There can be a lot of tax terms to learn when you are filing taxes and each tax form brings new words with new definitions. Educate yourself and feel confident when filing your taxes.
All taxpayers should have a basic understanding of general tax terms. Tax season comes around for everyone at the beginning of each year and knowing basic tax terms can help make tax filing easier. Another thing that can make tax filing easier is taking advantage of Check City’s tax preparation services.
Your adjusted gross income (AGI) is your gross income minus any adjustments to your income. While gross income includes all of your income, adjusted gross income subtracts expenses like tuition, student loans, or alimony.
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An audit is a kind of review that is usually looking for a number of specific things to check for accuracy and compliance with laws and regulations. A financial audit examines the income and expenses of a company or person to search for any flaws or problems that might need solving.
When you donate to a charity or nonprofit organization you are making a charitable contribution. Contributions can also include things like goods or services. If the organization you are donating to meets IRS qualifications, these contributions could be tax deductible.
A child tax credit is an amount of money given to parents for their children. Children who qualify as dependents can make parents eligible to receive this credit to increase their tax refund amount.
A dependent is someone who relies on someone else for their source of income. Children are a primary example of a dependent when the child lives with you and depends on you for everything. But dependents can include other household members who rely on the head of the household’s income.
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When something is deferred it is put off or scheduled for a later date. Deferred taxes are company taxes that have been deferred or scheduled to be paid at a later date.
When a company or person receives double taxation they are being taxed twice on the same asset. For instance, if income taxes are applied to someone’s income twice instead of once, that is double taxation. This can happen when income or an asset is taxed as both a personal and corporate asset.
Earned income is any money earned through employment. Wages, salary, bonuses, commissions, contract payments, tips, self-employed earnings are all a part of someone’s earned income. Some benefits money like retirement or disability funds can also be considered a part of earned income.
The Earned Income Tax Credit is an amount that can be added to a tax refund amount for someone who makes a low or moderate amount of money each year. This credit is available to individuals and couples. How much the tax credit amounts to depends on factors like income and household size.
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One of the many categories that employees can fall under is exempt or nonexempt. This status has to do with whether an employee is entitled to overtime pay or not. Nonexempt employees must be given overtime pay while exempt employees are not entitled to receive overtime pay.
Someone’s filing status can also be thought of as their tax status. It determines how someone needs to file their taxes, what documents they need to use to file taxes, and how they are taxed.
A person’s gross income is the sum total of all their income before taxes and deductions.
The Head of Household is a term often used in taxes to describe the primary provider of household income. This term applies to taxpayers whether they are an individual with a single-member household or someone with a multi-person household. Technically, to qualify as the head of your household during tax season, you must be the one to pay over half the household costs for the year.
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A person’s net income is the sum total of all their income after taxes and deductions.
Payroll taxes are the taxes applied to the income from an employee’s paycheck. These taxes generally include the standard income tax from an employee’s paycheck and taxes that the employer pays based on what they are paying their employees.
Real estate taxes and property taxes are the same things. They are taxes placed on fixed property like your home. Personal property taxes are different. They are taxes placed on mobile property like your car.
Taxes are a financial obligation placed on members of a community by the governing entities of that community. Taxes are paid to the governing entities, by the people and businesses of the community, and are then used on public expenses like roads.
Tax deductions are when the amount you owe in taxes is allowed to be reduced. Usually, some kind of qualification needs to be made for why the tax obligations are lowered. For instance, some people can get tax deductions and owe less in taxes due to expenses they made that year for work office supplies.
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If something is tax deductible that means it can get you a tax deduction. These items include the things that qualify someone’s income to have a lower tax obligation. It’s usually an expense that can be subtracted from someone’s income in order to lower how much income is taxable.
Someone’s tax liability is another word for their tax obligation. It refers to the taxes they owe the IRS. Tax liability is usually placed upon anyone earning a taxable income. Under certain qualifying circumstances, some or all of that income could have no tax liability like in the case of exemptions and deductions.
When someone is eligible for a tax exemption or a tax exempt status it means their obligation to pay taxes has been removed. Usually, this status applies to charitable or nonprofit organizations.
Taxes are applied to income. But sometimes, certain amounts of that income aren’t taxed due to deductions and other qualifications. The amount of someone’s income that is susceptible to taxes is called taxable income.
Different tax rates are used for different levels of income. These different levels of income and their subsequent tax rates are organized into categories known as tax brackets.
Tax-free income is the opposite of taxable income. It is whatever amount of your income that is not subject to taxes. Some forms of income are not subject to income tax like life insurance payments or disability payments. What income is not taxable may vary from state to state.
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There are traditional employees and then there are 1099 employees. Traditional employees are what most people generally think of when they think of a regular employee. But a 1099 employee is an independent contractor, a freelancer, or someone who is self-employed. They are hired and paid indirectly as a third-party entity and not as an in-house employee.
A tax return is the set of documents used to file and complete your taxes at the beginning of each year during tax season. All the information and tax documents you submit to file taxes each year fall under your tax return. The tax return outlines in detail all your income and taxes for the previous year.
A tax refund advance can also be referred to as a tax refund anticipation loan. It’s a type of loan advance that gets borrowers money from their incoming tax refund sooner. The loan is then repaid when the actual tax refund arrives.
One of the taxes that employers pay is unemployment tax. This tax goes toward the unemployment fund to compensate workers who have lost their jobs through no fault of their own and need financial support to tide them over until they find their next job.
When you think of a regular, traditional employee, you are thinking of a W2 employee. W2 employees are hired and paid in-house within a company. The employer will then issue a W2 tax form to their employees at the beginning of each year for filing taxes.
Tax withholding can also be referred to as tax retention. When an employee is first hired they will fill out a W4 form and outline any tax withholdings they would like to place on their paychecks. These will keep certain taxes from being applied to each paycheck. Instead, those owed taxes will be paid separately, not through each paycheck, at a later date.
