Since 2001 there has been more than 4,500 changes to the tax codes, with some of these adjustments working in the tax payers favor. With all these changes can come more complications for the math being done during taxes, and more room for error to be done in the numbers. Although less than 1% of tax returns get audited, there are still some cases that the IRS does catch. Even if you do end up getting audited over 75% of cases are done via email, so you never have the in person IRS inspection on your taxes. With this higher earners are more likley to get audited then middle class and lower class.
Why do people get audited? Number one reason people get audited is because of the issues done within their math. If you decide to do your taxes on your own, make sure you double and triple check your work to make sure there is zero room for error. Most people recomend either going to a specilist in taxes or getting a software for your taxes. Another way to get audited is when your taxes are nice round and neat numbers. Most forms are not simple and most expensese are not one flat number, so that is big red flag when it comes to the IRS checking taxes. When doing taxes there is not guessing at numbers and there needs to be nice precise numbers that are not rounded or estimated.
In New Hampshire we have a progressive tax system where the tax rates are adjusted by the income individuals make. As we talked about in class, a progressive tax system benefits those who have a lower income and may not benefit those with a higher income because they are required to pay a higher tax rate. After learning about progressive and regressive tax systems in class, I thought it would be interesting to find out more about proportional tax which is an income tax system where the same percentage of tax is applied to all taxpayers no matter how much their income is. It is interesting to note that sales tax is also considered a type of proportional tax because all customers are paying the same rate on goods and services. Luckily, New Hampshire does not have a sales tax but we pay for this in other ways such as having high property taxes.
An example of proportional tax is when the rate is set at 20%. Someone earning $10,000 would pay $2,000 in taxes, someone earning $50,000 would pay $10,000, and someone earning $100,000,000 would pay $200,000 in taxes. I believe a proportional tax system is more fair than a regressive or progressive tax system because everyone is being taxed equally according to their income.
Of course there are still pros and cons of a proportional tax system. Technically, it is considered a regressive tax system because the rates don’t increase as the income amounts increase. Also, people who are against proportional tax feel as if those who have a higher income should be paying a higher tax rate than the lower class.
Below is a figure which compares regressive, progressive, and proportional taxes.
As we learned in class this week, while filing taxes, you can either take the standard deduction or itemize. Itemizing is where you list out all allowable expenses that were made throughout the year for tax deduction. This would include things like property taxes, mortgage interests, and charitable donations. In previous years, about 70% took the standard deduction and about 30% itemized on their taxes. As discussed in class, the standard deduction for 2017 tax schedule for single individuals was $6,350 and for married couples was $12,700. Therefore, if you own property or have a lot of expenses throughout the year itemizing would be more beneficial to you.
According to turbotax, this year it is projected that 90% are to take the standard deduction than itemize on tax returns. This is because of the new set of rules that took effect in 2018. I’m sure we were going to talk about the new tax rules in class and compare to 2017 tax schedule, but in the new set of rules the standard deduction has doubled. So for individuals that are claiming taxes independently, the standard tax deduction is $12,000 and for couple filing taxes jointly, the standard tax deduction is $24,000. Therefore, you may get a better tax break if you take the standard deduction.
I have been filing my own taxes since I was 15. Although I now see that math plays a huge role in what money the government takes, at 15 I just snapped a picture of my W-2 to Turbo Tax, let it do its thing, and boom! I had a check in the mail.
I yearn for the days when it was that simple.
Being a single, independent adult with multiple 1099’s, w2’s AND college tax credits have made my tax seasons a little less enjoyable. After hearing in class exactly how taxes are calculated, it got me thinking. How does tax math actually affect me? More importantly, how do tax changes affect this math?
What I have found is that taxes are complicated. Many Americans don’t understand how they work, why they are the way they are, or where their money is even going.
In 2017, the Tax Cuts and Jobs Act was passed in an attempt to simplify the federal tax system. The new act includes two major changes:
The first change is the tax rates for the 7 tax brackets. They have been changed from 10% 15% 25% 28% 33% 35% & 39.6% to 10%, 12%, 22%, 24%, 32%, 35% and 37%.
The second change affects the standard deductions for filers. The standard deductions this year is nearly double what it was last year. For singles, it jumped from $6,350 to $12,000. For Married joint file couples the number increased from $12,700 to $24,000
So, in order to understand how this change affects me and the math of taxes, I actually have to do some math. Since I live and work in New Hampshire, I don’t dont have to worry about anything with the state. What I DO have to worry about is this difference between the old tax brackets and the new “simple” tax system.
Spoiler Alert: it is not simple.
Luckily, NerdWallet breaks down the math in a way that’s easier to understand: “Being “in” a tax bracket doesn’t mean you pay that federal income tax rate on everything you make. The progressive tax system means that people with higher taxable incomes are subject to higher tax federal income tax rates, and people with lower taxable incomes are subject to lower federal income tax rates. The government decides how much tax you owe by dividing your taxable income into chunks — also known as tax brackets — and each chunk gets taxed at the corresponding tax rate. The beauty of this is that no matter which bracket you’re in, you won’t pay that tax rate on your entire income.”
Looking at the new tax numbers, we can tell the new standard deduction is obviously going to make a difference. So, if I made the average income of a high school graduate,$35,256, last year and the same this year, do I owe less this year because of this new system?
Lets do the math.
I first have to break my income out into the tax brackets. This visual provided by Nerdwallet shows the brackets for someone making $32,000.
So with that understood, lets do the math to see how this all makes a difference:
Obviously, with the standard deduction, there is a huge difference. With the standard deduction increase, the average high school grad saved $1,239. But what if no one had any deductions? Do those tax bracket number changes make any difference on their own? I did the math to find out:
So, the tax bracket changes alone saved our average high school grad $781.93.
So what? Well, according to nerdwallet the income range for these brackets is supposed to increase again in 2020, leaving a few more bucks in your pocket. So take the time, do the math, and see if you’re paying too much in at work!
Note: I have no clue why the images are so blurry, they’re all high-quality images, sorry!
Tis the season of taxes, a blessing for those fortunate enough to get a return, while others are cursed to owe money to Uncle Sam. Taxes are an interesting topic, while no one likes to hand over their hard-earned cash, there is an unspoken code within our society that understands the importance of funding local and national government services such as roads, fire departments or law enforcement. Tax reform and how the local/federal government spends our money is a highly debatable topic. Should we increase the taxes to pay off the national deficit or lower the taxes to encourage spending and create a stronger economy? I found an article that has some interesting facts about the United States tax code and will give you a better understanding of the tax regulations.
One interesting fact I found was currently the highest tax bracket is at 39.6%, however in 1944 the highest bracket was at 94%. More so the United States is the only country that requires their citizens to pay taxes on income while working and living outside the U.S. Borders. While the government has their hands in your pocket at least 7 states; Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming have no income tax. New Hampshire and Tennessee tax only dividends and interest income. Another interesting fact is it pays to rat! The IRS will pay 30% of any taxes, penalties or interest to any whistleblower.
This article deepened my understanding of the history of the tax code and how it was formed to what we have today. I thought 39.6% was extremely high, but I didn’t know President Franklin D. Roosevelt wanted to increase the income tax to 100% after Pearl Harbor. Even though tax regulation can be annoying or even complicated that sometimes requires a professional to file yours, it is nonetheless important to ensure your due diligence and pay your taxes on time!
Hi everyone! When I think about math I usually become somewhat excited, although I do not allways love the tedious aspects of the subject. I do however, love the problem solving and critical thinking side of math. For example, Physics class uses math to solve real world problems. That’s very exciting and interesting.
A little bit about me is that I am a filmmaker. Movies excite me with wonder and transport me to other worlds. I would love to integrate real mathematics and science into the films that I create to give the worlds I manifest in my stories more depth and solidly. Also, I want to do this becuase it would be pretty cool.