personal finance chapter 4
exemption
a deduction from adjusted gross income for yourself, your spouse, and qualified dependents
tax audit
a detailed examination of your tax return by the Internal Revenue Service
standard deduction
a set amount on which no taxes are paid
excise tax
a tax imposed on specific goods and services such as gasoline cigarettes alcohol tires and air travel
estate tax
a tax imposed on the value of a person's property at the time of his or her death
inheritance tax
a tax levied on the value of property bequeathed by a deceased person
exclusion
an amount not included in gross income
tax credit
an amount subtracted directly from the amount of taxes owed
tax deduction
an amount subtracted from adjusted gross income to arrive at taxable income
tax shelter
an investment that provides immediate tax benefits and a reasonable expectation of a future financial return
itemized deductions
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
adjusted gross income (AGI)
gross income reduced by certain adjustments, such as contributions to an individual retirement account (IRA) and alimony payments
passive income
income resulting from business activities in which you do not actively participate
tax-exempt income
income that is not subject to tax
tax-deferred income
income that will be taxed at a later date
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. Aka portfolio income
capital gains
profits from the sale of a capital asset such as stocks, bonds or real estate
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 evasion
the use of illegal actions to reduce one's taxes
tax avoidance
the use of legitimate methods to reduce one's taxes
average tax rate
total tax due divided by taxable income