TAX GLOSSARY
A tax glossary is a comprehensive list of terms and definitions related to taxation. It clarifies terminology used in tax laws, forms, publications, and communications from tax authorities. The glossary covers a wide range of tax-related terms, including deductions, credits, exemptions, filing statuses, and types of income. Taxpayers, tax professionals, and other stakeholders use the glossary better to understand tax concepts, requirements, and procedures. Understanding tax terminology is essential for effective communication, compliance with tax laws, and making informed financial decisions.
A
Adjusted Gross Income (AGI): An individual's total income minus specific deductions, such as retirement contributions and student loan interest. Audit: An examination by the IRS to verify that tax returns are accurate and comply with tax laws.
B
Bracket: Tax rates applied to different levels of income.
C
Capital Gains: Profits from selling assets such as stocks, real estate, or bonds.
D
Deduction: Expenses that can be subtracted from taxable income, reducing the tax owed.
E
Exemption: An amount taxpayers can subtract from their income for themselves, their spouse, and eligible dependents, reducing taxable income.
F
Filing Status: Categories used to determine tax rates and eligibility for certain deductions or credits, such as single, married filing jointly, married filing separately, head of household, or qualifying widow(er).
G
Gross Income: Total income earned before deductions or taxes.
H
Head of Household: A filing status for unmarried individuals who provide housing for dependent relatives.
I
Income Tax: Taxes imposed on individuals and businesses based on income earned.
J
Joint Return: A tax return filed by married couples who report their income and deductions together.
K
Kiddie Tax: A tax on children's unearned income, typically applied to children under a certain age.
L
Lien: A legal claim by the government against a taxpayer’s property for the unpaid amount of their tax debt.
M
Marginal Tax Rate: The tax rate applied to the last dollar of income earned.
N
Net Income: Total income after deductions and taxes.
O
Offer in Compromise: An agreement between taxpayers and the IRS to settle tax debt for less than the total amount owed.
P
Penalty: Additional fees imposed for failure to comply with tax laws, such as late payment or underpayment penalties.
Q
Qualified Dividends: Dividends eligible for lower tax rates.
R
Refund: Money returned to taxpayers when their tax payments exceed the amount owed.
S
Standard Deduction: A fixed amount that reduces taxable income, available to taxpayers who do not itemize deductions.
T
Tax Credit: A dollar-for-dollar reduction in the amount of tax owed, often provided for specific expenses or situations.
U
Underpayment Penalty: A penalty imposed on taxpayers who do not pay enough taxes throughout the year, typically through withholding or estimated tax payments.
V
Voluntary Compliance: The principle that taxpayers are responsible for accurately reporting their income and paying taxes owed without direct IRS intervention.
W
Withholding: Money withheld from paychecks and other payments to cover income taxes, typically remitted to the IRS by employers.
X
Exclusion: Income or benefits that are not subject to taxation.
Y
Year-End Tax Planning: Strategies used by taxpayers to minimize tax liabilities before the end of the tax year.
Z
Zero-Rated: Goods or services that are taxed at a 0% rate.