Tax time: Your simply explained tax dictionary
With more complex tax regulations on the horizon, this is a great time to revisit the basics of taxes, so you have an understanding that puts you in control. When you have a foundation of knowledge, you’re better equipped to ensure your tax documents are correct, whether you submit them yourself or use a certified public accountant (CPA) or other third-party help.
So here we go. Your urban tax dictionary. Not licensed, sponsored, or approved by anyone. Hope it helps. (Seriously, we do hope it helps, though we should mention you should always consult a tax advisor, certified public accountant, or IRS.gov for the most up-to-date tax preparation advice.)
Our tax glossary
Standard form used by U.S. taxpayers to file a personal return with the Internal Revenue Service (IRS). Work with your tax advisor to determine the right filing status for you. See the below definitions for Head of Household, Married, and Single. The standard Form 1040 is what most individual taxpayers will need to fill out during tax time. However, there are a few other 1040 forms you may need to know about, so always consult a tax advisor, certified public accountant, or IRS.gov for the most up-to-date tax preparation advice.
A type of “information return” that you will receive if you earned more than $10 in any of several categories that don’t count as wages, salaries, or tips. Such as, you ask? If you are an independent contractor or do a lot of freelance work, you’ll probably get some of these. 1099s come in the form of 1099-INT (interest income), 1099-DIV (dividend income), 1099-R (pension and IRA income), 1099-B (sales of stock), and 1099-S (sales of real estate). If you sold stock or rolled over a 401k, watch for these.
Retirement savings account sponsored by an employer. Contributions to a 401(k) are made on a pre-tax basis, so you don’t pay taxes until money is withdrawn from the account.
Additional Child Tax Credit
If you have a kid and are eligible, you could get a deduction; some of it may even be refundable. This is the portion of your Child Tax Credit that is refundable. You may be able to claim this if your Child Tax Credit amount is greater than what you owe to the IRS. Please consult a tax advisor, certified public accountant, or IRS.gov for the most up-to-date tax preparation advice.
Adjusted Gross Income
This number is your total, or gross, income minus any income adjustments to get the number your taxes will be calculated from. For some people, it may be the same as your taxable income, but they are not always the same amount.
If you need to make any corrections to a tax return from a previous year (like if your filing status was incorrect or you forgot to include a W-2), you’d file one of these. The 1040-X is the form you will need to correct a tax form you’ve already filed either earlier this year, or in a previous year.
Something of value that you own for which you expect to receive future benefits, such as a home or property.
Yes, it sounds scary, but it’s just when the IRS wants to take a closer look at your tax return to ensure that everything is accurate. The key to surviving this: Keep your receipts! See Receipts, below.
When you profit from the sale of an investment or property (excluding your primary residence). The tax rate you pay depends on the gain and on your income.
When you sell an investment or property for less than the purchase price. You may be able to claim these losses depending on your income.
A gift that you (or a business) makes to a charity, non-profit, or foundation. You may be able to claim a deduction for these donations, but not every charity qualifies. Check the IRS site for charitable organizations which charities fall under the correct IRS tax code.
Child Tax Credit
If you have or had one or more children under age 17 or dependents living with you last year, you may be eligible for an additional credit towards your tax payment that can reduce the overall amount of tax you are required to pay.
Child and Dependent-Care Credit
If you had expenses related to the care of a dependent child under age 13 or other dependents, you may qualify to claim this credit for one or more individuals under your care. The amounts have fluctuated, so check each year to see if you qualify. Always consult a tax advisor, certified public accountant, or IRS.gov for the most up-to-date tax preparation advice.
April 15 every year unless it’s a weekend or holiday, and then it’s the next business day. It is possible to file an extension, which means you have more time to file your taxes, but not necessarily more time to pay what you owe. Per the IRS, April 18 is the tax filing deadline in 2023. The filing deadline to submit 2022 tax returns or an extension to file and pay tax owed is Tuesday, April 18, 2023, for most taxpayers. By law, Washington, D.C., holidays impact tax deadlines for everyone in the same way as federal holidays. The due date is April 18, instead of April 15, because of the weekend and the District of Columbia’s Emancipation Day holiday, which falls on Monday, April 17.
Items or expenses subtracted from your total income to determine the amount of your income subject to be taxed.
Someone (not the taxpayer) who allows the person paying taxes to claim dependent-related benefits. In order to qualify as a dependent, the person must meet specific qualifications. Always consult a tax advisor, certified public accountant, or IRS.gov for the most up-to-date tax preparation advice.
The gradual reduction in value of an asset over its lifetime. You may be able to list it as an expense on your return to decrease your amount of taxable income.
Withdrawals from your retirement plan that may be subject to a tax penalty if you withdraw early. You’ll need to include a 1099-R (see 1099, above) if you took any distributions from your retirement plan.
Didn’t you earn all your income? Believe it or not, no. Money you received for work you did, or from owning a business or farm. Certain non-wage benefits also qualify. The IRS has specific guidelines for what is considered earned income.
Earned Income Tax Credit
If your “Earned Income” (see above) is low to moderate, this benefit will reduce the tax you owe or increase your refund. Credits are always helpful.
Energy Tax Credit
Certain home improvements or renewable energy solutions qualify you for this credit, but the rules are very specific, so it’s best to double check before you claim anything. Also, if you borrow money for these expenses, the type of loan you obtain may also be significant to your being able to claim this credit. Don’t take our word – always consult a tax advisor, certified public accountant, or IRS.gov for the most up-to-date tax preparation advice.
Too buried in paperwork to file your taxes? Fill out Form 4868 and the IRS will grant you a six-month extension. Watch out, you still have to pay “estimated taxes” by the April deadline. Always consult a tax advisor, certified public accountant, or IRS.gov for the most up-to-date tax preparation advice.
Also known as a “Flexible Spending Account” — this is a special account that allows you to store money and pay for certain qualified health expenses without being charged taxes. This differs crucially from an HSA (see below); for example, contributions cannot be rolled over from year to year.
Simply submitting the relevant completed tax forms to the IRS, or state tax authority — either by U.S. Postal Service or electronically.
Increased value attributed to profit from the sale of an asset (see capital gains, above) or other investment growth such as dividends and interest. All of these gains are taxed at different rates.
This is all the money you made that year. Contrast with “net” which refers to the amount that remains after certain deductions or adjustments have been made.
Also known as a “Health Savings Account” — an account that allows you to store money and pay for qualified health expenses without being taxed on it. It is not available to everyone and has distinct advantages over an FSA (see FSA, above).
Head of Household
A distinction the IRS makes to identify the key person responsible for maintaining a dwelling with more than one person living in it. This status carries certain benefits if applicable, so check to see if you qualify for this status (and can pay a little less tax this year). Please consult a tax advisor, certified public accountant, or IRS.gov for the most up-to-date tax preparation advice.
The state of being legally obligated to hand over a portion of your hard-earned wages or labor to another entity, such those responsible for federal revenue collection.
An “increase” assessed on a sum of money, based on a fixed or variable percentage. It can be good, like when you make money on your high-interest checking balance (like Kasasa Cash®). Or it can be…less good, like earning interest on a loan, or in the case of the IRS, taxes you failed to pay on time (meaning the amount of money you owe increases until you pay it).
An IRA (Individual Retirement Account) is a deposit account that can be opened up by anyone, whether they’re associated with an employer or not. There are two types of IRAs — a traditional and a Roth — which have a few differences, the main one being the time at which you’re taxed. You should receive a form 5498 if you contributed to your IRA the prior year.
Itemization, Itemized deductions
Deductions (see Deductions, above) reduce your taxable income. There is a set amount that everyone receives, called the standard deduction. But if you think you have spent more than that, you can make a list of your expenses and claim that on your 1040 form. Always consult a tax advisor, certified public accountant, or IRS.gov for the most up-to-date tax preparation advice.
The classification for your filing status. This comes down to your marital status on the last day of the tax year; if you were married on the last day of the year, you were considered to be married for that entire tax year. In this case, you and your spouse can choose to file a joint return or file separately (see “Married Filing Separately”).
Married Filing Separately
An option you have when choosing how to file (if you’re married of course). In this case, you and your spouse would each file independent of one another on separate tax returns, making each person responsible for their individual tax liability only.
Married with Children
As the name implies, this applies to people who are married with children. Dependents (which children are considered) increase your chances of getting a larger refund back. So chalk this up as the ONLY time your children could actually help you make extra money.
Your income after taxes, retirement contributions, and other deductions have been applied. Basically, the amount you take home after all the extra stuff has been pilfered from your earnings. This is different from your gross income (see Gross Income, above).
An expense that is paid for out of your own personal cash reserves. Examples include medical, travel, work-related, or other such expenses that aren’t covered by your insurance, employer, or anyone else at the time of payment.
Save them! You need receipts to document deductible expenses, such as unreimbursed medical expenses, charitable donations, job-search expenses, and qualified educator expenses.
This is money that you overpaid to the government throughout the last year and is now owed back to you. Typically received via direct deposit to your account or a check that’s mailed to you.
Any account or money-saving resource that is used to set aside money for your retirement. These often include distinct tax advantages. The most common being Individual Retirement Accounts (see IRA, above) and the 401(k) (also above for more details).
The paper or digital form in which you submit your tax information to the IRS in order for them to assess your tax liability. Often people use platforms like TurboTax and H&R Block or utilize a personal accountant to complete their return. Be sure to save these, but check with the IRS as it differs whether it is your personal taxes or business taxes.
A filing classification in which the individual is considered unmarried and does not qualify for another filing status. Questions about your filing status, Always consult a tax advisor, certified public accountant, or IRS.gov for the most up-to-date tax preparation advice.
VITA or Volunteer Income Tax Assistance
You can get free assistance filing your taxes. We don’t recommend you wait until April 14 to learn more, but this service partners tax volunteers with lower-to-moderate income individuals or families, those with disabilities, people who are not strong English speakers, or senior citizens to help file their taxes.
It’s your annual salary information, as well as your tax withholdings from your paychecks, that your employer must provide to you by a certain deadline. You will use this information to fill out the “Income” portion of your tax return.
That form you fill out for your company that tells them how much to withhold from your paycheck for federal taxes. It takes into account your individual circumstances — things like your number of dependents, whether or not you’re head of your household, and more. It helps ensure you don’t underpay, creating a large tax liability for yourself, or overpay throughout the course of the year. Ask your employer if you want to make changes to your W-4.
The amount of money that your employer keeps from your pay and sends to the government throughout the year. This money applies toward the income taxes you owe for the year. If the amount of your withholding is higher than what you owe for the year, you get money back!