- Definitions
- Recent tax legislation
- The "Jobs and Growth Tax Relief Reconciliation Act" passed in 2003, and additional, related legislation since, 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 2004.
- 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 changes 2003 and 2004's standard deduction for married couples filing jointly and qualified widowers to be double that of single tax filers. This puts the standard deduction for 2004 at $9700. After 2004, the standard deduction will revert back to the law passed in 2000.
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. Like the standard deduction change, this change is only for 2003 and 2004.
- The 10% tax bracket: In 2004, single taxpayers will pay 10% of income up to $7,150, increased from $6,000 under the old law. Likewise, married couples filing jointly will have an increase from $12,000 to $14,300. These amounts will revert back to the old law's rules in 2005.
- Lower tax rates: The new law accelerates rate reductions for all brackets above 15%:
| Filing Status and Income Tax Rates 2004 |
Tax rate | Married filing jointly
or Qualified Widow(er) | Single | Head of household | Married filing separately |
| 10% | $0 - 14,300 | $0 - 7,150 | $0 - $10,200 | $0 - 7,150 |
| 15% | $14,301- 58,100 | $7,151- 29,050 | $10,201- 38,900 | $7,151- 29,050 |
| 25% | $58,101- 117,250 | $29,051- 70,350 | $38,901- 100,500 | $29,051- 58,625 |
| 28% | $117,251- 178,650 | $70,351- 146,750 | $100,501- 162,700 | $58,626- 89,325 |
| 33% | $178,651- 319,100 | $146,751- 319,100
| $162,701- 319,100 | $89,326- 159,550
|
| 35% | over $319,100 | over $319,100 | over $319,100 | over $159,550 |
- Reduced Taxes on Capital Gains: The capital gains tax rates of 15% and 20% have been reduced to 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.
- Alternative Minimum Tax (AMT): The new tax law increases the AMT exemption for married filers to $58,000 for 2004. It has also increased the AMT exemption to $40,250 for single filers for 2004. Please note that calculating the impact of AMT on your taxes is beyond the scope of this calculator. Please see your tax professional for assistance if you believe that you will be required to pay the AMT.
- 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 $3,000. Those over 50 can contribute $3500.
- Dependents
- A dependent is someone you support and for whom you can claim a dependency exemption. In 2004 each dependent you claim entitles you to receive a $3,100 reduction in your taxable income (see exemptions below). In 2004, each dependent under the age of 17 also receives a tax credit of $1000. The credit is, however, phased out for at higher incomes.
- Total exemptions claimed
- Each exemption you claim reduces your taxable income by $3,100 for 2004. 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.
- 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.
- Tax
- This is the total federal income tax you owe for 2004 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 2004.
- Total other taxes
- Any other taxes that you owe for 2004. This includes self-employment tax, alternative minimum tax, and household employment taxes.
- Total tax
- Grand total of your 2004 Federal tax bill.
- Total payments
- Total of all tax payments made in 2004. This includes tax withheld from Forms W-2 and 1099, and estimated taxes paid, earned income credit and excess social security tax withheld.
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