- 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 2007.
- 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 2007 at $10,700. 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.
- Lower tax rates: Below are the resulting tax rates and income ranges for 2007:
|Filing Status and Income Tax Rates 2007|
|Tax rate||Married filing jointly|
or qualified widow(er)
|Single||Head of household||Married filing separately|
|| $0 - 15,650
|| $0 - 7,825
|| $0 - $11,200
|| $0 - 7,825|
|| $15,651 - 63,700
|| $7,826 - 31,850
|| $11,201 - 42,650
|| $7,826 - 31,850|
|| $63,701 - 128,500
|| $31,851 - 77,100
|| $42,651 - 110,100
|| $31,851 - 64,250|
|| $128,501 - 195,850
|| $77,101 - 160,850
|| $110,101 - 178,350
|| $64,251 - 97,925|
|| $195,851 - 349,700
|| $160,851 - 349,700
|| $178,351 - 349,700
|| $97,926 - 174,850|
|| over $349,700
|| over $349,700
|| over $349,700
|| over $174,850 |
- Reduced Taxes on Capital Gains: Capital gains tax rates remain at 5% and 15% respectively. 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 5% 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 a 5% rate of tax on dividends paid between January 1, 2003, and December 31, 2007, and zero 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 $4,000 for 2007. Those over 50 can contribute $5,000.
- 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 2007|
|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 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 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".|
- A dependent is someone you support and for whom you can claim a dependency exemption. In 2007, each dependent you claim entitles you to receive a $3,400 reduction in your taxable income (see exemptions below). You may also receive a tax credit of up to $1,000 for each dependent child under the age of 17. The credit is, however, phased out for at higher incomes.
- Total exemptions claimed
- Each exemption you claim reduces your taxable income by $3,400 for 2007. 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 5% or 15%.
- The tax is 5% for the portion of your gain that would have been taxed at 15% or lower tax if it were a short-term gain.
- The tax is 15% for any of your capital gain that would have been taxed at a rate higher than 15% 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%, 28% and 25% 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
- 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.
- Taxable income
- 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 2007 before any tax credits.
- Total 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 2007.
- Total other taxes
- Any other taxes that you owe for 2007. This includes self-employment tax, alternative minimum tax, and household employment taxes.
- Total tax
- Grand total of your 2007 federal tax bill.
- Total payments
- Total of all tax payments made in 2007. This includes tax withheld from Forms W-2 and 1099, and estimated taxes paid, earned income credit and excess social security tax withheld.