tax computation worksheet

Federal taxes use marginal brackets. Different rates apply to different parts of the income.A person in the 35% bracket does not pay 35% on their entire income, only on the portion over $200k. The portion below that is charged at the lower rates.Multiplying your taxable income by 35% would result in too high a figure. The overcharge for the lower brackets is thus subtracted from the result.A more straightforward computation is sometimes used instead: subtract the threshold amount, multiply by the top rate, then add the tax for the lower rates. This is more understandable in terms of what it is doing, but it requires in one extra math operation.

Humorously enough, I was posting just such a proposal in various places around the time you were posting this (I found your post while googling for mine.)  The post that got the most discussion was at Forum Post: Simplest Suitably Progressive Tax: R*log(Income/Poverty), and a more thorough write-up of the proposal, with a very nice chart, is at Log Tax. Briefly, my proposal is to entirely replace existing taxes with a single tax, with its rates set by the formula Tax Rate = R*log(Income/Poverty), where Income is the total annual income of the taxpayer (or net profit of a company), Poverty is the poverty threshold (currently $11,161 for singles), and R is determined as the multiplier necessary for total taxes to match revenue requirements.  Last year's calculations (see the link given above) suggested that R = 8.83 would have achieved that year's 3.7 trillion in spending. We could round it to R = 9 and use the extra $80 billion a year paying down the debt. You can explain the effect such a tax would have without explaining logarithms: those at the poverty line or below would owe zero taxes; the rate would increase smoothly with your income; and adding a zero to your income - making 10 times as much money - would add 9 to your income tax rate. So, those making $111,610 in income would pay 9% taxes on it, while someone making over a million would pay around 18%, (average company makes half a million a year, by the way). and the taxes on a billion-dollar income or profit would be around 45%. This would be an effective tax cut for most everyone below $26 million in annual income; in fact, it may be low enough to eliminate the need for deductions entirely.  We could still establish subsidies if we wanted to, but subsidy forms could be separated from tax forms.At the risk of an overly lengthy post, I'd like to reply to some of the comments.  Most focused on the value of the simplicity of the code, but in my view, not only was that value not fully appreciated, other important benefits went unnoticed.  First, I think the intimidation most people feel with regard to the tax form itself is underestimated by many professionals, as is the degree to which that fuels resentment and suspicion. Beyond the tax form itself, however, the complexity of our tax policy renders it an impenetrable mess, very difficult for most people to understand and evaluate, inevitably undermining people's perception of the fairness of the tax code. People are generally better able to evaluate the fairness of rules, and much more inclined to view rules as fair, when those rules can be clearly understood.  In this case, the tax code could fit on a bumper sticker, and while logs would need some introduction for people, most would be satisfied with knowing that a log is one of the buttons on the calculator, and hearing the explanation given in the previous paragraph; especially given some charts of the result. I understand no one wants new math thrown in on top of the tax mess, but this would be the replacement of that entire mess with one single math bit - one rule that applies to everyone - that fits on a bumper sticker and can be done on a calculator.  (Admittedly, it will still be complicated for businesses and investors to work out their income/profit, but that's largely accounting they have to do anyway as a business/investor.)Further, beyond the implications for public opinion and policy and informed consent, there are significant benefits accruing to any establishment of tax rates by a smooth, monotonic function.  Each of those dips and bumps in the effective tax rate represent disproportionate burdens placed on people at certain income levels, distorting economic response and gathering revenue inefficiently; not to mention the coral-reef accretion of preferences and subsidies that has built up, some of which never served a useful function and much of which no longer does.  With a smooth, monotonic function, people who make more are guaranteed to pay more, but with no sudden jumps between income neighbors.  Finally, revenue skyrockets even as the taxes on most people go down.  Why?  Because our tax system is designed for an economy at least one order of magnitude below the one we actually have now, becoming flat precisely where it should be the most progressive.  A smooth function, on the other hand, extends across all scales naturally.  If the goal is in part to prevent runaway income inequality, the system must apply all the way up to the highest of those, rather than having the opposite effect by hindering only those below some income level.Finally, I'd like to congratulate Ian McCullough on his work here, and discuss the differences in our approach and results.  He wishes to keep three degrees of freedom: the effects on the bottom, middle, and top of the income scale.  Since I was seeking as simple a result as possible, I set the bottom at zero for the poverty level, and simply hoped the middle and top would get decent results.  I do risk, in particular, the top rate going above 100%, which obviously would not work out at all. However, I think the result acceptable there, since currently one would have to be making in on the order of quadrillions a year in income to get to that tax rate. Even if we do get to that economic scale, the existence of multiple entities at or near that income level would drop the ratio R so much as to prevent it from getting anywhere near 100%.  So, a separate constraint is not currently necessary to keep the top rate from being around 50%.  Finally, the results for the median population came out quite well without requiring any associated constraint - about 6% for $50K income (recall SS and Medicare taxes are replaced.)  However, if you look at our results, we can see that Ian's graph is very similar to that of a log function.  Part of the reason, I think, that we don't need a set of such constraints is that we are choosing an appropriate curve, rather than having various linear models we're sticking together to approximate that curve.

Long-Term Capital Gains (LTCG) and Qualified Dividends are taxed at a different rate than ordinary income (0%, 15%, or 20% depending on income level). Recapture of depreciation (25%) and gains on sale of collectibles (28%) are at different rates as well.The Schedule D Tax Worksheet is designed to determined what income qualifies for the lower rates, determines the tax at Capital Gain Rates and the tax at ordinary income rates and provides calculation of the lowest tax due.

I'll just add this to Brenton's good answer. If 1/2 of your Social Security, added to all your other income, is under $25,000 if single ($32,000 if married filing jointly), then none of your benefits are taxable. But as Brenton pointed out, there are a lot of factors. Certain "nontaxable" income needs to be added back in for the purpose of determining whether there's a taxable portion of Social Security; other nontaxable income doesn't need to be added back in. Depending on how quickly your eyes glaze over when you read tax instructions, you might be able to figure it all out on your own. If not, a paid preparer or online filing software are the ways to go. Since there's online free filing software that figures all of that out for you, I used it myself this year. (Online software requires that you plug in figures from any and all 1099Rs, W2s and other documents, so be prepared to do a lot of typing, as I did, if you have a number of sources of income.) Although I'm in tax computations, why re-invent the wheel? Even if you decide to figure it out on your own, there are plenty of online worksheets that allow you to plug in all the figures and they will figure out the amount to write on Line 20b of Form 1040.

There are a lot of possible answers depending on specific situations, but in general deductions apply to ordinary income first. Look at the Schedule D Tax Worksheet on the last page of the Instructions for Schedule D (http://www.irs.gov/pub/irs-pdf/i...). This is the worksheet used to calculate your tax when you have a mix of ordinary income and taxable gains.It starts by taking the number from Form 1040 Line 43, which is your taxable income after adjustments, exemptions, and deductions. It then basically computes the tax separately on the ordinary income and capital gains/qualifying dividends portions of your income, finally summing those categories to find your total tax.Suppose, therefore, that you have $125,000 in total income, of which $25,000 is qualified investment income. If you have $40,000 in deductions, adjustments, and exemptions, leaving $85,000 in taxable income, then the worksheet will calculate tax on your $25,000 of qualified investment income at the preferred rates, and tax on the other $60,000 using the regular tax tables or formulas. So, if you suddenly discovered another deduction, the tax on your qualified investment income would stay the same, while the tax calculated using the regular rates would decrease.

Capital gains, generally, are primarily reported on Schedule D. Long term gains are reported in Part II of Schedule D. However, some types of gains may be reported in other places; detailing all of these would be annoyingly long.The manner in which one gets from the reporting on Schedule D to the variable tax rates ultimately comes down to the instructions for Line 44 and the instructions for Schedule D, which in some cases tell you to disregard the main instructions for Line 44, and use the worksheet in the Schedule D instructions instead. Those instructions perform the arithmetical gyrations necessary to compute the allowable portion of long-term capital gains at the applicable capital gains rates instead of the rates that apply to ordinary income.Put more simply: there is not guaranteed to be a close relationship between the number on line 43 and the number on line 44, either because the instructions for Line 44 told you to use the worksheet for Line 44, or because Schedule D’s instructions told you to disregard the instructions for Line 44 and use its substitute instructions instead.

Your gross income is $100,000. You will take whatever deductions you can take to compute your adjusted gross income and your taxable income. If you are a single taxpayer and don't itemize, and assuming you don't contribute to an IRA or have student loan interest or any other above-the-line deductions, your standard deduction of $6200 and your personal exemption of $3950 will reduce your taxable income to $89,850.You compute the tax using the Qualified Dividends and Capital Gains Worksheet. When you follow that worksheet, the $50,000 will be taxed at the capital gains rate of 15%, and the remaining $39,250 of taxable income will be taxed as ordinary income, using the tax table. (Note that this is a 2021 worksheet; the 2021 worksheet hasn't been published yet but it will follow the same principle.) You also look up the tax on the entire amount of your taxable income in the tax table, and use that value if it happens to be less than the amount computed above (which in practice almost never happens).The effect here is that the tax on the capital gains and the tax on the ordinary income are computed separately, and deductions (other than capital losses) are applied only to the ordinary income. It ends up having the same effect as the one described in the question, even though the capital gains tax is computed first rather than last.

As was already pointed out, you want to lower your withholding ‡ not your refund (which will increase your refund, or reduce your tax due).Anyway . . . it’s not a good thing to do, for several reasons. 1. Employers are no longer automatically required to submit W-4’s with more than 10 allowances to the IRS, but (i) that could change at any time, and (ii) a particular employer can be directed to submit W-4’s, or certain W-4’s whenever the IRS wants.2. You will likely be under-withheld ‡ by how much depends on your circumstances ‡ and that could result in underwitholding penalties at tax time.3. The W-4 is a tax form that you are signing under penalty of perjury, saying that the information is correct (read the signature line). Part of that information is that you are entitled to X allowances per the worksheet (based on dependents, deductions, etc.). Nobody expects those number to be absolutely precise, but when you’re entitled to 7 allowances, and you claim 17, that’s hard to write off to an error in estimates.4. Finally, you say you are in Los Angeles. I don’t know what California does in terms of withholding allowances, but if ‡ like many other states ‡ it uses your Federal W-4, then you’re just compounding your problem.As far as it being “legal”, I can’t see you going to jail over it, but if someone wanted to make something of it, willfully providing false information on a W-4 is a crime, punishable by up to $1000 fine and 1 year in jail. (It’s a form of tax evasion, but it is its own violation.) Perjury is also a separate crime (remember the signature line), punishable by a fine of up to $250,000 and 3 years in prison. So, to answer your specific question, no, it’s not “legal.”

Here are my big takeaways from the list of 2021 Tax changes:1) Standard deduction and personal exemption combined and seems like everyone is getting more... so its a wash IMHO.2) Less deductions for those who don't have a business like real estate investments. Sigh... it just gets harder and harder for working professionals.3) Sorry to those paying Alimony... Yay to more kids though although we all know that's a huge net negative unless you put them to work in the farm4) Mortgage interest capped, this is to pay for general cuts across the board. Smart investors will find a away to make their home an above the line business expense.5) 20% pass through on personal return from business yay!6) Estate tax limits increases... must be a favor for some old poker buddies?7) Lower corporate tax to hopefully re-patronize companies who ran away from USA.I went down the following list and updated my personal spreadsheets to calculate my tax liability. You should too... just Don't hand it over to your CPA!INDIVIDUALSEffective Date: 1/1/18.Expires 1/1/26.Real Estate Taxes on Primary Home plus State & Local Income Taxes Capped at $10,000.Standard Deductions:Single: $12,000.Head of Household: $18,000.Married Filing Join: $24,000.2% Itemized Deductions Eliminated:Tax Preparation Fees.Unreimbursed Business Expenses.Continuing Education Expenses.Licensing Fees.Investment Expenses.Alimony ‡ Effective 1/1/19 Alimony No Longer a Deduction to Paying Ex-Spouse and No Longer Income to Recipient Ex-Spouse.Mortgage Interest Deduction Limited to $750,000 for Primary and Secondary Home New Mortgages Obtained After 12/15/17.Home Equity Interest Deduction on $100,000 Only Allowed For Home Improvements.Real Estate Tax Deduction for Vacation Homes No Longer Allowed.Moving Expense Deduction No Longer Allowed.Casualty Loss Deduction No Longer Allowed Except in Presidential Declared Disaster Areas.Medical Expense Deductions Adjusted Gross Income Threshold Reduced from 10% to 7.5% But Only For 2021 & 2019.Alternative Minimum Tax Exempt Income Thresholds Increased From $54,300 (Single)/$84,500 (Married Filing Joint) to $70,300 (Single)/$109,400 (Married Filing Joint).Alternative Minimum Tax Exemption Phaseouts Increased From $120,700 (Single)/$160,900 (Married Filing Joint) to $500,000 (Single)/$1 Million (Married Filing Joint).Note: This means that if your income exceeds the $500,000 or $1 million phaseout amount, you are no longer eligible to exclude $70,300 or $109,400 from Alternative Minimum Tax.Child Tax Credit:Increases From $1,000 to $2,000 Per Child, For Children Under Age 17. Also, This Credit is Refundable Up To $1,400 If You Quality (Meaning ‡ You Meet The Low Income Tests).Phaseout Increases From $75,000 (Single)/$110,000 (Married Filing Joint) to $200,000 (Single)/$400,000 (Married Filing Join).529 Plans Change ‡ You Are Now Allowed to Use $10,000 Per Year to Pay For K-12 Education Tuition, Materials and Tutoring.Obamacare Penalty is Eliminated Effective 1/1/19.Marriage Penalty is Removed From All Tax Brackets.Income Tax Brackets Will Now Be Adjusted For Inflation Using a Much Slower Measure Called Chained Consumer Price Index For All Urban Consumers.PASS THROUGH ENTITIESEffective Date: 1/1/18.Expires 1/1/26.U.S.-Based LLCS, S Corps, Partnerships and Sole Proprietors, Real Estate Investors, Trusts and Estates, REITs and Qualified Cooperatives20% Deduction Allowed On Individual Income Tax Return. This 20% is Applied to Your Share of the Taxable Income From a Pass Through Entity.Deduction is Phased Out if Your Income is Too High: Phaseout Begins at $157,500 (Single)/$315,000 (Married Filing Joint).Non-Service Businesses Who Exceed The Phaseout Amount Default to This Limitation:50% x Wages Reported On Pass Through Business or25% x Wages Reported On Pass Through Business Plus 2.5% x Tax Basis of Depreciable Property.CORPORATIONSEffective 1/1/18Permanent ‡ Meaning No Expiration Date.21% Flat Tax Replaces Graduated Tax Brackets.Territorial System Replaces World-Wide SystemAll Foreign Profits of U.S.-Based Corporations No Longer Taxed Effective 1/1/18.Pre-1/1/18 Untaxed Foreign Profits of U.S.-Based Corporations Automatically Subject to Corporate Tax, Even if Those Foreign Earnings Remain Held Oversees. Tax Rates on “Old Foreign Profits”:8% x Untaxed Foreign Profits Invested in Illiquid Assets Plus15.5% x Untaxed Foreign Profits Invested in Cash and Cash Equivalents.ESTATE TAXEstate Exemption Increased From $5,490,000 (Single)/$10,980,000 (Married Couples) to $11,000,000 (Single)/$22,000,000 (Married Couples), Effective 1/1/18.OTHER50% Entertainment Deduction No Longer Allowed, Effective 1/1/18.Tax-Free Parking/Transit Subsidy No Longer Allowed, Effective 1/1/18.100% Write-Off of Qualified Fixed Assets, effective 1/1/18.