Financial Math Tax Unit

Exemptions

A deduction from adjusted gross income for yourself, your spouse, and qualified dependents

Tax audit

A detailed examination of your tax return by the IRS

Annuities

A fixed sum of money paid annually

Schedule C

A form attached to the 1040 that is required if you are self employed

Schedule B

A form attached to the 1040 that is required if you have over a certain amount of taxable interest and/or ordinary dividends

Schedule A

A form attached to the 1040 that is required if you itemize your deductions

Schedule D

A form attached to the 1040 that is required to detail adjustments to capital gains

1040X

A form used to correct errors on the 1040, 1040A, or 1040EZ

Health savings account

A high deductible insurance policy and a savings account in which contributions can be deducted from your gross income normally provided by your employer, only used for qualified medical expenses

Dependents

A person who doesn't earn more than a set amount unless they are under 19 or a full-time student under 24

Flexible savings account

A pre-tax fund set up by employers for employees to receive reimbursement for medical and/or dependent care expenses, reimbursement usually limited time frame of one year

Office audit

A requirement from the IRS to visit an office for tax return review

Standard deduction

A set amount on which no taxes are paid

Real estate property tax

A tax imposed off the value of land and buildings

Payroll tax

A tax imposed on employers or employees calculated as a percentage of salaries employers pay their staff

Excise tax

A tax imposed on specific goods and services (ex: gasoline, cigarettes, tires, air travel, alcohol)

Estate tax

A tax imposed on the value of a person's property at the time of death

Personal property tax

A tax imposed on the value of automobiles, boats, furniture, and farm equipment

Inheritance tax

A tax imposed on the value of property bequeathed by a deceased person

Sales tax

A tax payed on most goods bought (with the exemptions of food and drugs sometimes)

Student loan interest deduction

Deduction from gross income for interest on qualified student loans (which must have been taken out for you, your spouse, or your dependent)

Tuition and fees deduction

Deduction from gross income for qualified educational expenses which doesn't include personal expenses (room and board) but does include books, supplies, and equipment used in a course

Married filing separate returns

Each spouse is responsible for his or her own tax; under certain conditions, a married couple can benefit from this filing status

Coverdell ESA

Education savings account, annual contributions not tax-deductible, earnings accumulate tax-free, limited to people with an AGI under a certain amount

529 plan

Education savings account, no federal tax deduction, no taxes when money withdrawn for eligible purposes

Education tax credit

Educators can deduct up to $250 from their taxes

1040

Expanded form of 1040A for all incomes Required if income is over $100,000 OR dependent on your parents' return and you had interest or dividends over a set limit Can itemize deductions

Itemized deduction

Expenses that can be deducted from adjusted gross income, such as medical expenses, real estate property taxes, home mortgage interest, charitable contributions, casualty losses, and certain work-related expenses

Extension

Extended time to file a federal income tax return

Adjusted gross income

Gross income reduced by certain adjustments, such as contributions to an Individual Retirement Account (IRA) and alimony payments

Unearned income

Income from investments

Passive income

Income resulting from business activities in which you do not actively participate

Tax-exempt

Income that is not subject to tax

Tax-deferred

Income that will be taxed at a later date

IRS

Internal Revenue System

1040A

Less than $100,000 in taxable income from wages, salaries, tips, unemployment compensation, interest, or dividends Standard deduction IRA deductions, tax credit for child care and dependent care expenses

Correspondence audit

Mail inquiry from the IRS

Taxable returns

Money made from investments (like savings accounts) that are taxable

Earned income

Money received for personal effort, such as wages, salary, commission, fees, tips, or bonuses

Investment income

Money received in the form of dividends, interest, or rent from investments (also called portfolio income)

Single filing status

Never-married, divorced, or legally separated individuals with no dependents

Capital gains

Profits from the sale of a capital asset such as stocks, bonds, or real estate

Witholdings

Amount withheld by your employer based on the number of exemptions and the expected deductions claimed

Field audit

An IRS agent visits you to review a tax return

Exclusion

An amount not included in gross income

Tax credits

An amount subtracted directly from the amount of taxes owed

Tax deduction

An amount subtracted from an adjusted gross income to arrive at taxable income

Qualifying widow/widower filing status

An individual whose spouse died within the past two years and who has a dependent; this status is limited to two years after the death of the spouse

Tax shelter

An investment that provides immediate tax benefits and a reasonable expectation of a future financial return

Head of household filing status

An unmarried individual or a surviving spouse who maintains a household (paying for more than half of the costs) for a child or a dependent relative

Short-term capital gain

Capital asset held less than a year

Long-term capital gain

Capital asset held more than a year

Married filing joint return

Combines the spouses' incomes

Keogh plan

Retirement account also known as an HR10 Plan, tax-deferred, can contribute up to 25% of gross income annually

Traditional IRA

Retirement account available only to people who do not participate in employer-sponsored retirement plans or who have an adjusted gross income under a certain amount

Roth IRA

Retirement account limited to people with an adjusted gross income under a certain amount, withdrawals exempt from federal and state taxes, investment grows in value on a tax-free basis (after five years), contributions not tax-deductible

Child tax credit

$1,000 off AGI per eligible child (under 17, lived with you for more than half the year and/or was in the US for 31 days)

Pensions

Savings account for retired employees that are provided by by employers

1040EZ

Single OR married filing joint return Income consisted only of wages, salaries, and tips and not more than $1,500 of taxable interest. Taxable income less than $100,000 No itemized deductions, no claims to any adjustments to income or any tax credits

Value-added tax

Tax added to a product for each stage in the manufacturing process

Regressive tax

Tax rates decrease with tax bases increasing

Progressive tax

Tax rates increase with tax bases increasing

Proportional/flat tax

Tax rates stay the same for all tax bases

401(k) plan

Tax-deferred retirement plan sponsored by an employer, limit on your contributions (most of the time), investment accumulates on a tax-free basis, can use as itemized deductions

Taxable income

The net amount of income, after allowable deductions, on which income tax is computed

Marginal tax rate

The rate used to calculate tax on the last (and next) dollar of taxable income

Tax avoidance

The use of legitimate methods to reduce one's taxes

Tax liability

Total amount of taxes owed after tax credits

Average tax rate

Total tax due divided by taxable income

Tax evasion

Use of illegal actions to reduce one's taxes