Most IRS statistical reports are about as entertaining as you would expect an IRS statistical report to be. However, the IRS has just released a new report analyzing income and taxes for the top 400 earning Americans. This particular report offers some fascinating insights into how those ultra-fortunate earn their money, how they pay tax on it, and how you can benefit from the strategies they use.

  • For 2007, the top 400 averaged $344.8 million in “adjusted gross income” (the number that appears at the bottom of Page 1 of Form 1040). The minimum income required to join the elite group was $138.8 million.
  • Just 6.5% of the group’s income came from salaries and wages. Capital gains, which are taxed at no more than 15%, accounted for 66.3% of the total. And interest and dividends, which can also be taxed at preferential rates, accounted for most of the rest.
  • The top 400 earners paid an average tax of $57.2 million each. That sounds like a lot – but it’s just 16.6% of their income. For 2007, only 220 of the 400 even reached the top marginal bracket of 35%, which kicks in for ordinary income topping $373,650.

The IRS has analyzed the top 400 earners since 1992. In that time, 3,472 taxpayers have made the list. Forty percent of them have appeared just once, and only seven have appeared every year. Most of those who make the list do so because of some extraordinary one-time event, like selling a business or other assets.

Are the top earners paying their “fair share”? That’s a loaded question, of course – but while the 2007 group reported 1.59% of the country’s income, they paid 2.05% of the tax. So they do pay a greater percentage than they would under most flat-tax or sales-tax proposals.

Billionaire Warren Buffet, among others, has long complained that the current system is unfair because he pays a lower percentage in tax than his own secretary. The fact is, super-earners who pay those low rates are just taking advantage of the same planning opportunities that are available to everyone. And, while you may not be quite ready to join that club, you can take advantage of the same opportunities they enjoy to pay less. So call us if you’re ready for a plan to pay less. And let your friends, family, and colleagues know we’re here to help them too.

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