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Adjusted gross income (AGI)
1Adjusted gross income (AGI) Earned income and unearned income mi- nus certain allowed adjustments to income.
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Alternative minimum tax
A federal income tax designed to ensure (AMT) that people who receive certain tax breaks pay their fair share of taxes.
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Average tax rate
The proportion of a taxpayer’s total taxable income that goes to paying taxes.
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Capital gain
Profit on the sale of an investment. This profit is subject to a lower tax rate if the investment has been held for more than one year.
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Dependent
A member of a household who receives at least half of his or her support from the head of the household.
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Earned income
Income from salaries, wages, tips, bonuses, commissions, and other sources.
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Exemption
The dollar amount per household member that is subtracted from adjusted gross income in calculating taxable income.
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Federal Insurance Contributions
A payroll tax levied on earned income by Act (FICA) tax the U.S. government to fund Social Security and Medicare. Stands for Federal Insurance Contributions Act tax.
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Filing status
The household type, for tax filing purposes.
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Flexible spending account
An account maintained by an employer in which the pretax earnings of an employee are set aside and can be used for reimburse- ment of qualified medical and child-care expenses.
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Gross income
Income from all sources, including earned income, investment income, alimony, un- employment compensation, and retirement benefits.
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Gross taxable income
Income from all sources, less allowed exclu- sions
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Internal Revenue Code
A compilation of all statutes, regulations, and court decisions relating to U.S. income tax.
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Individual retirement
A retirement account that allows the account (IRA) holder to subtract current contributions from taxable income and to defer income tax until withdrawal at retirement
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Internal Revenue Service (IRS)
The U.S. government agency that is responsible for collecting federal income taxes and enforcing tax laws and regulations.
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IRS e-file
A system that enables the electronic filing of federal tax returns.
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An alternative to the standard deduction in which the taxpayer reports and deducts actual expenses in certain allowed categories to arrive at taxable income.
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Marginal tax effect
The change in taxes owed as a result of a financial decision.
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Marginal tax rate
Tax rate imposed on a taxpayer’s next dollar of income.
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Payroll withholding
Money regularly withheld from employees’ pay by employers for payment of the employees’ taxes.
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Progressive tax
A tax that requires higher-income taxpayers to pay proportionately more in taxes than other taxpayers, through either higher tax rates or other rules.
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Regressive tax
A tax that places a disproportionate financial burden on low-income taxpayers.
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Roth IRA
An individual retirement account to which contributions are made with after-tax dol- lars but in which investment earnings and withdrawals at retirement are tax free.
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Standard deduction
A dollar amount based on filing status that is subtracted from adjusted gross income in calculating taxable income.
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Tax avoidance
Strategic use of knowledge of tax rules to avoid overpayment of taxes.
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Tax bracket
The range of income to which a particular marginal tax rate applies.
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Tax credit
A reduction applied directly to taxes owed rather than to income that is subject to taxes.
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Tax evasion
Deliberate nonpayment of taxes legally owed.
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Taxable income
The amount of income that is subject to taxes under the law.
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Total income
Gross income less certain exclusions al- lowed by the IRS.
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Unearned Income
Income from investments, interest, dividends, capital gains, net business income, rents, and royalties.
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