Question about effective tax rate


D

Dwayne Hoover

I just did my joint tax return on turbotax. I printed it out
and I noticed that I had an effective tax rate of 12%. That
sounds awefully low. Now my wife and I had a child this year
so we get $1000 for that and also my wife only worked for 6
months so I suppose she was being taxed as if she was
working for the year - is that enough to bump us up? It's
just the first time I've done this myself so I'm a little
worried about sending it in just in case I missed something.
Is it normal to have a 12.5% effective tax rate?

Adjusted Gross Income $ 101,088
Taxable Income $ 80,164
Total Tax $ 12,659
Total Payments $ 20,671
Refund $ 8,012
Effective Tax Rate 12.52 %
 
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P

Phil Marti

Is it normal to have a 12.5% effective tax rate?

Adjusted Gross Income $ 101,088
Taxable Income $ 80,164
Total Tax $ 12,659
Well, it appears to be normal for you for 2003. To those of
us who aren't procreating it's low. Without your blessed
event your tax would have been $14,426, for an effective tax
rate of 14.3%. If you want to feel better, this doesn't
include your FICA and Medicare taxes, nor your state and
local income taxes, nor sales taxes, nor property taxes, nor
excise taxes, etc.

Phil Marti
Topeka, KS
 
B

Bill

Dwayne=A0Hoover posted:
I just did my joint tax return on turbotax. I
printed it out and I noticed that I had an
effective tax rate of 12%. That sounds
awefully low. Now my wife and I had a child
this year so we get $1000 for that and also my
wife only worked for 6 months so I suppose
she was being taxed as if she was working for
the year - is that enough to bump us up? It's
just the first time I've done this myself so I'm a
little worried about sending it in just in case I
missed something. Is it normal to have a
12.5% effective tax rate?
Adjusted Gross Income $ 101,088
Taxable Income =A0 =A0 =A0 $ 80,164
Total Tax =A0 =A0 =A0 =A0 =A0 =A0 $ 12,659
Total Payments =A0 =A0 =A0 $ 20,671
Refund =A0 =A0 =A0 =A0 =A0 =A0 =A0 $ =A0 8,012
Effective Tax Rate =A0 =A0 =A0 12.52 %
The Tax Table chart shows 13,664 as tax due for that taxable
income; however, you may well have had tax credits which
reduced the final amount. In fact, since you had a child
born last year, you would certainly have a $1,000 Child Tax
Credit (with no $400 advance payment, since the child didn't
exist in the filing of your 2002 return). That would bring
your "net" tax due -- on line 54 -- to $12,664. The other
$5 differential could be from Qualifed Dividends and Capital
Gain Distributions which result in a slightly lower tax
rate, with the calculation on page 2 of Schedule D or from a
worksheet.

So your actual tax due is in the ballpark, but I'm surprised
the printout didn't explain the calculations -- either by
printing the worksheet or showing an actual 1040 page 2,
with the tax credits clearly reflected.

Incidentally, simply subtracting the minimum standard
deduction for MFJ and 3 exemptions (reflecting your new
child), would bring your taxable income to $82,438 -- with a
Tax Table figure of $14.226. Subtract the known Child Tax
Credit of $1,000, and you get $13,226 as the tax due. So
there must have been some other calculated reason for the
other $567 difference.

Any way you figure it, the amount due is not remarkable ...
given the facts presented.

The tax reductions of the past two years were genuine, and virtually
*all* taxpayers can see the difference.

Bill
 
S

Sassy Baskets

I just did my joint tax return on turbotax. I printed it out
and I noticed that I had an effective tax rate of 12%. That
sounds awefully low. Now my wife and I had a child this year
so we get $1000 for that and also my wife only worked for 6
months so I suppose she was being taxed as if she was
working for the year - is that enough to bump us up? It's
just the first time I've done this myself so I'm a little
worried about sending it in just in case I missed something.
Is it normal to have a 12.5% effective tax rate?

Adjusted Gross Income $ 101,088
Taxable Income $ 80,164
Total Tax $ 12,659
Total Payments $ 20,671
Refund $ 8,012
Effective Tax Rate 12.52 %
Your effective tax rate is just your total tax divided by
your adjusted gross income. Yours is perfectly normal.
 
B

Bob Sandler

I just did my joint tax return on turbotax. I printed it out
and I noticed that I had an effective tax rate of 12%. That
sounds awefully low. Now my wife and I had a child this year
so we get $1000 for that and also my wife only worked for 6
months so I suppose she was being taxed as if she was
working for the year - is that enough to bump us up? It's
just the first time I've done this myself so I'm a little
worried about sending it in just in case I missed something.
Is it normal to have a 12.5% effective tax rate?

Adjusted Gross Income $ 101,088
Taxable Income $ 80,164
Total Tax $ 12,659
Total Payments $ 20,671
Refund $ 8,012
Effective Tax Rate 12.52 %
TurboTax calculates the "effective tax rate" by taking the
tax as a percentage of adjusted gross income. It is
essentially a meaningless number. For one thing, your tax is
actually calculated on your taxable income, not on your
adjusted gross income. Your tax appears to be correct
(within a couple of dollars) based on the information you
have given. Send in your return and don't worry about
TurboTax's meaningless "effective tax rate."

Bob Sandler
not a tax professional
 
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H

Harlan Lunsford

Dwayne said:
I just did my joint tax return on turbotax. I printed it out
and I noticed that I had an effective tax rate of 12%. That
sounds awefully low. Now my wife and I had a child this year
so we get $1000 for that and also my wife only worked for 6
months so I suppose she was being taxed as if she was
working for the year - is that enough to bump us up? It's
just the first time I've done this myself so I'm a little
worried about sending it in just in case I missed something.
Is it normal to have a 12.5% effective tax rate?

Adjusted Gross Income $ 101,088
Taxable Income $ 80,164
Total Tax $ 12,659
Total Payments $ 20,671
Refund $ 8,012
Effective Tax Rate 12.52 %
Notice that when you divide your total tax by Adjusted Gross
income, that's where the 12.52% rate comes into play.

However, to my mind, a more proper way is to divide total
INCOME tax (only; including AMT, but not including any other
credits or SE tax, etc) by TOTAL income.

I used to use this calculation in showing cliens their total
tax bite: income, FICA and state income tax, as a % of
total income. Some times a husband and wife would look at
it, and I would further calculate what we call the marginal
tax rate on just her income alone. Example: her income
of 10,000 with 28% federal, 7.65 FICA and 5% state rate.
Then I would subtract out child care expenses, ask them
added car expenses for her to go to work, and show them her
"marginal contribution to family income". A couple of
wives actually quit work the next month!

Cheer$$,
Harlan Lunsford, EA n LA
 
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