The way the tax system is today, an ordinary family with a substantial amount of income can get away with owing no federal income tax, or better yet actually get paid by the government. Below is just an example I came up with.
100,000 income, married filing jointly, 4 kids, live in high tax state, owns home with mortgage commensurate to income. Tax year 2005. (Some calculations are based on 2004 numbers since not all 2005 numbers are available, ie exemption amounts, etc.)(many numbers rounded to nearest hundred)
100,000 income - 14,000 401k contribution - 4,000 nonworking spousal ira contribution - 20,000 Mortgage interest deduction (30 year fixed 5.125%, $400,000 first year;s intrest - 7,000 property tax deduction - 1,500 state income tax decuction - 18,600 exemption for family of six - 4,000 contribution to employers health insurance plan - 1,500 contribution to flexible spending account - 7,400 charitable contributions to church, scouts, etc. _________
22,000 taxable income
=2,600 in tax (14000 at 10% tax rate = 1400) + (8000 at 15% tax rate = 1200) =2600. -4,000 in child tax credits ____________________________
=1,400 tax payment to taxpayer from the additional child tax credit End result = negative tax rate.
It could even be lower if you used more exemptions or deductions, like having a member of the family in college, have a working spouse and have child care dedcutions, etc. Is there anyone out there with real life examples similar to this? Post your experiences here.
Edit for spelling and clarity: "noworking spousal contribution" to "nonworking spousal ira contribution". Thanks mrebbert.
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Actually, they don't hit the Amt this year and I'm not even sure they would next year. As long as the child tax credit can still be applied against the Amt (which it can for this year) this hypothectical family should be ok.
I think this is an interesting discussion, but I think when you blow up the 401k and other contributions to get to that tax level, you lower the take home income close to actual living expenses
100,000 income - 14,000 401k contribution - 26,135 Total Mortgage Payments (30 year fixed 5.125%, $400,000 home) - 7,000 property tax - 1,000 homeowner's insurance required by mortgage - 4,000 contribution to employers health insurance plan - 1,500 contribution to flexible spending account - 7,400 charitable contributions to church, scouts, etc. - 1,500 state income tax
= $37,465 take home
This doesn't include FICA, or any local income taxes. I would add them in, but I'm not sure how to approximate them.
Keeping in mind that home and health insurance is paid for,
is $37,465 ($3,122/month) enough to pay for: food, clothes, transportation, and entertainment for a family of six?
with all the expenses in your example it leaves them with about $40,000 a year for food (got to feed the family of 6), 2 car payments, utilties, phone bills, insurance, gas, cothing, vacation, ect... add all that up and they wont have must left over
packersrule said:- 7,400 charitable contributions to church, scouts, etc.
that seems like audit material to me
Maybe since the taxable is 22k, but for 100k if you donated 10% thats 10k to a church (Tithes are typically 10%). 7400 is well under that, I think they would be fine.
OPs figures aren't that far off. With 2 kids now, my effective tax rate is about 10% only. With 2 more kids, I wouldn't pay much at all. However, it would be hard to support that many kids, just a trip to McDonalds would be 30 bucks!
Ok, I'll be the first. The hypothetical example is very loosely based on my family situation. 9500 a year in mortgage deductions on a 15 year fixed at 4.875, 7800 in property tax, 4 kids, add charitable deductions, state income tax, 401k contribution, lifetime learning credit for my wife's doctorate, and before you know it we owed nothing in federal income taxes and were paid $1580 for the additional child tax credit. The year before we were paid about $50 and didn't owe anything the year before that. The great thing about it (besides not owing any federal income tax) is that you can drop federal withholding. Once you haven't owed any tax and don't expect to owe any tax in the current year, you don't have to withhold. No waiting for refunds. Your paycheck, your money (minus fica and state taxes - still working on getting rid of those too.)
i just don't get why if you have kids, you should get an absolutely huge tax relief. it's not like the income levels being thrown around here are "barely scraping by", these are decent incomes.
7 trillion in debt, and we need to move ~100k in income to zero tax level??!?!?!
many say adjust the AMT upwards. i say adjust it DOWNWARDS! (acutally, i say eliminate the AMT, as well as eliminate all credits and deductions entirely).
calvinandhobbes said:i just don't get why if you have kids, you should get an absolutely huge tax relief. it's not like the income levels being thrown around here are "barely scraping by", these are decent incomes.
7 trillion in debt, and we need to move ~100k in income to zero tax level??!?!?!
many say adjust the AMT upwards. i say adjust it DOWNWARDS! (acutally, i say eliminate the AMT, as well as eliminate all credits and deductions entirely).
You should get a dediction for NOT having kids, not the other way around. I don't have kids, so I am not making use of a large number of government-funded things, including schools, etc...
Perhaps one of u folks could start a thread about 'child deductions fair/unfair' - and leave this thread for what folks accomplish with the existing law?
I'd read this thread, doubt I'd get to the other one.
calvinandhobbes said:i just don't get why if you have kids, you should get an absolutely huge tax relief. it's not like the income levels being thrown around here are "barely scraping by", these are decent incomes.
7 trillion in debt, and we need to move ~100k in income to zero tax level??!?!?!
many say adjust the AMT upwards. i say adjust it DOWNWARDS! (acutally, i say eliminate the AMT, as well as eliminate all credits and deductions entirely). calvin for president!
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