This week we feature news and notes from around the globe (or at least from around the U.S.) to help you get through the last few weeks of the tax filing season.

Your Fair Share?

Remember when you dreamed about being in the top 10% of your class? Well, when you're talking about the "class" of all taxpayers, you may want to think again.

The IRS recently released data for the 1997 tax year (the most recent year they have reviewed). For the sixth consecutive year, high-income taxpayers shouldered an even larger share of the tax burden, and the trend will likely continue.

The top 1% of taxpayers paid 33% of the total income taxes for 1997. This is up by 1% over the statistics released for 1996. Who's in the top 1% of all taxpayers? You were if your adjusted gross income (AGI) for 1997 was $250,700 or more.

Additionally, if your 1997 AGI was greater than $108,000, you were in the top 5% of all taxpayers. That group paid 52% of all income taxes. If your 1997 AGI was greater than $79,000, you were in the top 10% of all taxpayers... a group that paid 63% of the total income tax burden.

That's right... it's not a misprint: The top 10% of all taxpayers paid 63% of the total income tax burden.

Looking at this another way, you can see that the bottom 90% of all taxpayers only paid a 37% share of the total federal income tax burden. Additionally, the bottom 50% of all taxpayers paid only 4% of the total federal income tax burden.

It should be noted that the above statistics don't include Social Security or Medicare taxes... only income taxes. If Social Security and Medicare taxes were included in the mix, the total tax percentage for the bottom 50% of taxpayers would certainly increase.

Who Says the Tax Filing Deadline Is April 17th?

If you live in the Northeast, you've likely heard the hubbub regarding the correct filing date for your tax return, the date that your payment must be made, and the correct date for making your first estimated tax payment. The confusion stems from the fact that some Northeastern residents file their tax returns in the Massachusetts Service Center (where April 17th is a legal holiday), but payments are made to the Pennsylvania Service Center (where April 17th is business as usual). So, which date do you use as the deadline for each thing? Uncle Sammy finally cleaned up the date mess.

Residents of Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island, Vermont, and New York (except for folks living in New York City and the four neighboring counties) will be able to legally file their tax returns on April 18th. And, this is true whether you have a refund coming or a balance due to pay.

Additionally, residents of these states will have until April 18th to make their first estimated tax payment. The IRS decided to grant filers in these states the extra day to avoid additional confusion and eliminate the imposition of unnecessary penalties. And, not only that, since the legal due date for tax returns has been moved to April 18th, so has the date required to make 1999 IRA contributions (either traditional or Roth). But, remember that filing for an extension to submit your tax return does not extend the time to make a 1999 IRA contribution (either traditional or Roth).

For the rest of you reading this who don't live in the Northeast, your filing date remains April 17th. Sorry. Who said tax rules aren't confusing?

Top 10 Return Preparer Errors

According to the IRS, the Top 10 errors on Form 1040 made by paid tax return preparers through March 2, 2000 are listed below. (These errors apply to paper returns only... not to electronic filing.)

1. Taxpayer ID numbers (social security numbers) or names for dependents didn't match IRS or Social Security Administration (SSA) records, so the IRS wouldn't allow the exemptions.

2. Taxpayer ID numbers or names for dependents didn't match IRS or SSA records, so the IRS wouldn't allow all or part of the child tax credit.

3. The dependent's last name didn't match IRS or SSA records.

4. The Earned Income Credit was computed or entered incorrectly.

5. The primary taxpayer's social security number was incorrect or illegible.

6. The return didn't include nontaxable earned income from the W-2 form, so the Earned Income Credit (EIC) was required to be changed by the IRS.

7. The social security number for children who qualify the taxpayer for the EIC didn't match IRS or SSA records. The IRS was required to change the computations for the EIC.

8. The child tax credit was computed incorrectly.

9. The taxpayer's name on the top of the tax return was illegible or didn't match IRS records.

10. Based on the information reported, a "joint" return was filed when a "single" return was required.

So, if you had your return completed by a tax "pro," you might just want to double-check it now. Taking a few minutes today may save you time (and excessive correspondence) with the folks at the IRS. I hope you enjoyed this little sidetrack into the land of miscellaneous tax information. But be prepared: Next week we'll get back to a discussion of the tax laws and how they affect you.

If you like the way Roy Lewis simplifies confusing tax issues, check out his just-published book, The Motley Fool's Investment Tax Guide 2000: Smart Tax Strategies for Investors. This handy 360+ page guide covers just about every tax aspect of a typical Fool's life: investing, marriage, children, education, homes, home offices, retirement accounts, medical expenses, and much more.)

March 31, 2000

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