AFC Module 11 - Taxes Flashcards
Adjusted Gross Income (AGI)
Gross income less any exclusions and adjustments.
Gross income includes your wages, dividends, capital gains, business income, retirement distributions as well as other income. Adjustments to Income include such items as Educator expenses, Student loan interest, Alimony payments or contributions to a retirement account. Your AGI will never be more than your Gross Total Income on you return and in some cases may be lower.
Adjustments to income
Allowable subtractions from gross income.
American Opportunity Tax Credit
A partially refundable tax credit to help defray college expenses for the first four years of postsecondary education.
Child and Dependent Care Tax Credit
A nonrefundable tax credit that may be claimed by workers who pay employment-related expenses for care of a child or other dependent if that care gives the employee the freedom to work, seek work, or attend school full time.
Defined contribution retirement plan
An IRS-approved retirement plan sponsored by employers, allowing employees to make pretax contributions that lower their tax liability.
Most common one is a 401k
Dependent
A relative or household member being financially supported by the taxpayer.
Earned Income Tax Credit (EITC)
A refundable tax credit that may be claimed by workers with a qualifying child, and in certain cases by childless workers.
Refundable tax credit designed to benefit the working poor, especially those with Children.
Low- to moderate-income workers with qualifying children may be eligible to claim the Earned Income Tax Credit (EITC) if certain qualifying rules apply to them.
E-file will ask the right questions to see if you qualify.
Exclusions
Income not subject to federal tax.
Filing status
Description of a taxpayer’s marital status as of the last day of the tax year; includes Single, Married Filing Jointly, Married Filing Separately, and Head of Household.
Gross income
All income received in the form of money, goods, services, and/or property.
Individual Retirement Account (IRA)
Investment account that reduces current-year income, and allows the funds in the account to accumulate tax-free.
Itemized deduction
Tax-deductible expense.
Lifetime Learning Credit
A nonrefundable tax credit that may be claimed every year for tuition and related expenses paid for all years of postsecondary education undertaken to acquire or improve job skills.
Matching contributions
Employer programs that match employees’ 401(k) contributions up to a particular percentage.
Nonrefundable tax credits
A tax credit that can reduce one’s tax liability, but only to zero, with no possibility of a refund.
Refundable tax credits
A tax credit that can reduce one’s income tax liability to below zero, with the excess being refunded to the taxpayer.
Roth IRA
An individual retirement account of investments made with after-tax money.
Standard deduction
Fixed amount that all taxpayers may subtract from their adjusted gross income if they do not itemize their deductions.
Tax avoidance
Reducing tax liability through legal techniques.
Tax credits
Dollar-for-dollar decrease in tax liability.
Tax evasion
Deliberately and willfully hiding income from the IRS, falsely claiming deductions, or otherwise cheating the government out of taxes owed.
Tax refund
Amount the IRS sends back to a taxpayer if withholding and estimated payments exceed the tax liability.
Taxable Income
Income upon which income taxes are levied.
Taxes
Compulsory (required by law) government-imposed charges levied on citizens and their property.
Progressive Taxes
A tax that progressively increases as a taxpayer’s taxable income increases.
Higher your income the higher the tax bracket.
ex: Federal Income tax
Regressive Taxes
Tax rate are unconnected to income and thus are proportionally higher for lower incomes (ex: sales, and property tax)
Marginal Tax Rate
The tax rate at which your last dollar earned is taxed, and it refers to the highest tax bracket that your taxable income puts you in.
W-2
Completed by an employer and contains important information that you need to complete your tax return.
- Provided by employer
- Documents incomes and deductions
- Used to file taxes
W-4
An IRS form that you complete to let your employer know how much money to withhold from your paycheck for federal taxes.
- Provided to employer by employee
- State withholdings
I-9
Used to verify the identity and employment eligibility/authorization of individuals hired for employment in the United States.
1099s
Used to report non-employment income, including dividends paid from owning a stock or income that you earned as an independent contractor.
- A range of different forms
- Used to document non-wage income
- Withdrawal from retirement (reporting Income)
1040
What individual taxpayers use to file their taxes with the IRS.
- A range of different forms
- Used to file tax returns
