- Recent tax legislation
- The "Jobs and Growth Tax Relief Reconciliation Act" passed in
2003, and additional, related legislation in almost every year
since, has included some significant, often temporary, and somewhat
confusing changes. This is in addition to the already complex tax
code changes passed by Congress in 2000. Below is a summary of the
changes that impact most taxpayers in 2008.
- Child tax credit: The child tax credit has been
increased from $600 to $1,000 through 2010. Starting in 2010, the
tax credit returns to the level originally passed in the 2000 tax
bill. The credit is, however, still phased out for higher
incomes.
- Marriage penalty relief: The new law makes the standard
deduction for married couples filing jointly and qualified widowers
to be double that of single tax filers. This puts the standard
deduction for 2008 at $10,900. In addition to the increased
standard deduction, the 15% tax bracket has been increased for
married tax filers to further reduce the impact of the marriage
penalty.
- 2008 Tax rates: Below are the resulting tax rates and
income ranges for 2008:
| Filing Status and Income Tax
Rates 2008
|
| Tax rate |
Married filing jointly
or Qualified Widow(er) |
Single |
Head of household |
Married filing
separately |
| 10% |
$0 - 16,050 |
$0 - 8,025 |
$0 - $11,450 |
$0 - 8,025 |
| 15% |
$16,051- 65,100 |
$8,026- 32,550 |
$11,451- 43,650 |
$8,026- 32,550 |
| 25% |
$65,101- 131,450 |
$32,551- 78,850 |
$43,651- 112,650 |
$32,551- 65,725 |
| 28% |
$131,451- 200,300 |
$78,851- 164,550 |
$112,651- 182,400 |
$65,726- 100,150 |
| 33% |
$200,301- 357,700 |
$164,551- 357,700 |
$182,401- 357,700 |
$100,151- 178,850 |
| 35% |
over $357,700 |
over $357,700 |
over $357,700 |
over $178,850 |
Source:
http://www.irs.gov/pub/irs-drop/rp-07-66.pdf
- Reduced Taxes on Capital Gains: Capital gains tax rates
reduce to 0% and 15% respectively, for 2008. These capital gains
rates are for property that was held for at least one year. This
calculator assumes that all of your long-term capital gains are
taxed the new rates of 0% and 15%.
- Reduced Taxes on Dividends: The new law applies the
capital gains tax rates to qualified dividends paid from most U.S.
corporations and certain qualified foreign corporations. This
calculator assumes that all dividends are qualified, however, you
should make certain that this is the case in your particular
circumstance. All qualified dividends will appear in column 1b of
Form 1099-DIV, which should be sent to you in January of the year
following the dividend payment. Taxpayers in the 10% or 15% bracket
pay 0% percent in 2008. Taxpayers in tax brackets above 15%, pay a
15% rate of tax on dividends paid between January 1, 2003, and
December 31, 2008.
- IRA and retirement plan deductions: The new tax law did
not change IRA deduction and contribution limits. However, the 2000
tax code increased the amount for most individuals to $5,000 for
2008. Those age 50 and over can contribute $6,000.
- Wages, salaries, tips, etc.
- This is your total income for the year. To keep things simple
this calculator assumes this is your net income, after deductions
for retirement contributions such as 401(k)s, IRAs, etc.
- Filing status
- Choose your filing status. Your filing status determines the
income levels for your federal tax bracket. It is also important
for calculating your standard deduction, personal exemptions, and
deduction phase out incomes. The table below summarizes the five
possible filing status choices. It is important to understand that
your marital status as of the last day of the year determines your
filing status.
| Filing Status for 2008 |
| Married filing jointly |
If you are married, you are able to file a joint return with
your spouse. If your spouse died during the tax year, you are still
able to file a joint return for that year. You may also choose to
file separately under the status "Married filing separately." |
| Qualified Widow(er) |
Generally, you qualify for this status if your spouse died
during the previous tax year (not the current tax year) and you and
your spouse filed a joint tax return in the year immediately prior
to their death. You are also required to have at least one
dependent child or step child whom which you are the primary
provider. |
| Single |
If you are divorced, legally separated or
unmarried as of the last day of the year you should use this
status. |
| Head of household |
This is the status for unmarried individuals that pay for more
than half of the cost to keep up a home. This home needs to be the
main home for the income tax filer and at least one qualifying
relative. You can also choose this status if you are married, but
didn't live with your spouse at anytime during the last six months
of the year. You also need to provide more than half of the cost to
keep up your home and have at least one dependent child living with
you. |
| Married filing separately |
If you are married, you have the choice to file separate
returns. The filing status for this option is "married filing
separately." |
- Are you someone's dependent?
- Choose 'no' if no one can claim you or your spouse as a
dependent. Choose 'yes' if someone can claim you as a dependent.
Choose 'both you and your spouse if you both are dependents. (You
are a dependent if someone supports you and can claim a dependency
exemption for you.)
- Number of additional dependents
- A dependent is someone you support and for whom you can claim a
dependency exemption. In 2008, each dependent you claim entitles
you to receive a $3,500 reduction in your taxable income (see
exemptions below). In 2008, each dependent under the age of 17 also
receives a tax credit of $1000. The credit is, however, phased out
at higher incomes.
- Itemized deductions
- This is the total of your itemized deductions that you can
include on schedule A of your federal income taxes. For most people
this includes state income taxes paid for the year, interest on a
mortgage and any charitable contributions. Other itemized
deductions include certain investment expenses, medical expenses
exceeding 7.5% of your adjusted gross income, and some moving
expenses.
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