1040 tax calculator
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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 widow(er)s 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 percent 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|
Caution: Do not use these tax rate schedules to figure 2007 taxes. Use only to figure 2008 estimates.
|Tax rate||Married filing jointly or qualified |
|Single||Head of household||Married filing separately|
|| over $357,700
|| over $357,700
|| over $357,700
|| over $178,850|
- Reduced taxes on capital gains: Capital gains tax rates reduce to zero percent and 15 percent, 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.
- Increase in standard deduction if you paid property taxes : At the end of 2008, congress passed a new law that increases your available standard deduction if you pay real-estate taxes. The amount is a maximum of $1000 if you are married and file jointly, or $500 for all others. This increase is available to anyone who paid at least that amount in real-estate taxes over the year. If you paid less, you can only deduct the total amount paid. This will impact your total tax bill only you use the standard deduction.
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 your spouse's death. You are also required to have at least one dependent child or stepchild for whom 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 any time 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.|
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 $1,000. The credit is, however, phased out at higher incomes.
Total exemptions claimed:
Each exemption you claim reduces your taxable income by $3,500 for 2008. You receive an exemption for yourself, your spouse and one for each of your dependents.
Capital gain or loss:
This is the total capital gain you realized from the sale of assets. This calculator allows you to enter your total short-term capital gain for investments held less than one year and your total long-term gain for investments held at least one year. Any amount you enter as a short-term capital gain is taxed as normal income. Any amount you enter as a long-term capital gain is taxed as follows:
- This calculator assumes that all of your long-term capital gains are taxed at either zero percent or 15percent.
- The tax is zero percent for the portion of your gain that would have been taxed at 15 percent or lower tax if it were a short-term gain.
- The tax is 15 percent for any of your capital gain that would have been taxed at a rate higher than 15 percent if it were considered a short-term gain.
- This calculator assumes that none of your long-term capital gains come from collectibles, section 1202 gains or un-recaptured 1250 gains. These types of capital gains are taxed at 28 percent, 28 percent and 25 percent respectively (unless your ordinary income tax bracket is a lower rate).
For more information on capital gains tax rates and how they are applied, you may wish to read IRS Publication 17: Your Federal Income Taxes.
Business income or loss from Schedule C:
Any income or loss as reported on Schedule C.
Income from Schedule E:
Rental real estate, royalties, partnerships, S corporations, trusts, etc.
Total income calculated by adding lines 7 through 21 on your Form 1040. For most taxpayers this includes wages, salaries, tips, interest, dividends and gains and losses from a variety of activities.
Adjusted gross income:
Adjusted gross income (AGI) is calculated by subtracting all deductions from lines 23 through 33 from your total income. AGI is used to calculate many of the qualifying amounts if you itemized your deductions.
Your total taxable income is your AGI minus your itemized or standard deduction, and your deduction for exemptions.
This is the total federal income tax you owe for 2008 before any tax credits.
Your total tax credits. This amount is subtracted from the total tax amount.
Total tax after credits:
This is the total federal income tax you will need to pay in 2008.
Total other taxes:
Any other taxes that you owe for 2008. This includes self-employment tax, alternative minimum tax, and household employment taxes.
Grand total of your 2008 federal tax bill.
Total of all tax payments made in 2008. This includes tax withheld from Forms W-2 and 1099, and estimated taxes paid, earned income credit and excess Social Security tax withheld.
Information and interactive calculators are made available to you as self-help tools for your independent use and are not intended to provide investment advice. We cannot and do not guarantee their applicability or accuracy in regard to your individual circumstances. All examples are hypothetical and are for illustrative purposes. We encourage you to seek personalized advice from qualified professionals regarding all personal finance issues.