Tax Glossary
Simple, clear definitions of common tax terms. No jargon, just plain language explanations to help you understand your taxes better.
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🔤All Terms (A-Z)
Above-the-Line Deduction
Deductions subtracted before AGI is calculated. These reduce taxable income and may increase eligibility for other credits and deductions.
Deductions & CreditsAdjustments to Income
Deductions that reduce gross income to arrive at AGI. Valuable because they can be claimed even if you do not itemize deductions.
Deductions & CreditsAGI (Adjusted Gross Income)
Your total income minus certain adjustments. A key number that affects many tax credits and deductions.
Income & EarningsBarter Income
The fair market value of goods or services received in exchange for your services. Taxable even when no cash changes hands.
Income & EarningsCancellation of Debt Income (CODI)
When a lender forgives debt, the forgiven amount is generally treated as taxable income. Exceptions may apply for bankruptcy or insolvency.
Income & EarningsCapital Gains
Profits from selling assets like stocks or property. Taxed differently based on how long you held the asset.
Income & EarningsConstructive Receipt
Income is taxable when made available to you, even if not physically received. A December paycheck is taxable that year, even if collected in January.
Tax ConceptsDeduction (Standard & Itemized)
Reduces your taxable income. Choose between the standard deduction or itemizing specific expenses.
Deductions & CreditsDependent
A child or qualifying person you support financially. Claiming dependents can unlock tax credits and deductions.
Tax Forms & FilingEarned Income
Money you receive for working, including wages, salaries, tips, and self-employment income.
Income & EarningsEarned Income Tax Credit (EITC)
A refundable tax credit for low- to moderate-income workers. Can reduce tax or increase your refund.
Deductions & CreditsEducator Expense Deduction
Eligible teachers and educators can deduct unreimbursed classroom expenses like supplies, books, and equipment, up to IRS limits.
Deductions & CreditsFICA Taxes
Mandatory payroll taxes that fund Social Security and Medicare. Paid by employees, employers, and self-employed.
Tax ConceptsFiling Status
Your tax situation based on marital status and family structure. Affects your brackets and deductions.
Tax Forms & FilingForeign Earned Income
Income earned while working outside the United States. Eligible taxpayers may exclude a portion if residency or physical presence tests are met.
Income & EarningsFringe Benefits
Non-cash compensation from employers, such as company cars, housing allowances, or tuition assistance. Some benefits are taxable, others are excluded.
Income & EarningsGambling Income
Winnings from casinos, sports betting, lotteries, and raffles. All winnings are taxable and must be reported, even without a Form W-2G.
Income & EarningsGross Income
All money you receive before taxes and deductions. The starting point for calculating AGI and taxable income.
Income & EarningsHealth Savings Account (HSA) Deduction
Contributions to an HSA are deductible above the line if you have a high-deductible health plan. Earnings and qualified withdrawals are tax-free.
Deductions & CreditsHobby Income
Money earned from activities not conducted with a profit motive. Income is taxable, but hobby expenses are generally not deductible.
Income & EarningsIncome Tax
Tax paid on money you earn, calculated using progressive tax brackets. Includes federal and state taxes.
Tax ConceptsIRA Contribution Deduction
Traditional IRA contributions may be deductible depending on income and workplace retirement plan coverage. Deductible contributions reduce AGI.
Deductions & CreditsMarginal Tax Rate
The rate at which your next dollar of income is taxed. Represents your top tax bracket.
Tax ConceptsMedicare Tax
Payroll tax (1.45% employee + 1.45% employer) that funds health insurance for seniors and disabled individuals.
Tax ConceptsMoving Expenses Deduction
Generally nondeductible except for active-duty military members relocating under orders.
Deductions & CreditsOrdinary Income
The most common type of taxable income taxed at standard federal rates. Includes wages, salaries, bonuses, commissions, and interest income.
Income & EarningsPassive Income
Income from business activities where the taxpayer does not materially participate. Examples include rental properties and limited partnership investments.
Income & EarningsPayroll Tax
Taxes withheld from your paycheck to fund Social Security, Medicare, and income tax obligations.
Tax ConceptsPortfolio Income
Earnings from investments like stocks, bonds, and mutual funds. Includes interest, dividends, and capital gains. Not subject to self-employment tax.
Income & EarningsPre-Tax vs Post-Tax
Whether money is taken from your paycheck before or after taxes. Affects take-home pay and retirement savings.
Tax ConceptsProgressive Tax System
A tax system where rates increase as income increases. Higher earners pay higher rates only on income within each bracket.
Tax ConceptsProperty Tax
Annual tax on real estate based on property value. Funds local schools, police, fire, and infrastructure.
Tax ConceptsSales Tax
Tax on goods and services collected at purchase. Rates vary by state, county, and city.
Tax ConceptsSelf-Employment Tax
Tax (15.3%) that self-employed workers pay to cover both employee and employer portions of Social Security and Medicare.
Tax ConceptsSelf-Employed Health Insurance Deduction
Self-employed individuals may deduct 100% of health insurance premiums paid for themselves, spouses, and dependents.
Deductions & CreditsSEP-IRA Contribution
Contributions to a Simplified Employee Pension (SEP-IRA) are deductible business expenses and reduce taxable income for self-employed taxpayers.
Deductions & CreditsSIMPLE IRA Contribution
SIMPLE IRA contributions made by self-employed individuals or small business employees are deductible and reduce AGI.
Deductions & CreditsSocial Security Tax
Payroll tax (6.2% employee + 6.2% employer) that funds retirement, disability, and survivor benefits.
Tax ConceptsStandard Deduction
Fixed amount that reduces taxable income. Most taxpayers claim this instead of itemizing deductions.
Deductions & CreditsStudent Loan Interest Deduction
Taxpayers may deduct interest paid on qualified student loans, subject to income phase-outs. Reduces AGI without requiring itemization.
Deductions & CreditsTax Credit
Directly reduces your tax bill dollar-for-dollar. More powerful than a deduction for lowering taxes.
Deductions & CreditsTax Credit vs Tax Deduction
Credits reduce tax owed dollar-for-dollar, while deductions reduce taxable income. Credits are typically more valuable.
Deductions & CreditsTax-Exempt Income
Income excluded from federal taxation. Examples include municipal bond interest, certain life insurance proceeds, and qualified Roth IRA distributions.
Income & EarningsTax Bracket
A range of income taxed at a specific rate. Your income is divided across multiple brackets, not all taxed at one rate.
Tax ConceptsTaxable Income
The amount of income subject to tax after deductions. Used to calculate your actual tax owed.
Income & EarningsUnearned Income
Income received without performing active work. Includes interest, dividends, capital gains, rental income, and certain retirement distributions.
Income & EarningsWithholding
Tax automatically taken from your paycheck and sent to the IRS as prepayment. Helps avoid owing a lump sum at tax time.
Tax ConceptsMore Terms Coming Soon
We're continuously adding more tax terms and definitions to help you understand your taxes better. Check back regularly for updates!
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