How Much Money Do You Need To Be In The Top 1 Percent In The Us
Tax Day has officially come up and gone for another yr, but what many Americans don't realize is that beingness tax-conscious should have no beginning or end appointment. No one enjoys forking over any percent of their income to the federal government, but we also know that taxes are necessary and so that the federal government has funds to pay for Social Security, Medicare, Medicaid, income security programs, defense force, and all of the other various programs that eat up a combined $4 trillion annually.
However, we all know that our federal income taxes tin vary wildly from person to person. This is where federal income revenue enhancement statistics from the Internal Revenue Service tin come in handy: They offer us a sneak peek at who's earning what and how much they're really paying.
Prototype source: Getty Images.
How does your income and tax burden stack upward to everyone else?
Recently, the IRS released income and tax-burden information from 2013, which personal finance-based publisher Kiplinger aggregated into an easier-to-understand format. Based on the IRS' income and tax-burden information, we can get a detailed look at how much Americans need to earn to discover themselves in the exclusive top 1%. Additionally, the data breaks out what y'all'd need to accept earned in 2013 to observe yourself in the top v%, height 10%, pinnacle 25%, and top 50%. Mind yous, this data looks solely at federal income and doesn't accept into business relationship what revenue enhancement brunt individuals might face up at the local or land level.
Here's how things shaped up in 2013:
| Income Category | 2013 AGI |
|---|---|
| Meridian 1% | > $428,712 |
| Peak five% | > $179,759 |
| Pinnacle 10% | > $127,694 |
| Top 25% | > $74,954 |
| Pinnacle 50% | > $36,840 |
| Bottom 50% | < $36,840 |
Table past author. Information source: Kiplinger via IRS. AGI = adjusted gross income.
You'd accept needed to earn nearly $429,000 in adjusted gross income (this ways after deductions and credits are factored in) to exist function of the top 1% in the U.s.. You'd have needed almost $180,000 simply to crack the summit five%, and nigh $128,000 to be in the top x%. These figures were higher than I would have expected. Conversely, earning more than $36,840 in AGI would take put you in the upper one-half of income-earners in 2013 -- much lower than I would have imagined.
| Income Category | Percent of All U.S. Income |
|---|---|
| Top 1% | xix% |
| Superlative 5% | 34.iv% |
| Top 10% | 45.9% |
| Top 25% | 68.one% |
| Meridian 50% | 88.v% |
| Bottom 50% | xi.v% |
Table by writer. Data source: Kiplinger via IRS. Data is from 2013.
In terms of all income earned in 2013, we tin can certainly see why the income-inequality debate continues to rage on. The summit 1% deemed for 19% of all income earned in this country in 2013. Past comparing, the bottom l% combined only wound up with 11.5% of all income earned. The meridian x% was essentially responsible for almost half of all the country's 2013 income.
| Income Category | Percentage of Income Taxes Paid |
|---|---|
| Top i% | 37.viii% |
| Top 5% | 58.6% |
| Peak ten% | 69.eight% |
| Top 25% | 86.three% |
| Superlative l% | 97.2% |
| Bottom 50% | 2.8% |
Table by author. Data source: Kiplinger via IRS. Data is from 2013.
Despite this glaring income gap, well-to-do individuals are seemingly paying their share of federal income taxes. The 2013 IRS information shows that while the top i% earns xix% of all income in this land, they likewise supply the federal regime with 37.eight% of all income taxes paid. Similarly, the tiptop 10% may earn 45.nine% of all income, simply they pay 70% of all federal income tax in the United States. On a broader scale, the tiptop 50% of income earners pay 97.two% of all federal income taxes, whereas the bottom fifty% contributed a mere 2.viii% in 2013.
Most Americans tin can lower their tax burdens year-round -- hither's how
The IRS may collect trillions of dollars annually for the federal authorities, merely there are numerous ways American taxpayers tin can reduce their revenue enhancement liability throughout the year -- in some cases regardless of how much they earn.
One of the easiest ways to reduce your tax liability is to invest for your hereafter. Contributing to an employer-sponsored 401(k) or traditional IRA not only helps y'all save and invest for the futurity, simply can also reduce your income tax liability by the amount of your contribution. A Roth IRA, on the other manus, provides no immediate tax savings and has income limitations on who tin can contribute. However, investments in any IRA tin can grow completely free of taxation.
Along those same lines, sticking to your investing strategy for an extended period of fourth dimension can also be quite beneficial come up tax time. Assets, such as stocks and bonds, that are held for one twelvemonth or less are considered to exist short-term holdings by the IRS, and whatsoever gains on the sale of those assets will exist taxed at your ordinary income tax charge per unit. By comparison, holding an nugget for a year and a twenty-four hour period or longer allows that nugget to be classified as long-term, meaning your upper-case letter gains will be taxed at a much lower rate. For those in the superlative ane%, belongings your investments for a longer period of time can mean the difference between paying a 35% or 39.half dozen% taxation charge per unit on your capital letter gains and paying 15% to twenty% -- about half the brusque-term taxation rate.
Donating to a cause yous believe in is another style Americans tin can lower their tax liability. Non only does the donation back up a crusade you believe in, only you lot'll receive a tax deduction that's commensurate with your peak ordinary income taxation bracket -- every bit long every bit you itemize your deductions, rather than taking the standard deduction. For example, if your adjusted gross income places your terminal earned dollar in the 28% tax bracket for a given yr, then a donation to an eligible charity tin upshot in a $0.28 deduction for every $1 donated. Donations will favor wealthier individuals, equally the deduction on a per-dollar ground will be higher, merely Americans of all income levels come up out every bit winners in some way when nosotros donate.
Your home may also exist a treasure trove of deductions and credits -- especially if you're a homeowner. Energy-efficient improvements, such as the add-on of solar panels or a solar h2o heater, allow a homeowner to write off xxx% of the cost of the equipment and installation, with no upper limit on how much can be deducted. Refinancing your mortgage can help, too. Points (each "betoken" equals 1% of the principal loan amount) from a refinance (or new mortgage) can be amortized over the life of the loan, helping to reduce your tax liability.
Don't think of Tax Day every bit a once-a-year nightmare. If you make tax planning role of your routine, it'due south likely that you'll run into far fewer surprises come tax time -- and pay a lower effective tax rate.
Source: https://www.fool.com/investing/general/2016/05/01/youd-need-to-earn-this-much-to-be-in-the-top-1-5-1.aspx
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