A Look at the Highest Income Tax Returns

You can learn a lot from a summary of the 400 tax returns reporting the highest incomes. The IRS recently released those returns for 2010. The information is a little dated, but you still can learn a lot. The key takeaways are that the highest earners receive more than half their income for the year from capital gains. Not surprisingly, most of them weren’t on the list of 400 top earners the year before. That indicates that while the top 400 probably are well off, they experienced a one-time or periodic windfall by selling a business or other valuable asset. The top 400 pay relatively low tax rates, primarily because so much of their income is long-term capital gains, but the range of tax rates within the top 400 is broad.

To make the list, taxpayers had to have at least $99 million of income, well below the 2007 cutoff of $138.8 million. In 1992, the threshold was $24.4 million.

In 2010, the top 400 returns reported an average of $150 million in net capital-gains income. On average, these taxpayers received 57% of their income from capital gains, as opposed to other sources of income such as wages. About 80% of the capital gains qualified for lower rates, according to the IRS data. The group reported dividends averaging $34 million each.

The top 400 taxpayers claimed $7.3 billion of deductions for charitable contributions. Their average per return was about $19 million, or 7% of their average income. Americans give away about 2% of their income each year, says Roberton Williams of the Tax Policy Center in Washington, but most people don’t give enough away to take deductions for the donations.