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Computation of your tax liability begins with gross income, which is basically your earnings and gains. Gross income is then reduced by certain deductible expenses known as adjustments, which include:
Gross income less these deductions is your adjusted gross income (AGI).
From adjusted gross income you subtract itemized deductions or the standard deduction as well as personal exemptions to determine your taxable income. Several itemized deductions are lost or limited if your AGI is too high.
Since numerous income-tax provisions are based on the amount of your adjusted gross income (AGI), to design an effective year-end tax plan, you need to have an idea of what your 1999 AGI will be. To do a projection, you'll need your latest payroll stub, investment statements, and other records you have of 1999 income and deductions. To the extent you don't have 1999 information yet, use reasonable estimates based on your 1998 figures. The accompanying worksheet should help.
Projecting 1999's and 2000's AGI
AGI is nothing more than a total of your income from various sources minus certain "adjustments" allowed by law.
Example
| Yours |
| |
| Wages, salaries, tips, etc | $ 75,000 | $_____________________ |
| Interest and dividends | $ 10,000 | $_____________________ |
| Profit (loss) from business | $ 8,000 | $_____________________ |
| Capital gain (loss) | $ 25,000 | $_____________________ |
| Rents, royalties, partnerships, | ||
| S corporations, trusts, etc. | $ 10,000 | $_____________________ |
| Unemployment compensation | $ 0 | $_____________________ |
| Alimony received | $ 0 | $_____________________ |
| Taxable Social Security benefits | $ 0 | $_____________________ |
| Taxable distributions from IRAs, pensions, | ||
| and annuities (include amount taxable in | ||
| 1998 from converting a regular IRA to | ||
| a Roth IRA) | $ 0 | $_____________________ |
| Refunds of state and local | ||
| income taxes | $ 100 | $_____________________ |
| Other income | $ 0 | $_____________________ |
| Total Income | $ 128,100 | $_____________________ |
| Adjustments: | ||
| Deductible IRA contribution | $ 0 | $_____________________ |
| Keogh or SEP plan contribution | $ 970 | $_____________________ |
| Alimony paid | $ 14,500 | $_____________________ |
| Moving Expenses | $ 605 | $_____________________ |
| One half of self-employment tax | $ 565 | $_____________________ |
| Self-employed health insurance | ||
| deduction (60%) | $ 1,000 | $_____________________ |
| Student loan interest (up to $1,000) | $ 0 | $_____________________ |
| Total Adjustments | $ 17,640 | $_____________________ |
| ADJUSTED GROSS INCOME (AGI):(total income minus total | ||
| adjustments) | $ 110,460 | $_____________________ |
Marginal tax rates are then applied to levels of taxable income (see the following charts) to determine the federal tax liability.
1999
Basic:
Additional (for 65 or over and/or blind)
| Medical Expenses | 7.5 of adjusted gross income | Miscellaneous itemized | 2% of AGI--floor |
| (AGI)--floor | deductions | ||
| Personal interest | 0% | Otherwise allowable | 3% of AGI reduction for |
| Net nonbusiness | 10% of AGI (after $100 per | itemized deductions | AGI over $126,600 ($63,300 |
| casualty losses | casualty limitation)--floor | for married filing separately) | |
| Charitable contributions | 50% of AGI--ceiling on | 80% maximum reduction | |
| deductible amount |
Exemption amounts: $ 2,750
The exemption amount is reduced by 2% for each $2,500 or fraction ($1,250 or fraction for married filing separately) by which taxpayer's adjusted gross income exceeds:
The federal tax liability may be reduced dollar for dollar if you qualify for any of the following credits:
Caution: In 1999, alternative minimum tax may phase out these credits for high and middle income taxpayers.
Pointer: If you have the ability to determine the timing of income, deferral of income to a succeeding year can take you out of a higher tax bracket into a lower one when a decline in income is anticipated in the following year. For example, farmers due to the drought will have lower income in the year 2000. Therefore, sale of fall crops should be held and sold in the 2000 tax year.
If Taxable Income is:
| Over - | But Not Over - | The Tax Is | of the amount over - | |
| $0
25,750 62,450 130,250 283,150 |
$25,750
62,450 130,250 283,150 |
$3,862.50
14,138.50 35,156.50 90,200.50 |
+ 15%
+ 28% + 31% + 36% + 39.6% |
$0
25,750 62,450 130,250 283,150 |
If Taxable Income is:
| Over - | But Not Over - | The Tax Is | of the amount over - | |
| $0
43,050 104,050 158,550 283,150 |
$43,050
104,050 158,550 283,150 |
$6,457.50
23,537.50 40,432.50 85,288.50 |
+ 15%
+ 28% + 31% + 36% + 39.6% |
$0
43,050 104,050 158,550 283,150 |
If Taxable Income is:
| Over - | But Not Over - | The Tax Is | of the amount over - | |
| $0
21,525 52,025 79,275 141,575 |
$21,525
52,025 79,275 141,575 |
$3,228.75
11,768.75 20,215.75 42,643.75 |
+ 15%
+ 28% + 31% + 36% + 39.6% |
$0
21,525 52,025 79,275 141,575 |
If Taxable Income is:
| Over - | But Not Over - | The Tax Is | of the amount over - | |
| $0
34,550 89,150 144,000 283,150 |
$34,550
89,150 144,000 283,150 |
$5,182.50
20,470.50 37,597.50 87,547.50 |
+ 15%
+ 28% + 31% + 36% + 39.6% |
$0
34,550 89,150 144,400 283,150 |
If Taxable Income is:
| Over - | But Not Over - | The Tax Is | of the amount over - | |
| $0
26,250 63,550 132,600 288,350 |
$26,250
63,550 132,600 288,350 |
$3,937.50
14,381.50 35,787.00 91,857.00 |
+ 15%
+ 28% + 31% + 36% + 39.6% |
$0
26,250 63,550 132,600 288,350 |
If Taxable Income is:
| Over - | But Not Over - | The Tax Is | of the amount over - | |
| $0
43,850 105,950 161,450 288,350 |
$43,850
105,950 161,450 288,350 |
$6,577.50
23,965.50 41,170.50 86,854.50 |
+ 15%
+ 28% + 31% + 36% + 39.6% |
$0
43,850 105,950 161,450 288,350 |
If Taxable Income is:
| Over - | But Not Over - | The Tax Is | of the amount over - | |
| $0
21,925 52,975 80,725 144,175 |
$21,925
52,975 80,725 144,175 |
$3,288.75
11,982.75 20,585.25 43,427.25 |
+ 15%
+ 28% + 31% + 36% + 39.6% |
$0
21,925 52,975 80,725 144,175 |
If Taxable Income is:
| Over - | But Not Over - | The Tax Is | of the amount over - | |
| $0
35,150 90,800 147,050 288,350 |
$35,150
90,800 147,050 288,350 |
$5,272.50
20,854.50 38,292.00 89,160.00 |
+ 15%
+ 28% + 31% + 36% + 39.6% |
$0
35,150 90,800 147,050 288,350 |