Not many years ago, Cora would jump up and down, wave her arms, and declare her love for me in "millions, billions, and trillions" of whatever hit her fancy. Sometimes it would be stars. Other times, it was miles. Occasionally, it was dollars.

Nowadays, when I say I love her back in million and billions and trillions, she's positive it's money. She also wants to know when it's going to be here.

One day we decided to find the meaning of millions, billions, and trillions, since these numbers seem so unreachable. To put it in perspective, 226 million tax returns can be compared to 226 million years, one taxpayer for every year. This is how long it takes our solar system to complete one rotation around the center of the Milky Way.

Uncle Sam has a budget of $9.4 billion. If you made a $1 million a year, it would take 1,000 years to make $1 billion. Trillion? Uncle Sam collected over $2 trillion in revenue in 2000. If you type "2 trillion" into a search engine, you'll find nothing but articles on money (mostly taxes) or quantum physics. Let's make it simple. If every one of the 226 million tax returns included equal amounts of tax payments in 2000, each tax return would have included a check for $8,849.56.

This seems more realistic, but I didn't pay $8,849.56 in taxes in 2000. Did you? Let's see how we can calculate the average tax return, and maybe we can find out who's paying these taxes.

First, you find out someone's gross income, which is all their income for the year. This includes wages, tips, profits from a business, interest or dividends from investments, and any other income, like winnings at the racetrack or bingo. Let's start with a single mom in 2001. She's head of household, with two children, and an income of $35,000.

Some of this income won't be taxed in the year it's received, like contributions to IRAs and other tax-deferred savings plans. These are called adjustments. When you subtract adjustments from your gross income, you end up with your adjusted gross income. That was ridiculously simple.

Let's say this $35,000 was adjusted, and now it's down to $33,000. This money is now entitled to certain exemptions and deductions. Exemptions are automatic. In 2001, this woman was allowed a $2,900 exemption - one for herself and one for each child. We'll subtract $8,700 (3 x $2,900) from that $33,000. We're now down to $24,300 in taxable income.

Deductions vary from person to person. The common garden-variety deduction includes home mortgages, contributions to charity (including items to various charities - get receipts!), and taxes paid to other agencies. The latter includes state taxes and local property taxes.

There are two types of deductions: itemized, and standard. You can take one or the other, but not both. I would advise looking at the standard deduction for any given year before sitting down with those receipts. The standard deduction is Uncle Sam's way of telling us this is the average deduction per household for any given year.

The head of household standard deduction in 2001 was $6,650. If you don't think you came close to that figure in your receipts, then don't bother adding them up. If you did spend more in charitable contributions, medical bills, and taxes, etc., then you can take that sum. Either way, take the largest figure. This is subtracted from the taxable income.

This woman took the standard deduction for 2001. Let's subtract $6,650 from $24,300. The total is $17,650. Let's focus on that last figure, and head to the 2001 tax tables. Certain tax tables are reserved for those who make more than $100,000 per year. The tax table we need is for those who make less than that amount per year. If we go to that tax table for 2001, we find that Uncle Sam wanted $2,644 from this woman.

Now, since this woman has two children, she may have tax credits. Tax credits are different than deductions. Tax credits shave this amount from her total tax bill. She might have taken two credits of $600 each for both her children. If we subtract $1,200 from $2,644, we end up with $1,444 for the total tax bill.

If she paid taxes through withholding at work, or quarterly taxes if she were self-employed, these taxes would be subtracted from that $1,444. The final figure would be what she owed, or - if it came below $0 - she would receive a refund.

Not bad, right? It's certainly not anywhere near our $8,849.56 figure. But wait - let's move on to 2002. Let's pretend this woman was noticed for her superior leadership skills at work. What if this woman's income doubles to $70,000 per year? In 2002, she'll take $9,000 in exemptions, $6,900 in standard deductions, and $1,500 in child tax credits, because Uncle Sam will raise the bar on these subtractions across the board. She'll take her $2,000 in adjustments as usual. This leaves her $52,100 in taxable income, before the child tax credits are deducted from the total tax bill.

The tax tables for 2002 aren't out yet, but based on tax tables for 2001, she would now owe $9,803 in taxes. Subtract the tax credit of $1500, and she's still paying $8,303. Her salary doubled, and her tax rate increased five times! How did that happen?

Join us next week when Cora and I discover the logic and science of Uncle Sam. Trust us, it's not logical, and it's far from a science, but we can still make it work for us. Until then, we wish you millions, billions, and trillions of happy minutes. That will last you longer than the sun's lifespan, which is estimated to last about another 5 billion years.

Until Next Week,
Linda Goin