Acting IRS Commissioner Linda Stiff said.
The notice is informational and does not seek any financial information. The main mailings, which will take place in three weekly batches, will go to taxpayers who filed a tax return last year.
“To receive a payment in 2008, individuals who qualify will not have to do anything more than file a 2007 tax return. The IRS will determine eligibility, figure the amount and send the payment,” the notice states. “This payment should not be confused with any 2007 income tax refund that is owed to you by the federal government. Income tax refunds for 2007 will be made separately from this one-time payment.”
However, some people must take an extra step this year to receive a stimulus payment. In late March, the IRS will send a special mailing to certain recipients of Social Security and Veterans Affairs benefits. Generally, those benefits are nontaxable and recipients do not file tax returns. In order to receive a stimulus payment, people in this group need to file a tax return if they have at least $3,000 from a combination of certain Social Security benefits, Veterans benefits and earned income. The minimum stimulus payment for these people is $300 ($600 for married filing jointly).
The IRS has created a sample of Form 1040A with information on how to fill out a few lines that will enable eligible people who do not normally file a tax return to receive the stimulus payment.
More details on the special mailings for recipients of Social Security and veterans benefits will be available soon.
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Tax Debt Help – Time Limit Strategies
The IRS has three years to give you a refund, three years to audit your tax return, and ten years to collect any tax due. Together, these laws are called the statute of limitations. They put time limits on various tax-related actions that you and the IRS can take.
You have 3 years to claim a tax refund.
This is measured from the original deadline of the tax return, plus three years. For example, your 2004 tax return was due on April 15th, 2005. 2005 plus 3 is 2008. You have until April 15th, 2008, to file your 2004 tax return and still get a tax refund. File your 2004 return after April 15th, 2008, and your refund “expires.” It goes away forever. This is called the statute of limitations for claiming a refund.The tax code says that you have three years from the original filing deadline to claim a refund.
The IRS has 3 years to audit your tax return or to assess any additional tax liabilities.
This is measured from the day you actually filed your tax return. If you filed your taxes before the deadline, the time is measured from the April 15th deadline. For example, you filed your 2006 tax return on February 15th, 2007. The 3-year time period for an audit begins ticking from April 16th, 2007, (the filing deadline) and will stop ticking on April 16th, 2010. On April 17th, 2010, the IRS cannot audit your 2006 tax return unless there is a suspicion of tax fraud.
The IRS has 10 years to collect outstanding tax liabilities.
This is measured from the day a tax liability has been finalized. A tax liability can be finalized in a number of ways. It could be a balance due on a tax return, an assessment from an audit, or a proposed assessment that has become final. From that day, the IRS has ten years to collect the full amount, plus any penalties and interest. If the IRS doesn’t collect the full amount in the 10-year period, then the remaining balance on the account disappears forever. The statute of limitations on collecting the tax has expired.
Example of the Statute of Limitations
Let’s provide an example based on a real-life scenario. Mr. Smith wants to file 6 years of tax returns: 2001 through 2006. All years he has refunds. If he files by April 15th, 2007, Mr. Smith will receive refunds for his 2003, 2004, 2005, and 2006 tax returns. His refunds for 2001 and 2002, however, have expired.Let’s change the example slightly. Mr. Smith wants to file 6 years of tax returns: 2001 through 2006. In 2001 and 2002, he could have received a refund. In 2003, 2004, and 2005, he owes. Mr. Smith cannot apply his 2001 or 2002 refunds as an estimated tax payment towards his 2003 taxes. His refunds have expired. For the 2003 to 2006 tax returns, the IRS has ten years to collect the full tax, plus penalties and interest, from the date Mr. Smith actually files the returns. If Mr. Smith has a refund for 2006, that refund will be used to pay off his tax debts.
Action Plan Item
It is in your best interest to file your tax returns at your earliest possible convenience. First, you can claim refunds. Second, it starts the clock ticking on the 3-year statute for audits and the 10-year statue for collections.
Tax Law References
- Internal Revenue Code, Section 6501 (3-year audit statute),
- Section 6502 (10-year debt collection statute), and
- Section 6511 (3-year refund statute).
For more information on how the IRS manages these statute of limitations, see Internal Revenue Manual, 25.6.1, Statute of Limitations.
Tax Debt Help – State Tax Amnesty Programs
Find out what tax amnesty is all about, especially the difference between limited-time-only amnesty programs and on-going voluntary disclosure initiatives. Get tax relief for those tax returns you haven’t filed, or back taxes you are trying to pay off.
The Arizona Department of Revenue is offering a limited-time tax relief program for people and businesses who participated in tax shelters. Taxpayers may submit amended tax returns to disclose their participation in a tax shelter in exchange for relief from penalties. Program ended on April 1, 2005.
California’s Franchise Tax Board is offering tax amnesty for people and businesses who haven’t filed their tax returns, or who substantially understated their tax obligation. Ended March 31, 2005.
Connecticut’s Department of Revenue Services offers tax relief for people and businesses who haven’t filed their tax returns, who haven’t paid their back taxes, or who have understated their tax obligations.
Washington DC’s Office of Tax and Revenue offers tax relief for people and businesses who haven’t filed tax returns, who haven’t paid their back taxes, or who have understated their tax obligation.
Businesses that haven’t filed or paid their taxes can get tax relief for their business and payroll taxes.
People and businesses who haven’t filed their tax returns may be eligible for tax relief from the state of Idaho. The State Tax Commission may waive penalties if you file and pay your taxes.
Indiana’s Department of Revenue is offering tax amnesty for people and businesses who haven’t filed their tax returns, or who substantially understated their tax obligation. Ends November 15, 2005.
Indiana’s Department of Revenue offers tax relief for people and businesses who haven’t filed tax returns, who haven’t paid their back taxes, or who have understated their tax obligation.
The Minnesota Department of Revenue offers tax relief for businesses that have not filed their sales and use tax returns.
The Minnesota Department of Revenue is offering a limited-time tax relief program for people and businesses who participated in tax shelters. Taxpayers may submit amended tax returns to disclose their participation in a tax shelter in exchange for relief from penalties. Program ends on January 31, 2006.
Mississippi is offering tax amnesty for people and businesses who haven’t filed their tax returns, or who substantially understated their tax obligation. September through December 2004.
The Missouri Department of Revenue offers tax relief to people and businesses who have not filed or paid their taxes.
North Carolina’s Department of Revenue offers tax relief for people and businesses who haven’t filed tax returns, who haven’t paid their back taxes, or who have understated their tax obligation.
Pennsylvania’s Department of Revenue offers tax relief for people and businesses who haven’t filed tax returns, who haven’t paid their back taxes, or who have understated their tax obligation.
Rhode Island is offering tax amnesty for people and businesses who haven’t filed their tax returns, or who substantially understated their tax obligation. Ends on September 30, 2006.
South Carolina’s Department of Revenue offers tax relief to out-of-state businesses who have not filed or who have not paid their SC taxes.
South Dakota’s Department of Revenue offers tax relief for businesses that have not filed or have not paid their sales and use tax, or contractor’s excise tax.
Tennessee’s Department of Revenue offers tax relief for businesses that have failed to file their sales, use, excise, or franchise taxes.
The Utah State Tax Commission offers tax relief to businesses that have failed to file or to pay taxes.
Vermont’s Department of Taxes offers tax relief for people and businesses who haven’t filed tax returns, who haven’t paid their back taxes, or who have understated their tax obligation.
The State of Washington is offering tax relief for business that have failed to file or failed to pay their taxes.
Wisconsin’s Department of Revenue offers tax relief for people and businesses who haven’t filed tax returns. Offers partial relief from penalties.
Tax Debt Help – Making Those Estimated Tax Payments
- If you received income where taxes weren’t withheld — such as money from self-employment, investments or alimony — you’re generally required to pay estimated taxes.
- Use Form 1040-ES – Estimated Tax for Individuals to figure your estimated tax payments.
- If you underpay your estimated taxes, you might be subject to a penalty.
What are estimated taxes?
You’re required to pay estimated taxes if you receive income from which taxes aren’t withheld , including money from self-employment, investments and alimony, and your tax (after subtracting credits and withholding) is expected to be $1,000 or more. Here are a few good things to know about estimated tax payments:
- The payments are due April 15, June 16, Sept. 15 and Jan. 15.
- If you fail to pay enough on each installment due date, you may be subject to the penalty for underpayment of estimated tax even if your return shows a refund.
- If you pay in as much as your tax liability for the previous year, you can pay your balance due without penalty when you file your return, regardless of the amount. See below if your prior-year income was high.
How much do I pay?
As part of your year-end planning, compare your projected year-end tax payments with your expected tax liability. If your payments are expected to be less than 90% of current-year tax, you generally will have to increase your withholding or estimated tax payments.
However, if your payments are made timely and will be at least as much as your prior-year tax liability, you’re probably safe from the penalty. But if your prior-year adjusted gross income was more than $150,000 ($75,000 if Married Filing Separately), you’ll have to pay 110% of your prior year tax liability. Figure your estimated tax with Form 1040-ES – Estimated Tax for Individuals.
Overwitholding Taxes
Tax withheld from your paycheck is considered to be paid evenly throughout the year, which means overwithholding in November and December can make up for earlier underpayments. If you have a job, arrange with your employer to withhold extra amounts from the final paychecks of the year so you’re not subject to the penalty when you file your return.
Underpayment of Estimated Taxes
If you do not make enough estimated tax payments and are subject to the penalty, don’t automatically pay it. There are several exceptions to the penalty. Information can be found in the instructions for Form 2210.
Tax Help – Take Advantage of Job Search Expense Deductions
With the unemployment rising on a daily basis, here is another deduction that you should consider………………..
Job search expenses can be deducted as miscellaneous itemized deductions if you look for a job in the same field at the same level as the one you left. The expenses are deductible — even if you don’t get the job.
You can claim job-seeking expenses as long as the amount of all miscellaneous itemized deductions is more than 2% of your adjusted gross income (AGI). Job seeking deductions are also subject to the overall limitation on itemized deductions based on income threshold amounts. To figure your deduction, subtract 2% of your AGI from the total amount of these expenses.
Allowable Deductions
You may be eligible for the following deductions while you’re searching for a job.
- Employment agency fees: If in a later year your new employer repays your agency fees, you must include the amount in your income up to the amount of the deduction you claimed earlier. If your employer pays fees directly to the agency, you don’t have to include them in your income.
- Resume preparation: typing and printing, postage, long-distance charges, advertising, and photographs required for your resume.
- Travel: airfare, mileage (some automobile expenses have been approved), lodging and meals (based on either actual expenses or standard federal per diem rates).
- Legal fees protecting employment status.
Qualifications
To qualify for a deduction, your job search must be for a job in your current, or most recent, trade or business and should be at a similar level of responsibility with duties similar to those of your most recent job.
- If you haven’t held a job in that trade or business for an extended length of time, your job search will be considered for a new trade or business, and your deductions may not be allowed.
- If you held a college internship or valid job while in college and your search is for a job in the same trade or business, you will be able to take the job search deductions.
- If you’re just out of school and had no paying jobs while in school that were related to your trade or business, your deductions won’t be allowed.
To learn more about job-hunting deductions, contact a tax professional.
Tax Help – Utilizing the Saver’s Credit
The Retirement Savings Contribution Credit, known as the Saver’s Credit, allows you to get a credit for up to half of what you contribute to your IRA or other qualified retirement plan. Up to $2,000 of your annual contribution is eligible for the credit.
If you are Married Filing Jointly and you and your spouse make eligible contributions, both of you may claim the credit. Note: If you received a distribution from an IRA or other plan with contributions eligible for the credit, the distribution reduces the amount of your 2007 contributions that are eligible for the credit. For 2007, this applies to distributions you received during 2005, 2006 and 2007, and to distributions you will receive in 2008.
Saver’s Credit Requirements
You qualify for the Saver’s Credit if you are:
- 18 or older
- not a full-time student
- not claimed as a dependent on someone else’s return, and
- have an AGI that does not exceed $52,000 if Married Filing Jointly, $39,000 if Head of Household and $26,000 if Single or Married Filing Separately.
Your Maximum Saver’s Credit Amount
The Saver’s Credit is equal to a percentage of your eligible contributions. AGI and filing status determine the percentage — 10%, 20% or 50%. When calculating the Saver’s Credit, AGI includes excluded foreign income. Here’s how the income limitations break down according to filing status.
Married Filing Jointly
- $0–$31,000, 50%
- $31,001–$34,000, 20%
- $34,001–$52,000, 10%
Head of Household
- $0–$23,250, 50%
- $23,251–$25,500, 20%
- $25,501–$39,000, 10%
Single or Married Filing Separately
- $0–$15,500, 50%
- $15,501–$17,000, 20%
- $17,001–$26,000, 10%
IRA Contribution Deadline
You have until April 15, 2008, to start or contribute to an IRA to claim the Saver’s Credit on your 2007 tax return.
Tax Help – The Tax Advantages of Adoption
You may be able to take a tax credit for qualifying expenses paid to adopt an eligible child.
First, check with your employer about assistance, because some companies offer a program to get back a portion of adoption expenses. The Adoption Credit is not available for any reimbursed expense, but certain amounts reimbursed by your employer for qualifying adoption expenses may be excluded from your gross income.
How does it work?
The Adoption Credit could reduce your tax liability by as much as $11,390 for any type of adoption. You may claim both a credit and an exclusion for the expenses of adopting an eligible child. In other words, you may be able to claim a credit of up to $11,390 and also exclude up to $11,390 from your income. However, you can’t claim both a credit and an exclusion for the same expense.
To qualify for the full credit:
- Your adjusted gross income must be less than $170,820.
- The Adoption Credit or exclusion must be taken for a child who is a U.S. citizen or resident, unless the adoption of a foreign non-resident child becomes final.
- You must adopt an eligible child.
Or
- The child must have special needs.
- The child must be a U.S. citizen or resident.
- A state has determined that the child can’t or shouldn’t be returned to their parents’ home and probably won’t be adopted unless assistance is provided.
The credit and exclusion are reduced if your modified adjusted gross income is between $170,820 and $210,820. You can’t claim either the credit or the exclusion if your modified adjusted gross income is $210,820 or more.
If you’re adopting a special needs child, you can claim the full credit regardless of the amount spent on adoption expenses.
Is my child eligible?
An eligible child is one who is either younger than 18 or physically or mentally incapable of self care. A special needs child must have been a U.S. citizen or resident at the time the adoption procedure began, a state must have determined that the child shouldn’t be returned to his or her parents’ home, and the state must have determined that the child will not be adopted without assistance from the state. States make this determination based on a variety of factors that include:
- the child’s ethnic background
- the child’s age
- the child’s minority status
- whether the child has siblings
- whether the child has a chronic medical condition
- whether the child has an emotional or physical handicap
Which adoption expenses qualify?
Adoption expenses covered by the credit include:
- all adoption fees
- court costs
- attorney fees
- travel expenses (including meals and lodging while away from home)
- other expenses directly related to the legal adoption of an eligible child
What expenses don’t qualify?
There are several adoption-related expenses that are not eligible for the credit. Some of these include:
- expenses that violate state or federal law
- expenses associated with surrogate parenting arrangements
- expenses associated with the adoption of your spouse’s child
- expenses paid with funds received from any government program
- expenses allowed as a credit or deduction under any other federal income tax provision
- expenses paid or reimbursed by an employer or someone else
When do I claim this credit?
If you’re adopting a U.S. child, you claim the tax credit in the year after you incur the expense or the year the adoption becomes final, whichever comes first. For example, if you pay for a home study in 2006 but your adoption isn’t finalized until 2007, you claim the Adoption Credit in 2007. The credit for expenses you pay in a year after the adoption is final is claimed in the year the expenses were paid.
In the case of a U.S. child, you can claim the credit even if your adoption of the child fails. However, if your adoption involves a foreign child, you can take the credit only if the adoption is completed.
You may claim the credit for more than 1 year. For example, assume you spent $500 in 2005 for a home study to adopt a U.S. child, then an additional $3,000 in court costs and adoption agency fees in 2006. If the adoption wasn’t finalized until 2007, you would claim a $500 credit in 2006 and a $3,000 Adoption Credit in 2007. If the adoption became final in 2006, you would have taken the entire $3,500 credit in 2006. But again, for foreign children, no credit may be taken until, and only if, the adoption is finalized
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