Tax Glossary
Plain-English explanations of common tax terms. Use this as a quick reference while you prepare or review your return.
Adjusted Gross Income (AGI)
Your total income minus above-the-line deductions, before standard or itemized deductions.
Above-the-Line Deduction
A deduction you can take even if you don't itemize, which reduces AGI.
Itemized Deductions
Expenses like mortgage interest, SALT, charity, and medical costs you claim instead of the standard deduction.
Standard Deduction
A fixed amount that reduces taxable income; you choose this or itemizing, whichever is larger.
Tax Credit
Directly reduces your tax bill dollar-for-dollar (e.g., Child Tax Credit).
Refundable Credit
If the credit exceeds your tax, you can get the extra as a refund (e.g., part of EITC).
Nonrefundable Credit
Can reduce tax to zero but won’t create a refund beyond tax owed.
Earned Income Tax Credit (EITC)
Refundable credit for eligible workers with low to moderate income.
Withholding
Tax your employer takes from each paycheck and sends to the IRS/state for you.
Estimated Tax Payments
Quarterly payments you send if tax isn’t fully covered by withholding (common for self-employed).
1099-NEC / 1099-MISC
Forms reporting non-employee income like freelance or contract work.
W-2
Form from your employer showing wages and taxes withheld.
Schedule C
Form to report self-employment income and expenses.
Self-Employment Tax
Social Security and Medicare taxes for self-employed income (covers both employer and employee portions).
Basis
Generally what you paid for an asset; used to calculate gain or loss when you sell.
Capital Gain / Loss
Profit or loss when you sell investments or property.
Short-Term vs Long-Term
Short-term: held 1 year or less (taxed as ordinary income). Long-term: held over 1 year (often lower rates).
Wash Sale
Selling an investment at a loss and rebuying too soon, disallowing the loss for taxes.
Depreciation
Expensing the cost of certain business or rental assets over time.
Home Office Deduction
Deduction for a space used regularly and exclusively for business.
SALT Cap
Limit on deducting state and local taxes on Schedule A (e.g., $10k or $40k depending on year).
Filing Status
Your category for taxes (Single, MFJ, MFS, HOH, Qualifying Surviving Spouse).
Taxable Income
Income after deductions and exemptions that is used to calculate tax.
Extension
Extra time to file (not to pay). Taxes still due by the original deadline.
Underpayment Penalty
Fee for not paying enough tax during the year via withholding/estimates.
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