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Special Report: Tax Reform 2005

CCH Tax Scenarios

Scenario 1

Unmarried parent and one child under age 17, $20,000 in wages.

 

2005 Present Law

Reform Proposal

 

 

 

Adjusted Gross Income

20,000

20,000

Standard Deduction

(7,300)

 

Personal Exemptions

(6,400)

 

 

--------

--------

Taxable Income

6,300

20,000

Regular Tax

630

3,000

Nonrefundable Child Credit

(630)

 

Refundable Child Credit

(370)

 

Earned Income Credit

(1,762)

 

Family Credit

 

(3,000)

Work Credit

 

(1,069)

 

----------

--------

Refund

(2,132)

(1,069)

Taxpayer would have a $1,063 smaller refund under the new proposal.

Decrease in refundable child credit

($370)

Difference in amount of earned income credit and work credit

(693)

 

-----------

Decrease in refund

($1,063)

 

Scenario 2

Unmarried parent and one child under age 17, $32,000 in wages.

 

2005 Present Law

Reform Proposal

 

 

 

Adjusted Gross Income

32,000

32,000

Standard Deduction

(7,300)

 

Personal Exemptions

(6,400)

 

 

--------

--------

Taxable Income

18,300

32,000

Regular Tax

2,223

4,800

Nonrefundable Child Credit

(1,000)

 

Family Credit

 

(4,300)

 

--------

--------

Tax After Credits

$1,223

$500

Taxpayer would have a $723 decrease in tax under the new proposal.

Tax savings due difference between standard deduction and exemptions and family credit

$2,245

Tax increase due to repeal of child credit

(1,000)

Tax increase due to repeal of 10% tax bracket

(522)

 

--------

Tax savings under new plan

$723

 

Scenario 3  

Married couple with two children under age 17. Both taxpayers work and earn $50,000 in wages.

 

2005 Present Law

Reform Proposal

 

 

 

Adjusted Gross Income

50,000

50,000

Standard Deduction

(10,000)

 

Personal Exemptions

(12,800)

 

 

----------

--------

Taxable Income

27,200

50,000

Regular Tax

3,350

7,500

Nonrefundable Child Credit

(2,000)

 

Family Credit

 

(6,300)

 

--------

--------

Tax After Credits

$1,350

$1,200

Taxpayer would have a $150 decrease in tax under the new proposal.

Tax savings due difference between standard deduction and exemptions and family credit

$2,880

Tax increase due to repeal of child credit

(2,000)

Tax increase due to repeal of 10% tax bracket

(730)

 

-------

Tax savings under new plan

$150

 

Scenario 4

Married couple with two children under age 13. Both taxpayers work and earn $50,000 in wages. The couple incurs $6,000 in child care expenses.

 

2005 Present Law

Reform Proposal

 

 

 

Adjusted Gross Income

50,000

50,000

Standard Deduction

(10,000)

 

Personal Exemptions

(12,800)

 

 

--------

--------

Taxable Income

27,200

50,000

Regular Tax

3,350

7,500

Child care credit

(1,200)

 

Nonrefundable Child Credit

(2,000)

 

Family Credit

 

(6,300)

 

--------

--------

Tax After Credits

$150

$1,200

Taxpayer would have a $1,050 increase in tax under the new proposal.

Tax savings due to difference between standard deduction and exemptions and family credit

$2,880

Tax increase due to repeal of child care credit

(1,200)

Tax increase due to repeal of child credit

(2,000)

Tax increase due to repeal of 10% tax bracket

(730)

 

-------

Tax increase under new plan

($1,050)

 

Scenario 5

Single individual with $50,000 in wages.

 

2005 Present Law

Reform Proposal

 

 

 

Adjusted Gross Income

50,000

50,000

Standard Deduction

(5,000)

 

Personal Exemptions

(3,200)

 

 

--------

--------

Taxable Income

41,800

50,000

Regular Tax

7,115

8,600

Family Credit

 

(1,650)

 

--------

--------

Tax After Credits

$7,115

$6,950

Taxpayer would have a $165 decrease in tax under the new proposal.

Tax increase due to difference between standard deduction and exemptions and family credit

($400)

Tax savings due to increase in 15% bracket

930

Tax increase due to repeal of 10% tax bracket

(365)

 

-------

Tax savings under new plan

$165

 

Scenario 6  

Single individual with $50,000 in wages. Taxpayer also has $2,000 in charitable contributions.

 

2005 Present Law

Reform Proposal

 

 

 

Adjusted Gross Income

50,000

50,000

Standard Deduction

(5,000)

 

Personal Exemptions

(3,200)

 

 

-----------

-----------

Charitable contribution deduction

 

(1,500)

Taxable Income

41,800

48,500

Regular Tax

7,115

8,225

Family Credit

 

(1,650)

 

-----------

-----------

Tax After Credits

$7,115

$6,575

Taxpayer would have a $540 decrease in tax under the new proposal.

Tax increase due to difference between standard deduction and exemptions and family credit.

($400)

Tax savings due to increase in 15% bracket

930

Tax savings due to charitable contribution deduction

375

Tax increase due to repeal of 10% tax bracket

(365)

 

--------

Tax savings under new plan

$540

 

Scenario 7  

Married couple with 2 children under the age of 17, $100,000 in income; $15,000 in itemized deductions including $9,000 in mortgage interest, all of which qualifies for the home credit, $4,500 in state and local taxes, $1,500 in charitable contributions.

 

2005 Present Law

Reform Proposal

 

 

 

Adjusted Gross Income

100,000

100,000

Itemized Deductions

(15,000)

 

Personal Exemptions

(12,800)

 

 

--------

--------

Charitable contribution deduction

 

(500)

Taxable Income

72,200

99,500

Regular Tax

11,380

17,075

Child Credit

(2,000)

 

Home Credit

 

(1,350)

Family Credit

 

(6,300)

 

--------

--------

Tax After Credits

$9,380

$9,425

Taxpayer would have a $45 increase in tax under the new proposal.

Tax increase due to difference between itemized dedunctions and exemptions and family credit

($650)

Tax savings due to charitable contribution deduction

125

Tax savings due to home mortgage interest credit

1,350

Tax increase due to repeal of child credit

(2,000)

Tax increase due to repeal of 10% tax bracket

(730)

Tax savings due to increase in 15% bracket

1,860

 

-------

Tax increase under new plan

($45)

 

Scenario 8  

Married couple, with 2 children, $300,000 in income which includes $3,000 in dividend income and $10,000 in long term capital gains from the sale of stock. Taxpayer has $50,000 in itemized deductions, including $5,000 in charitable contributions, $15,000 in state and local taxes, $20,000 mortgage interest on principal residence, $8,000 mortgage interest on vacation home, and $2,000 interest on home equity loan.

 

2005 Present Law

Reform Proposal

 

 

 

Wages

287,000

287,000

Dividends

3,000

0

Long term capital gains

10,000

2,500

 

-----------

---------

Adjusted Gross Income

300,000

289,500

Itemized Deductions

(45,378)

 

Personal Exemptions

(4,352)

 

 

-----------

---------

Charitable contribution deduction

 

(2,105)

Taxable Income

250,270

287,395

Regular Tax

60,841

73,540

Addition due to AMT

679

 

Home Credit

 

(3,000)

Family Credit

 

(6,300)

 

-----------

---------

Tax After Credits

$61,520

$64,240

Taxpayer would have a $2,720 increase in tax under the new proposal.

Tax savings due to dividends being exempt from taxation

$450

Tax savings due to 75% capital gain exclusion

675

Tax increase due to difference between itemized deductions and exemptions and family credit

(10,111)

Tax savings due to charitable contribution deduction

695

Tax savings due to home mortgage interest credit

3,000

Tax Savings due to repeal of alternative minimum tax

679

Tax increase due to repeal of 10% tax bracket

(730)

Tax savings due to increase in 15% bracket

1,860

Tax savings due to income taxed at 25% instead of 28%

902

Tax increase due to income taxed at 30% instead of 28%

(656)

Tax savings due to income taxed at 30% instead of 33%

516

 

----------

Tax increase under new plan

($2,720)

 

Scenario 9

Married couple, with 2 children, $300,000 in income which includes $3,000 in dividend income and $10,000 in long term capital gains from the sale of stock. Taxpayer has $50,000 in itemized deductions, including $5,000 in charitable contributions, $15,000 in state and local taxes, $20,000 mortgage interest on principal residence, $8,000 mortgage interest on vacation home, and $2,000 interest on home equity loan. Value of employer provided health insurance is $15,000.

 

2005 Present Law

Reform Proposal

 

 

 

Wages

287,000

287,000

Dividends

3,000

0

Long term capital gains

10,000

2,500

Taxable employer provided health insurance

 

3,500

 

------------

-----------

Adjusted Gross Income

300,000

293,000

Itemized Deductions

(45,378)

 

Personal Exemptions

(4,352)

 

 

-----------

----------

Charitable contribution deduction

(2,070)

Taxable Income

250,270

290,930

Regular Tax

60,841

74,707

Addition due to AMT

679

 

Home Credit

 

(3,000)

Family Credit

 

(6,300)

 

-----------

-----------

Tax After Credits

$61,520

$65,407

Taxpayer would have a $3,887 increase in tax under the new proposal.

Tax increase due to taxability of health insurance coverage

($1,155)

Tax savings due to dividends being exempt from taxation

450

Tax savings due to 75% capital gain exclusion

675

Tax increase due to difference between itemized deductions and exemptions and family credit.

(10,111)

Tax savings due to charitable contribution deduction

683

Tax savings due to home mortgage interest credit

3,000

Tax savings due to repeal of alternative minimum tax

679

Tax increase due to repeal of 10% tax bracket

(730)

Tax savings due to increase in 15% bracket

1,860

Tax savings due to income taxed at 25% instead of 28%

902

Tax increase due to income taxed at 30% instead of 28%

(656)

Tax savings due to income taxed at 30% instead of 33%

516

 

-----------

Tax increase under new plan

($3,887)

 

Scenario 10

Retired single taxpayer over age 65. Receives $14,000 of Social Security benefits and a pension of $20,000.

 

2005 Present Law

Reform Proposal

 

 

 

Pension Income

20,000

20,000

Taxable Social Security Benefits

1,000

6,000

 

--------

--------

Adjusted Gross Income

21,000

26,000

Standard Deduction

6,250

 

Personal Exemptions

3,200

 

 

----------

----------

Taxable Income

11,550

26,000

Regular Tax

1,368

3,900

Family Credit

 

(1,650)

 

--------

--------

Tax After Credits

$1,368

$2,250

Taxpayer would have an $882 increase in tax under the new proposal.

Tax savings due to difference between standard deduction, and exemption and family credit

$233

Tax increase due to increase in amount of taxable social security

(750)

Tax increase due to repeal of 10% tax bracket

(365)

 

---------

Tax increase under new plan

($882)

       


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