|Posted on December 4, 2012 at 10:40 PM||comments (6)|
Did you know that the following terms are involved in your Income Tax Return preparation?
Gross Income.- Is total worldwide income received in the form of money, property, or services that is subject to tax. The amount of a taxpayer's gross income is one of the factors used to determine wheter the taxpayer needs to file a return.
Adjusted Gross Income ( AGI ).- Adjusted gross income equals gross income less reductions that are allowble regardless of whether personal deductions are itemized.
Standard deduction.- Is an amount of income not subject to tax and varies based on the taxpayer's filling status.
Credits.- Reductions of tax liability allowed for various purposes to taxpayers who meet the qualifications. Some credits are refundable; that is, the IRS will send the taxpayer a refund for any amount in excess of tax liability. Some credits are non refundable; that is, they can only reduce tax liability to zero. Some credits may be carried to other tax years.
Dependent.- An individual whose personal exemption may be claimed on another person's income tax return. To be claimed as a dependent, a person must meet certain test.
Exemption.- An amount allowed by law as a reduction of income that would otherwise be taxed.
Federal Income Tax Withheld.- The amount taken out of income by the payer and submitted to the IRS as an advance payment of the taxpayer's federal income tax.
Medicare Tax Withheld.- The medicare tax taken out of an employee's wages, or the same tax paid by a self-employed person on net self-employment income.
Social Security wages.- The employee's share of social security tax that was taken out of the employee's pay and submitted along with the employer's share to the IRS by the employer.
State or Local Income Tax Withheld.- The amounts taken out of income by the payer and submitted to the state or local taxing authority as an advance payment of the taxpayer's state or local income tax.
Tax Liability.- The amount of total tax due the IRS after any credits and before taking into account any advance ( withholding, estimated payments, etc. ) made by the taxpayer.
Taxable Income.- Adjusted gross income less itemized deductions or the standard deduction, less allowable personal and dependent exemptions amounts. This term is also used to refer to income that is not exempt or excluded from taxation. For example, " Wages are taxable income, but gifts are not."