A postmortem to the 2006 tax season – Some interesting information
From the April 15-16, 2006, Wall Street Journal, we learn:
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In 2006, more than 130 million Americans suffered through the annual ordeal of tax filing.
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A growing number of these Americans, more than 50 percent, turned to the Internet to file their taxes using sites to crunch their numbers and send their returns to the IRS at lower costs. This shift has sent the nation's major tax preparers, Intuit and H&R Block, scrambling to retool their business models.
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President Bush and wife, Laura, paid $187,768 in federal taxes on taxable income of $618,694. This represented a tax rate of about 30 percent. The president's income includes his salary as president, approximately $400,000, plus investment income from trusts. The first couple also contributed $75,500 to churches and charitable organizations in 2005, including Red Cross and Salvation Army Hurricane Relief funds, Catholic charities in New Orleans, the Mississippi Flood Network and a Pakistan Earthquake Relief fund.
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Vice President and Mrs. Cheney had taxable income of $1,961,157 and received a refund of $1.9 million since they made charitable contributions of almost $6.9 million, mainly to educational institutions.
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Intuit, maker of TurboTax, controls 85 percent of the market for PC-based software. Its consumer-tax business generated $571 million in 2005, or 28 percent of its revenue. Intuit's 2005 market share of online tax preparation grew to 51 percent.
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More than half of the individual taxpayers in America now use a paid preparer for their income tax return. Last year, H&R Block generated $2.4 billion from U.S. tax preparation, up from $841 million in 1996.
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New Mexico receives $2 in federal spending for every $1 in tax that is paid by its residents. This is the highest federal-spending-to-tax ratio in the nation. New Jersey receives the lowest, only 55 cents for every tax dollar.
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In 2004, .93 percent of individual returns were audited by the IRS. Those returns with taxable income of less than $25,000 were the highest percentage audited at 1.48 percent. The second highest percentage, at 1.41 percent, were taxpayers with taxable incomes in the range of $100,000 to $199,999.
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The federal government collected a total of $2.27 trillion in taxes in fiscal year 2005. Individual income tax constituted 48.8 percent while payroll taxes were 34 percent.
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The tax burden of Americans compares favorably to other countries. Government taxes at all levels came to almost 25 percent of the U.S. economy in 2005. Sweden was the highest country in the world at 50.6 percent, followed by France at 43.4 percent, the United Kingdom at 35 percent and Germany at 35.5 percent. Japan has a tax burden similar to the United States at 25.3 percent. Federal taxes in 2005 amounted to 17.5 percent of the gross domestic product, up from a modern low of 16.3 percent in 2004, but well below the high of nearly 21 percent in 2000.
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The U.S. tax system continues to be progressive, meaning that people with high incomes pay a higher percentage of their income in taxes than those with low incomes. In 2005, 1 percent of American households with the highest incomes, those earning an average of $1 million a year, paid 31 percent of their income in federal taxes including payroll tax and income tax. The 20 percent of households with the lowest incomes, those earning an average of about $15,000 a year, paid less that 5 percent of their incomes in taxes. In 2003, the highest earning 20 percent of households earned 52.2 percent of income and paid 65.7 percent of the taxes.
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A record of 8.3 million American households had a net worth of $1 million or more in 2005, an increase of 800,000 from 2004. The number of households with a net worth of $5 million plus rose to 930,000 in 2005.
If all this tax information makes you nervous or bored, I suggest you have an income tax cocktail to sooth your spirits. Legend has it that teetotaler Johnnie Solon created this drink in 1899 at the Waldorf Hotel in New York. The ingredients are: 1 oz. gin, ¾ oz. freshly squeezed orange juice, ¼ oz. dry Vermouth, ¼ oz. sweet Vermouth and a dash of Angostura bitters. Shake with ice and strain into a cocktail glass. Garnish with a slice of orange. Sounds good to me.
Do you plan on working past age 65?
If your answer is “yes,” you join the majority of other Americans. Based on an Ipsos Public Affairs and Aetna Survey of 517 adults, ages 45 to 64, 54 percent of Americans plan on working past age 65.
I see more and more CPA partners who, 10 years ago, would have said they planned to retire and walk out of their practices at age 63 to 65, now saying they plan to stay with their firms past age 65 for a variety of reasons.
- They are still very vital, they enjoy what they do more than they used to and their younger partners want them to stay.
- They want to add more money to their retirement funding because they expect to live longer than they had originally thought.
- Their firm has not dealt with “succession issues” to their satisfaction.
- They haven't developed other pursuits or hobbies.
I predict if this survey is conducted five years from now you will see the number of adults who plan to work beyond age 65 increase from 54 percent to over 65 percent.
Until next time, everybody keep thinking! I would enjoy hearing from you and sharing your ideas on how your CPA Mutual team members can improve our service to you. E-mail me at dthompson@cpamutual.com.
Douglas H. Thompson, Jr.
CEO, CPA Mutual
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