Does this tax make sense?

[jteezie]

Hi everyone,

I decided to do my taxes this weekend. Near the very end I clicked on the "national average comparison" and was kinda shocked to see that I owe more Income tax but earned less than the national average. How can this be? The numbers are below according to Tax Act:

National Average:
Wage: 66301
Net Capital Loss: 2416
Total Adjustments: 2295
Taxable Income: 48953
Total Income Tax: 6081

Mine:
Wage: 60000
Net Capital Loss: 3000
Total Adjustments: 4000
Taxable Income: 43000
Total Income Tax: 6944

How is my income tax 1000 higher when I make less and had more adjustments?
Does it have to do with single filing status?

[Joan.of.the.Arch]

For starters what is "national average wage?" I don't think I've heard that term before. But the number they give sounds too high for a national average for earned income. I think even median average household income (sometimes two earners) is less.

[jteezie]

The national average is based on their database of tax filers. Since these are online filings, it's clearly skewed toward technology/internet using people. Back on topic, what can explain the tax discrepancy?

[jpg7n16]

The figures could be adjusted down for filing status, tax credits, long term cap gains rates, qualified dividend rates, etc.

[SnoopyCool]

Since the taxable income portion in the first listing is higher than yours, but less income tax than what you have, I'd say filing status/ credits/deductions.

[MonkeyMama]

Yup - it's because you are single and because you have less tax credits and deductions from average. (Singles pay higher tax rates than married people, in general. If 2 married people work, it's kind of the same. But if one doesn't work, then the same one-person wage is taxed half as much than if that person were merely single).

[jteezie]

Thanks everyone. I did a calculation comparing the single tax brackets to the married and that does indeed explain most of the difference.

I guess yet another reason to get married (kidding, but maybe)...

Another interesting observation from this data, so that this thread isn't just all about me:
The Net Capital Loss "National" Average is 2416, which implies to me that 2416/3000 or a whopping 80.5% of the tax filers on TaxAct claimed the max 3000 capital loss. That seems kinda crazy to me, but obviously people have incentive to do that.

Same calculation goes for college/education expenses, but in this case, 2595/4000 or about 65% attended college in some capacity in 2011 (I assume the bulk of the "total adjustments" is the 4000 education credit of some sort. I wonder if that is high or not. The 4000 threshold makes it a little difficult to assess what type of education was pursued.

Any thoughts on these figures?

[Like2Plan]

Another interesting observation from this data, so that this thread isn't just all about me:
The Net Capital Loss "National" Average is 2416, which implies to me that 2416/3000 or a whopping 80.5% of the tax filers on TaxAct claimed the max 3000 capital loss. That seems kinda crazy to me, but obviously people have incentive to do that.

Same calculation goes for college/education expenses, but in this case, 2595/4000 or about 65% attended college in some capacity in 2011 (I assume the bulk of the "total adjustments" is the 4000 education credit of some sort. I wonder if that is high or not. The 4000 threshold makes it a little difficult to assess what type of education was pursued.

Any thoughts on these figures?

I know I don't like to spend any more than I have to on tax preparation software. Maybe the target customer for TaxAct is someone who had some tax event last year that was a little more complicated (like capital losses). And/or, maybe TaxAct did some marketing to college students?

[jpg7n16]

Another interesting observation from this data, so that this thread isn't just all about me:
The Net Capital Loss "National" Average is 2416, which implies to me that 2416/3000 or a whopping 80.5% of the tax filers on TaxAct claimed the max 3000 capital loss. That seems kinda crazy to me, but obviously people have incentive to do that.

Well, you don't only have 2 options: $0, or $3,000. You have UP TO $3,000 worth of capital loss that you can claim each year.

Meaning that some of the people claimed a loss of $1,500. Or $200. Or $2764, etc.

And yes, some people do have the max $3,000 that they can claim for the year. This may still be a carried forward capital loss from 2008. If someone sold 1 fund in 2008, and took a loss of $15,000, they could take $3k/year for 5 years in a row.

Same calculation goes for college/education expenses, but in this case, 2595/4000 or about 65% attended college in some capacity in 2011 (I assume the bulk of the "total adjustments" is the 4000 education credit of some sort. I wonder if that is high or not. The 4000 threshold makes it a little difficult to assess what type of education was pursued.

Any thoughts on these figures?

Same thoughts. Not everyone claimed the max. Many claim somewhere in between.

Also, many parents pay the college tuition for their kids. 3 kids could give you easily 7-12 years of paying tuition.

[jteezie]

JPG, am I correct to interpret that I can carry my college costs over multiple years? I thought that if I spent more than the 4000, then I'm just out of luck.

Maybe I was naive to use the binary options 0 and 3000... I can imagine some investors not maxing the 3000.