Glossary:
The following is a list of frequently used terms relating to taxes, in easy to understand language.
Abusive Tax Scheme: a series of transactions designed solely to avoid income taxes.
Adjusted Basis: the net cost of an asset after adjusting for various tax-related items.
Adjusted Gross Income: Your total income from all sources minus any adjustments.
Adjustments to Income: Certain expenses which directly reduce your total income.
Adoption Expenses: You may take a tax credit for expenses you paid to adopt a child.
Advance Child Tax Credit Payment: In 2003 the Interal Revenue Service issued advanced payments for people who were eligible to claim the Child Tax Credit.
Advance Earned Income Credit Payment: Payments of part of your Earned Income Tax Credit received through your paycheck.
Alimony: money received or paid to a former spouse under a divorce decree or separation instrument.
Alternative Minimum Tax (AMT): The alternative minimum tax (AMT) is a separate method for calculating your income taxes. You are responsible for paying the higher of the AMT or the regular tax. If your AMT tax is higher, you add the difference between the AMT and the regular tax on your 1040 line 44.
Annuities: Annuities are a type of tax-deferred retirement plan.
Archer MSA: Medical Savings Accounts are tax-deductible savings accounts to save for medical expenses.
At-Risk Rules: Losses from a business operation are limited to the amount of money you can actually lose in the business.
Backup Withholding: Backup withholding is a type of withholding for federal income taxes on certain types of income. Backup withholding may be mandatory in certain circumstances. Most taxpayers, however, are exempt from backup withholding.
Blindness: People who are blind receive a higher standard deduction.
Business Entities: A group of people organized for some profitable or charitable purpose.
Business Expense: an expense that is ordinary and necessary for carrying on a trade or business.
Business Income & Expenses: An individual person, conducting business as an independent contractor or as a sole proprietor, reports the income and expenses of the business activity on a Schedule C.
Business Use of Home: Employees who work out of their home or independent contractors who have a home office may be able to deduct part of their household expenses on their tax return.
Capital Gain Distributions: distributions from a mutual fund of capital gains on investments they have sold off.
Capital Gains Definition: A capital gain is the difference between what you paid for an investment and what you received when you sold that investment. If you sold the investment for more than what you paid, then you have a capital gain.
Capital Losses Definition: A capital loss is the difference between what you paid for an investment and what you received when you sold that investment. If you sold the investment for less than the price you paid, you have a capital loss.
Casualty & Theft Losses: If you suffered a loss of personal property due to a casualty or theft, you may be able to deduct this loss as an itemized deduction on Schedule A.
Certified Public Accountant (CPA): A CPA is a professional accountant licensed by the state. Best for corporate accounting, tax audits, and business consulting.
Charitable Donations: giving cash or property to a qualified non-profit organization.
Child: a person 18 years old or younger who is in your care.
Child and Dependent Care Expenses: You may take a tax credit for day care or child care expenses for your child or disabled dependent.
Child Tax Credit: You may take a tax credit if you have dependent children.
Children of Divorced or Separated Parents: Generally, the parents should decide in advance who gets to claim the child as a dependent.
Community Property States: Married persons are considered to own their property, assets, and income jointly.
Contributions to Reduce the Public Debt: You may make a gift to help reduce this debt. Your gift may be tax deductible.
Corporations: Groups of people who have organized themselves with the intent to provide goods and services with the goal of making a profit.
Corrective Distributions: If you contribute more money to your 401k or IRA than you were supposed to, the plan administrator will send you a check for your excess contributions.
Cost Basis Definition: the original price of an asset, such as stocks, bonds, mutual funds, property, or equipment. Cost basis includes the purchase price and any associated purchase costs.
Currently Not Collectible: The Internal Revenue Service can declare a taxpayer “currently not collectible” if the taxpayer has no ability to pay his or her tax debts. The IRS reviews Not Collectible status every few years.
Death of a Taxpayer: When a person dies, his surviving spouse or personal representative should file a tax return on behalf of the deceased.
Debt: can impact federal income taxes in a number of ways. Discusses the tax impact of mortgage debt, student loan debt, margin loans, and canceled debts.
Dependents: A dependent is someone you take care of. Claiming a person as a dependent on your tax return will increase your personal exemptions, and may help you qualify for other tax benefits. You can claim a dependent on your tax return if you meet five criteria.
Depreciation: an income tax deduction that allows a taxpayer to recover the cost of property or assets placed in service.
Direct Deposit of Refund: The IRS can deposit your tax refund directly into your bank account instead of mailing you a paper refund check.
Disclosure: Releasing your tax return information to a third-party. Disclosure may be authorized or unauthorized. Unauthorized disclosure is a crime.
Dividends: Dividends are a share of a company’s profits that is divided among shareholders. Discusses how ordinary dividends and qualified dividends are taxed.
Enrolled Agent (EA): a tax professional who has passed an IRS test covering all aspects of taxation.
Entity (Tax Concept): a person or group of people who are subject to the tax laws.
Estates and Trusts: Estates and trusts are types of tax entities. Estates report the income and assets of a deceased person. Trusts preserve the assets of a deceased person, and report distributions of income and assets to beneficiaries.
Fair Market Value (FMV): Fair market value is the price at which you could have sold a piece of property. Includes IRS definition of fair market value, and its relation to charitable contributions.
Filing Status: You have only one filing status for income tax purposes. Your filing status is determined by whether you were considered married at the end of the year.
Form 1099: is used to report a wide variety of taxable income, such as interest, dividends, stock sales, and self-employment income. Income data on Form 1099 is reported in different places on your tax return.
Form 1120S – S Corporation Tax Return
Form W-4: is used to figure the right amount of federal income tax to have withheld from your paycheck.
Form W9: is a request for your taxpayer identification number. Information about what the form means and how to fill it out.
I.R.S.: is an acronym for the Internal Revenue Service, branch of the United States Treasury Department that collects tax revenue.
Marginal Tax Rate: is the income tax rate paid on the last dollar of income earned.
Refundable Tax Credits: is a tax credit that is treated as a payment and thus can be refunded to the taxpayer by the Internal Revenue Service. Refundable credits can be used strategically to help offset certain types of taxes that normally cannot be reduced, and they can produce a federal tax refund that is larger than the amount of money a person actually paid in during the year.
S Corporation Definition & Requirements: a regular corporation that has between 1 and 100 shareholders and that passes-through net income or losses to shareholders.
Substitute for Return (SFR): a formal way for the Internal Revenue Service to make an educated guess about how much taxes you might owe.
Tax Avoidance: aggressively minimizing taxes by using legal tax strategies.
Tax Evasion: aggressively minimizing taxes by using illegal tax strategies.
Taxes: a payment or fee paid to the government.
Voluntary Compliance: a system of compliance that relies on individual citizens to report their income freely and voluntarily, calculate their tax liability correctly, and file a tax return on time.