Tax Terms You Need to Know
It’s almost that time of year again. The main tax deadline for personal taxes is Tuesday, April 18, 2023.
Filling out your tax forms can get overwhelming. We put together a list of key tax terms to help you cut through all the jargon.
Tax terminology can be confusing, so here is a helpful guide to help you understand some of the more common terms related to taxes.
Adjusted Gross Income (AGI): Your adjusted gross income (AGI) is your taxable income minus certain deductions. It’s a key number because the IRS uses your AGI to determine whether you qualify for other tax credits or deductions.
Assessment: An assessment is when the government or other body reviews your taxes and determines the amount of taxes you owe.
Audit: An audit is when the government or other body reviews your tax returns in detail to make sure everything is accurate.
Capital Gains: Capital gains refer to the profits made on investments when they’re sold.
Child Tax Credit: The child tax credit provides a financial benefit to families with qualifying children. For the 2022 tax year, the IRS will allow you to claim up to $2,000 for every child under the age of 17. The credit lowers the amount you owe in taxes, and up to $1,500 of it is refundable—meaning you can expect a tax refund even if you do not owe taxes.
Deduction: A deduction is an amount of money that can be subtracted from your taxable income.
Earned Income Tax Credit (EITC): The earned income tax credit is designed to provide financial assistance to taxpayers with low to moderate income (up to $59,187 for 2022). The EITC is a refundable tax credit, which means it can reduce the amount of taxes you owe and generate a refund.
Exemption: An exemption is a set amount of money that can be subtracted from your taxable income.
Filing Status: Your filing status is an IRS classification based generally on your marital status. It is used for your filing requirements, standard deduction, ability to claim certain tax breaks, and the amount of your tax. There are five filing statutes.
- Head of household
- Married filing separately
- Married filing jointly
- Qualifying widow(er)
Income Tax: Income tax is the money paid to the government based on the income you earn.
Standard Deduction: This is a fixed dollar amount that taxpayers can subtract from their income. The standard deduction is available to all filers and is determined by the taxpayer’s filing status.
Tax Credit: A tax credit is a reduction in the amount of taxes you owe.
Tax Rate: The tax rate is the percentage of income that you’re required to pay in taxes.
Withholding: Withholding is the amount of money taken out of your paycheck by your employer to pay taxes.
Impact members CANNOT deduct their monthly share portions from their federal income tax unless they are a resident of Missouri, where you can deduct share amounts from your State income taxes.
The only states requiring exemption forms for the tax year 2022 are California, Massachusetts, New Jersey, Rhode Island, and the District of Columbia (D.C.). For more information on filing taxes in any of the states listed above, visit the link to your specified state here.
We hope this guide was helpful in understanding some of the basics of tax terminology. For specific tax questions, please consult with your CPA.