Tax System

Filing Status

Filing status is an important factor when computing taxable income under the federal income tax in the United States. The federal tax filing status defines the type of tax return form an individual will use. Filing status is based on marital status and family situation.

Adjusted gross income

In the United States income tax system, adjusted gross income (AGI) is an individual's total gross income minus specific deductions. Taxable income is adjusted gross income minus allowances for personal exemptions and itemized deductions.

Tax Evasion

the illegal nonpayment or underpayment of tax.

Revenue

income, especially when of a company or organization and of a substantial nature.

Gross Income

A company's revenue minus cost of goods sold. Also called gross profit and, when it is expressed as a percentage of revenue, gross margin.

Progressive Taxes

A progressive tax is a tax in which the tax rate increases as the taxable amount increases. The term "progressive" refers to the way the tax rate progresses from low to high, with the result that a taxpayer's average tax rate is less than the person's marginal tax rate.

Proportional Taxes

A proportional tax is a tax imposed so that the tax rate is fixed, with no change as the taxable base amount increases or decreases. The amount of the tax is in proportion to the amount subject to taxation. ... As a result, such a flat marginal rate is consistent with a progressive average tax rate.

Regressive Taxes

A regressive tax is a tax imposed in such a manner that the tax rate decreases as the amount subject to taxation increases. "Regressive" describes a distribution effect on income or expenditure, referring to the way the rate progresses from high to low, so that the average tax rate exceeds the marginal tax rate.

Voluntary Compliance

DEFINITION of 'Voluntary Compliance' An assumption or principle that taxpayers will comply with tax laws and, more importantly, accurately report their income and deductions honestly.

Taxable Income

Taxable income is the amount of income used to calculate an individual's or a company's income tax due. Taxable income is generally described as gross income or adjusted gross income minus any deductions or exemptions allowed in that tax year.

Itemized Deductions

Under United States tax law, itemized deductions are eligible expenses that individual taxpayers can claim on federal income tax returns and which decrease their taxable income, and is claimable in place of a standard deduction, if available.

Standard Deduction

Under United States tax law, the standard deduction is a dollar amount that non-itemizers may subtract from their income and is based on filing status. ... Taxpayers may choose either itemized deductions or a standard deduction that results in the lesser amount of tax payable.

Dependent

a person who relies on another, especially a family member, for financial support.

Tax Brackets

a range of incomes taxed at a given rate.

Tax Credit

an amount of money that can be offset against a tax liability.

Audit

an official inspection of an individual's or organization's accounts, typically by an independent body.

Exemption

the process of freeing or state of being free from an obligation or liability imposed on others.