Common Tax Terms: Understanding the language of taxation
As tax season approaches, many individuals and businesses may find themselves struggling to navigate the complicated world of taxation. With numerous tax terms and phrases to understand, it can be overwhelming for those who are not familiar with the language of taxation. However, understanding the basic tax terminology can help taxpayers to make informed decisions and avoid costly mistakes.
Here are some basic tax terms that every taxpayer should be familiar with:
- Tax return: A tax return is a form that taxpayers file with the IRS to report their income, deductions, and credits. Tax returns are typically due on April 15th of each year.
- IRS: The IRS, or Internal Revenue Service, is the federal agency responsible for administering and enforcing tax laws in the United States.
- Taxable income: This is the amount of income that is subject to taxation. Taxable income includes wages, salaries, tips, and other forms of income.
- Deductions: Deductions are expenses that can be subtracted from taxable income. Common deductions include mortgage interest, charitable donations, and medical expenses.
- Tax credits: Tax credits are dollar-for-dollar reductions in the amount of tax owed. Some common tax credits include the child tax credit, earned income tax credit, and education tax credits.
- Tax bracket: Tax brackets refer to the different tax rates that apply to different levels of taxable income. Taxpayers are typically placed into different tax brackets based on their income level.
- Standard deduction: The standard deduction is a fixed amount that can be subtracted from taxable income. Taxpayers can choose to take the standard deduction or itemize their deductions.
- Itemized deductions: By itemizing (or listing) allowable deductions, a tax payer may decrease their income by more than the standard deduction.
- Tax refund: The among of money the IRS may owe you after your file your tax return.
By understanding these common tax terms, taxpayers can better navigate the complex world of taxation and make informed decisions about their finances. It is important to note that tax laws and regulations can change over time, so it is always a good idea to consult a qualified tax professional for advice and guidance.