The Jacksons, a family of two adults and two dependent children under the age 16, had gross annual income of $68,000 for 2004. Determine their standard deduction, exemption, and child tax credit amounts; as well as their marginal and average tax rates assuming their filing status is married filing jointly
Go to www.irs.gov and follow the links for forms and publications for prior years. Find the link for Pub 17. (Stupid IRS no longer puts the rate schedule in the instructions for Form 1040; only the look-up table)
You will find that in 2004:
SD(joints) = 9700. (extra if blind and/or elderly)
Exemptions = 3100.
To determine the standard deduction, exemption, and child tax credit amounts for the Jacksons, as well as their marginal and average tax rates, we need to consider the tax rules and tables for the year 2004. Let's break down each element step by step.
1. Standard Deduction:
In 2004, the standard deduction for married couples filing jointly was $9,700.
2. Exemption:
For each dependent, including children under the age of 16, the exemption amount was $3,100 in 2004. Since the Jacksons have two dependent children, their total exemption amount would be $3,100 x 2 = $6,200.
3. Child Tax Credit:
The child tax credit in 2004 was $1,000 per eligible child. As the Jacksons have two dependent children, their total child tax credit would be $1,000 x 2 = $2,000.
4. Marginal Tax Rate:
To determine the marginal tax rate, we need to consult the tax brackets for 2004. Here are the tax brackets for married couples filing jointly in 2004:
- 10% for taxable income up to $14,300
- 15% for taxable income between $14,301 and $58,100
- 25% for taxable income between $58,101 and $117,250
- 28% for taxable income between $117,251 and $178,650
- 33% for taxable income between $178,651 and $319,100
- 35% for taxable income above $319,100
To determine the marginal tax rate, we need to calculate the Jacksons' taxable income. Gross annual income of $68,000 minus the standard deduction ($9,700) and exemptions ($6,200) gives a taxable income of $68,000 - $9,700 - $6,200 = $52,100. Since this amount falls within the 15% tax bracket, their marginal tax rate would be 15%.
5. Average Tax Rate:
To calculate the average tax rate, we divide the total tax paid by the Jacksons by their gross annual income. To determine their total tax liability, we need to look at the tax rate schedule and calculate the tax for each bracket:
- $14,300 x 10% = $1,430
- ($52,100 - $14,300) x 15% = $5,085
Thus, the Jacksons' total tax liability would be $1,430 + $5,085 = $6,515.
To calculate the average tax rate, we divide the total tax liability ($6,515) by the gross annual income ($68,000) and multiply by 100 to express it as a percentage:
Average tax rate = ($6,515 / $68,000) x 100 ≈ 9.6%
In summary, for the Jacksons filing as married filing jointly in 2004:
- Standard Deduction: $9,700
- Exemption: $6,200
- Child Tax Credit: $2,000
- Marginal Tax Rate: 15%
- Average Tax Rate: approximately 9.6%