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92 Cards in this Set

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ADJUSTED GROSS INCOME (AGI)
ADJUSTED GROSS INCOME EQUALS GROSS INCOME LESS REDUCTIONS THAT ARE ALLOWABLE REGARDLESS OF WHETHER PERSONAL DEDUCTIONS ARE ITEMIZED.
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 THE TAX LIABILITY. SOME CREDITS ARE NONREFUNDABLE; THAT IS, THEY CAN ONLY REDUCE TAX LIABILITY TO ZERO. SOME CREDITS MAY BE CARRIED TO OTHER TAX YEARS.
EARNED INCOME
INCOME FROM PERSONAL SERVICES AS DISTINGUISHED FROM INCOME GENERATED BY PROPERTY OR OTHER SOURCES. EARNED INCOME INCLUDES ALL AMOUNTS RECEIVED AS WAGES, TIPS, BONUSES, OTHER EMPLOYEE COMPENSATION, AND SELF-EMPLOYMENT INCOME, WHETHER IN THE FORM OF MONEY, SERVICE, OR PROPERTY.
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.
GROSS INCOME
TOTAL WORLDWIDE INCOME RECEIVED IN THE FORM OF MONEY, PROPERTY, OR SERVICES THAT IS SUBJECT TO TAX.
INCOME
THE WORD “INCOME,” IN ITS BROAD SENSE, IS THE GAIN DERIVED FROM CAPITAL, LABOR, OR A COMBINATION OF THE TWO. IT IS DISTINGUISHABLE FROM THE CAPITAL ITSELF. ORDINARILY, FOR INCOME TAX PURPOSES, THE WORD “INCOME” IS NOT USED ALONE. RATHER IT IS USED WITHIN SUCH DESCRIPTIVE TERMS AS GROSS INCOME, TAXABLE INCOME, AND ADJUSTED GROSS INCOME.
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. THE MEDICARE A TAX RATE IS 1.45% OF GROSS WAGES (2.9% FOR SELF-EMPLOYED INDIVIDUALS).
SOCIAL SECURITY TAX WITHHELD
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. BOTH THE EMPLOYEE AND THE EMPLOYER PAY 6.2 PERCENT OF THE FIRST $90,000 OF THE EMPLOYEE’S GROSS WAGES (FOR 2005).
SOCIAL SECURITY WAGES
TOTAL WAGES PAID TO AN EMPLOYEE THAT IS SUBJECT TO THIS TAX. THIS AMOUNT DOES NOT INCLUDE TIPS. WAGES ARE ALSO SUBJECT TO MEDICARE TAX.
TAX LIABILITY
THE AMOUNT OF TOTAL TAX DUE THE IRS AFTER ANY CREDITS AND BEFORE TAKING INTO ACCOUNT ANY ADVANCE PAYMENTS (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 EXEMPTION AMOUNTS. THIS TERM IS ALSO USED TO REFER TO INCOME THAT IS NOT EXEMPT OR EXCLUDED FROM TAXATION.
UNEARNED INCOME
TAXABLE INCOME OTHER THAN THAT RECEIVED FOR SERVICES PERFORMED (EARNED INCOME). UNEARNED INCOME INCLUDES MONEY RECEIVED FOR THE INVESTMENT OF MONEY OR OTHER PROPERTY, SUCH AS INTEREST, DIVIDENDS, AND ROYALTIES. IT ALSO INCLUDES PENSIONS, ALIMONY, UNEMPLOYMENT COMPENSATION, AND OTHER INCOME THAT IS NOT EARNED.
COMMON LAW MARRIAGE
A MARRIAGE ESTABLISHED IN A STATE THAT LEGALLY RECOGNIZES NONCEREMONIAL MARRIAGES. THE PARTIES MUST HAVE THE LEGAL CAPACITY AND THE INTENT TO MARRY, AND MUST LIVE TOGETHER AND PRESENT THEMSELVES PUBLICLY AS HUSBAND AND WIFE.
COMMUNITY INCOME
INCOME OF A MARRIED COUPLE, LIVING IN A COMMUNITY PROPERTY STATE, THAT IS CONSIDERED TO BELONG EQUALLY TO EACH SPOUSE, REGARDLESS OF WHICH SPOUSE RECEIVES THE INCOME.
COMMUNITY PROPERTY
PROPERTY CONSIDERED TO BELONG IN EQUAL SHARES TO A HUSBAND AND WIFE. THIS CONCEPT OF OWNERSHIP FOR PROPERTY ACQUIRED AFTER MARRIAGE IS FOLLOWED IN ARIZONA, CALIFORNIA, IDAHO, LOUISIANA, NEW MEXICO, NEVADA, TEXAS, WASHINGTON, AND WISCONSIN.
DEPENDENT
AN INDIVIDUAL WHOSE PERSONAL EXEMPTION MAY BE CLAMED ON ANOTHER PERSON’S INCOME TAX RETURN. TO BE CLAIMED AS A DEPENDENT, A PERSON MUST MEET CERTAIN TESTS.
TIP INCOME
GRATUITIES RECEIVED BY HE TAXPAYER FOR SERVICES RENDERED. TIPS OF $20 OR MORE FROM ANY ONE JOB DURING A CALENDAR MONTH MUST BE REPORTED TO THE TAXPAYER’S EMPLOYER.
CUSTODIAL PARENT
THE PARENT WITH WHOM A CHILD LIVES FOR MORE THAN HALF THE YEAR.
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 TESTS.
ELIGIBLE FOSTER CHILD
A CHILD, OTHER THAN THE TAXPAYER’S BIOLOGICAL CHILD, STEPCHILD, OR ADOPTED CHILD, WHO WAS PLACED WITH THE TAXPAYER BY AN AUTHORIZED PLACEMENT AGENCY OR BY A COURT ORDER, DECREE, OR JUDGMENT.
FAIR RENTAL VALUE
THE AMOUNT THE OWNER OF PROPERTY COULD REASONABLY EXPECT TO RECEIVE FROM A STRANGER FOR THE SAME TYPE OF LODGING; GENERALLY, THE AMOUNT AT WHICH A HOME WITH ITS FURNISHINGS COULD BE RENTED TO A SIMILAR SIZE FAMILY IN A SIMILAR LOCATION.
FULL-TIME STUDENT
AN INDIVIDUAL WHO IS ENROLLED IN A SCHOOL FOR THE NUMBER OF HOURS OR COURSES CONSIDERED BY THE SCHOOL TO BE FULL TIME. SCHOOL INCLUDES ELEMENTARY AND SECONDARY SCHOOLS, POST-SECONDARY COLLEGES, AND TECHNICAL AND TRADE SCHOOLS. IT DOES NOT INCLUDE ON-THE-JOB TRAINING, CORRESPONDENCE SCHOOLS, OR NIGHT SCHOOL. HOWEVER, A STUDENT WILL NOT BE DISQUALIFIED BY NIGHT CLASSES THAT ARE PART OF A FULL-TIME COURSE OF STUDY.
NONCUSTODIAL PARENT
THE PARENT WHO DOES NOT HAVE PHYSICAL CUSTODY OF THE CHILD.
PERMANENT AND TOTAL DISABILITY
A DISABILITY THAT PREVENTS AN INDIVIDUAL FROM ENGAGING IN ANY SUBSTANTIAL GAINFUL ACTIVITY BECAUSE OF A MEDICALLY DETERMINED PHYSICAL OR MENTAL IMPAIRMENT THAT IS EXPECTED TO RESULT IN DEATH, OR THAT HAS LASTED OR IS EXPECTED TO LAST FOR A CONTINUOUS PERIOD OF NOT LESS THAN 12 MONTHS.
PHYSICAL CUSTODY
THE TAXPAYER WITH WHOM A CHILD LIVES IS CONSIDERED TO HAVE PHYSICAL CUSTODY, REGARDLESS OF WHO HAS NOMINAL LEGAL CUSTODY.
PRINCIPAL PLACE OF ABODE
THE PLACE THAT AN INDIVIDUAL CONSIDERS TO BE HIS PERMANENT HOME. A PERSON’S ABODE DOES NOT CHANGE WHEN HE IS TEMPORARILY ABSENT DUE TO ILLNESS, SCHOOL, MILITARY SERVICE, ETC., AS LONG AS HIS LIVING AREA IS MAINTAINED AND HE CAN REASONABLY BE EXPECTED TO RETURN HOME AFTER THE TEMPORARY ABSENCE.
QUALIFYING CHILD
FOR 2005 AND LATER YEARS, A CHILD WHO MEETS THE RELATIONSHIP, RESIDENCY, AND AGE TESTS WITH REGARD TO A TAXPAYER TO DETERMINE THE TAXPAYER’S ELIGIBILITY TO CLAIM THE DEPENDENCY EXEMPTION, CHILD TAX CREDIT, EARNED INCOME CREDIT, OR CHILD- AND DEPENDENT-CARE CREDIT WITH REGARD TO THE CHILD, OR TO USE THE HEAD OF HOUSEHOLD FILING STATUS. PRIOR TO 2005, SEPARATE TESTS WERE USED FOR EACH TAX PURPOSE.
QUALIFYING RELATIVE
FOR 2005 AND LATER YEARS, A PERSON (1) WHO BEARS A CERTAIN RELATIONSHIP TO THE TAXPAYER, (2) WHOSE GROSS INCOME FOR THE YEAR IS LESS THAN THE EXEMPTION AMOUNT, (3) FOR WHOM THE TAXPAYER PROVIDES MORE THAN ONE-HALF SUPPORT FOR THE YEAR, AND (4) WHO IS NOT A QUALIFYING CHILD OF ANY TAXPAYER.
SUPPORT
THE TOTAL AMOUNT PROVIDED ON BEHALF OF AN INDIVIDUAL. SUPPORT INCLUDES FOOD, LODGING, AND OTHER NECESSITIES AS WELL AS RECREATION AND OTHER NONESSENTIAL EXPENDITURES. SUPPORT IS NOT LIMITED TO NECESSITIES AND CAN BE AS LAVISH AS THE TAXPAYER CAN AFFORD.
ADJUSTMENT TO INCOME
AN EXPENSE WHICH MAY BE DEDUCTED EVEN IF THE TAXPAYER DOES NOT ITEMIZE DEDUCTIONS. ADJUSTMENTS TO INCOME ARE SUBTRACTED FROM GROSS INCOME TO ARRIVE AT ADJUSTED GROSS INCOME.
ALIMONY PAYMENTS
PAYMENTS MADE BY ONE SPOUSE TO THE OTHER SPOUSE OR FORMER SPOUSE UNDER A WRITTEN SEPARATION OR DIVORCE INSTRUMENT. QUALIFIED ALIMONY AND SEPARATE MAINTENANCE PAYMENTS ARE INCLUDABLE IN THE GROSS INCOME OF THE RECIPIENT AND ARE DEDUCTIBLE BY THE PAYER. CHILD SUPPORT PAYMENTS AND PROPERTY SETTLEMENTS ARE NOT TREATED AS ALIMONY.
CHILD SUPPORT PAYMENTS
PAYMENTS PURSUANT TO A COURT ORDER, DIVORCE DECREE, OR OTHER LEGAL OBLIGATION. PAYMENTS FOR CHILD SUPPORT DO NOT CONSTITUTE ALIMONY AND ARE NOT INCLUDABLE IN GROSS INCOME BY THE RECIPIENT OR DEDUCTIBLE AS ALIMONY BY THE PAYER.
SCHOLARSHIPS AND FELLOWSHIPS
FINANCIAL AID GRANTS AWARDED TO STUDENTS FOR THE PURPOSE OF ATTENDING A COLLEGE OR PERFORMING RESEARCH.
EDUCATOR EXPENSES DEDUCTION
AN ABOVE-THE-LINE DEDUCTION OF UP TO $250 FOR CLASSROOM SUPPLIES, BOOKS, AND EQUIPMENT, AVAILABLE TO ELIGIBLE EDUCATORS OF STUDENTS IN KINDERGARTEN THROUGH 12TH GRADE. UNLESS EXTENDED, THIS DEDUCTION IS AVAILABLE THROUGH 2005 ONLY.
ELIGIBLE EDUCATOR
ANY EDUCATOR WHO WORKS AT LEAST 900 HOURS DURING A SCHOOL YEAR AS A TEACHER, INSTRUCTOR, COUNSELOR, PRINCIPAL, OR AIDE IN A PUBLIC OR PRIVATE ELEMENTARY OR SECONDARY SCHOOL.
NECESSARY (EXPENSES)
AN EXPENSE THAT IS APPROPRIATE AND HELPFUL IN FURTHERING THE TAXPAYER'S BUSINESS OR INCOME-PRODUCING ACTIVITY.
ORDINARY (EXPENSES)
COMMON AND ACCEPTED IN THE GENERAL INDUSTRY OR TYPE OF ACTIVITY IN WHICH THE TAXPAYER IS ENGAGED. IT IS ONE OF THE TESTS FOR THE DEDUCTIBILITY OF EXPENSES INCURRED OR PAID IN CONNECTION WITH A TRADE OR BUSINESS; FOR THE PRODUCTION OF INCOME; FOR THE MANAGEMENT, CONSERVATION, OR MAINTENANCE OF PROPERTY HELD FOR THE PRODUCTION OF INCOME; OR IN CONNECTION WITH THE DETERMINATION, COLLECTION, OR REFUND OF ANY TAX.
STUDENT LOAN INTEREST DEDUCTION
AN ADJUSTMENT TO INCOME (LIMITED TO $2500) FOR INTEREST PAID DURING THE YEAR ON QUALIFIED HIGHER-EDUCATION LOANS
TUITION AND FEES DEDUCTION
AN ABOVE-THE-LINE DEDUCTION OF UP TO $4,000 PER TAX RETURN FOR QUALIFIED TUITION AND COURSE-RELATED EXPENSES. UNLESS EXTENDED, THIS DEDUCTION IS AVAILABLE THROUGH 2005 ONLY.
ACQUISITION DEBT
DEBT INCURRED TO ACQUIRE, CONSTRUCT, OR IMPROVE THE TAXPAYER'S PRINCIPAL OR SECONDARY RESIDENCE.
GENERAL SALES TAX
A GENERAL SALES TAX IS A SALES TAX IMPOSED ON RETAIL SALES OF A BROAD RANGE OF ITEMS AT A SINGLE RATE.
ITEMIZED DEDUCTIONS
CERTAIN PERSONAL EXPENDITURES ALLOWED BY THE TAX CODE AS DEDUCTIONS FROM ADJUSTED GROSS INCOME. EXAMPLES ARE CERTAIN MEDICAL EXPENSES, QUALIFIED INTEREST ON HOME MORTGAGES, AND CHARITABLE CONTRIBUTIONS. ITEMIZED DEDUCTIONS ARE REPORTED ON SCHEDULE A, FORM 1040. A TAXPAYER WHO ITEMIZES DEDUCTIONS MAY NOT CLAIM THE STANDARD DEDUCTION.
PERSONAL PROPERTY TAX
AN ANNUAL TAX IMPOSED ON CERTAIN PERSONAL PROPERTY, SUCH AS CARS OR BOATS, AND BASED ON THE VALUE OF THE PROPERTY.
POINTS
A LOAN-ORIGINATION FEE (ONE-TIME CHARGE PAID FOR THE USE OF MONEY) THAT A BUYER GENERALY MAY DEDUCT AS INTEREST; FULLY IN THE YEAR PAID IF FOR THE PURCHASE OR IMPROVEMENT OF A PRINCIPAL RESIDENCE OR, IF NOT, THEN OVER THE TERM OF THE LOAN.
PREPAID INTEREST
INTEREST PAID IN ADVANCE IS DEDUCTIBLE AS AN INTEREST EXPENSE ONLY AS IT ACCRUES. THE ONE EXCEPTION TO THIS RULE INVOLVES THE INTEREST ELEMENT WHEN A CASH-BASIS TAXPAYER PAYS POINTS TO OBTAIN FINANCING FOR THE PURCHASE OR IMPROVEMENT OF A PRINCIPAL RESIDENCE IF THE PAYMENT OF POINTS IS AN ESTABLISHED BUSINESS PRACTICE IN THE AREA IN WHICH THE INDEBTEDNESS IS INCURRED AND THE AMOUNT INVOLVED IS NOT EXCESSIVE. POINTS PAID TO REFINANCE A PRINCIPAL RESIDENCE, HOWEVER, MUST BE DEDUCTED OVER THE LIFE OF THE LOAN.
ADJUSTED BASIS
THE COST OR OTHER ORIGINAL BASIS OF PROPERTY REDUCED BY ADJUSTMENTS SUCH AS DEPRECIATION ALLOWED OR ALLOWABLE AND INCREASED BY CAPITAL IMPROVEMENTS AND OTHER ADJUSTMENTS.
EDUCATION EXPENSE DEDUCTION
EMPLOYEES MAY DEDUCT EDUCATION EXPENSES AS AN ITEMIZED DEDUCTION IF THE EXPENSES ARE INCURRED EITHER TO MAINTAIN OR IMPROVE EXISTING JOB-RELATED SKILLS OR TO MEET THE EXPRESS REQUIREMENTS OF THE EMPLOYER OR LEGAL REQUIREMENTS TO RETAIN CURRENT EMPLOYMENT STATUS. SUCH EXPENSES ARE NOT DEDUCTIBLE AS AN ITEMIZED DEDUCTION IF THE EDUCATION IS REQUIRED TO MEET THE MINIMUM EDUCATIONAL REQUIREMENTS FOR THE TAXPAYER'S JOB OR IF THE EDUCATION QUALIFIES THE TAXPAYER FOR A NEW TRADE OR BUSINESS. EDUCATION EXPENSES MAY ALSO QUALIFY THE TAXPAYER FOR A TUTION AND FEES DEDUCTION, A HOPE CREDIT, OR A LIFETIME LEARNING CREDIT.
EMPLOYMENT EXPENSES
ORDINARY AND NECESSARY EXPENSES REQUIRED TO PERFORM THE DUTIES FOR WHICH THE TAXPAYER WAS HIRED.
MEDICARE PART A
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. THE MEDICARE A TAX RATE IS 1.45% OF GROSS WAGES (2.9% FOR SELF-EMPLOYED INDIVIDUALS).
MEDICARE PART B
THE MEDICARE INSURANCE PREMIUM WITHHELD FROM THE BENEFITS OF SOCIAL SECURITY RECIPIENTS. THE BASIC PREMIUM FOR 2005 IS $78.20 PER MONTH ($938.40 FOR THE ENTIRE YEAR).
STANDARD MILEAGE RATE
AN ANNUAL DEDUCTION BASED ON A SET NUMBER OF CENTS PER MILE FOR QUALIFIED BUSINESS USE OF THE TAXPAYER'S VEHICLE. THE STANDARD MILEAGE RATE BEFORE SEPTEMBER 1, 2005, IS 40.5 CENTS PER MILE. THE STANDARD MILEAGE RATE AFTER AUGUST 31, 2005, IS 48.5 CENTS PER MILE.
STATUTORY EMPLOYEE
A WORKER WHO IS TREATED AS AN EMPLOYEE FOR SOCIAL SECURITY AND MEDICARE TAX PURPOSES AND AS SELF-EMPLOYED FOR INCOME TAX PURPOSES. THE "STATUTORY EMPLOYEE" BOX ON SUCH A WORKER'S FORM 2-2 SHOULD BE MARKED.
TAX HOME
THE BUSINESS LOCATION, POST, OR STATION OF THE TAXPAYER. IF AN EMPLOYEE IS TEMPORARILY REASSIGNED TO A NEW POST FOR A PERIOD OF ONE YEAR OR LESS, THE TAXPAYER'S TAX HOME IS HIS PERSONAL RESIDENCE AND THE TRAVEL EXPENSES ARE DEDUCTIBLE.
TRANSPORTATION EXPENSES
TRANSPORTATION EXPENSES FOR AN EMPLOYEE OR SELF-EMPLOYED TAXPAYER INCLUDE ONLY THE COST OF TRANSPORTATION (TAXI FARES, AUTO EXPENSES, ETC.) INCURRED IN THE COURSE OF BUSINESS OR EMPLOYMENT WHEN THE TAXPAYER IS NOT AWAY FROM HOME IN A TRAVEL STATUS.
CAPITAL GAIN DISTRIBUTIONS
AMOUNTS PAID BY MUTUAL FUNDS, REGULATED INVESTMENT COMPANIES, AND REAL ESTATE INVESTMENT TRUSTS. THESE AMOUNTS REPRESENT THE SHAREHOLDER'S PORTION OF GAIN FROM THE SALE OF CAPITAL ASSETS OWNED BY THESE INVESTMENT COMPANIES. CAPITAL GAIN DISTRIBUTIONS ARE TAXED IN THE YEAR CONSTRUCTIVELY RECEIVED AND ARE ALWAYS CONSIDERED TO BE HELD LONG TERM.
NONTAXABLE DISTRIBUTIONS
A GENERAL TERM APPLIED TO STOCK DIVIDEND DISTRIBUTIONS THAT ARE NOT TAXABLE. THESE DISTRIBUTIONS GENERALLY TAKE THE FORM OF RETURN OF CAPITAL, STOCK DIVIDENDS, STOCK SPLITS, AND/OR TAX-FREE DISTRIBUTIONS.
ORDINARY DIVIDENDS
ORDINARY DIVIDENDS ARE THE MOST COMMON TYPE OF DISTRIBUTION FROM A CORPORATION. THEY ARE PAID OUT OF THE EARNINGS AND PROFITS OF THE CORPORATION. ORDINARY DIVIDENDS ARE TAXABLE AS ORDINARY INCOME UNLESS THEY ARE QUALIFIED AS DIVIDENDS.
QUALIFIED DIVIDENDS
DIVIDENDS RECEIVED ON SHARES OF COMMON STOCK HELD BY THE TAXPAYER FOR MORE THAN 60 DAYS OF THE 121-DAY PERIOD BEGINNING 60 DAYS BEFORE THE EX-DIVIDEND DATE (MORE THAN 90 DAYS OF THE 181-DAY PERIOD BEGINNING 90 DAYS BEFORE THE EX-DIVIDEND DATE FOR PREFERRED STOCK). THESE DIVIDENDS QUALIFY FOR LONG-TERM CAPITAL GAIN TREATMENT.
RECOVERY
THE AMOUNT OF A DEDUCTION OR CREDIT TAKEN IN A PREVIOUS YEAR WHICH IS LATER RETURNED TO THE TAXPAYER. THE RECOVERED AMOUNT MUST USUALLY BE INCLUDED IN INCOME IN THE YEAR IT IS RECEIVED, TO THE EXTENT OF THE PREVIOUS TAX BENEFIT.
RETURNS OF CAPITAL
A RETURN OF A SHAREHOLDER'S INVESTMENT GENERALLY MADE BECAUSE AN EXCESS AMOUNT OF CAPITAL HAS BEEN ACCUMULATED. RETURNS OF CAPITAL MAY BE RECEIVED IN CASH OR REINVESTED TO ACQUIRE ADDITIONAL SHARES AT THE SHAREHOLDER'S REQUEST. AMOUNTS RECEIVED THAT ARE NOT IN EXCESS OF THE BASIS OF THE STOCK ON WHICH PAID ARE NOT TAXABLE. THE BASIS OF THE STOCK ON WHICH RETURNS OF CAPITAL ARE PAID MUST BE REDUCED. AMOUNTS RECEIVED IN EXCESS OF THE BASIS OF THE STOCK ON WHICH RETURNS OF CAPITAL ARE PAID ARE REPORTED ON SCHEDULE D, IN PART I IF STOCK HAS BEEN OWNED SHORT TERM, OR IN PART II IF STOCK HAS BEEN OWNED LONG TERM.
ADOPTION CREDIT
A NONREFUNDABLE CREDIT FOR QUALIFIED ADOPTION EXPENSES INCURRED FOR EACH ELIGIBLE CHILD. THE CREDIT CANNOT EXCEED $10,630 PER CHILD (FOR 2005). THE LIMIT IS A PER-CHILD, NOT AN ANNUAL LIMIT, AND CAN BE CARRIED FORWARD FOR UP TO FIVE YEARS OR UNTIL USED.
CAFETERIA PLAN
A PLAN WHEREIN AN EMPLOYER OFFERS A CHOICE OF NONTAXABLE FRINGE BENEFITS FROM WHICH PARTICIPATING EMPLOYEES MAY SELECT. THE PLAN MAY BE FUNDED WITH EMPLOYER CONTRIBUTIONS, EMPLOYEE CONTRIBUTIONS (USUALLY THROUGH SALARY REDUCTION AGREEMENTS) OR A COMBINATION OF BOTH. IT IS ALSO OFTEN CALLED A 125 PLAN OR A FLEXIBLE SPENDING ACCOUNT.
CHILD AND DEPENDENT CARE CREDIT
A NONREFUNDABLE TAX CREDIT OF 20-35% OF EMPLOYMENT-RELATED CHILD AND DEPENDENT CARE EXPENSES FOR AMOUNTS OF UP TO $6,000, AVAILABLE TO INDIVIDUALS WHO ARE EMPLOYED AND HAVE A QUALIFYING CHILD OR DISABLED SPOUSE OR DEPENDENT. THE CREDIT IS COMPUTED ON FORM 2441 FOR FORM 1040 FILERS AND ON SCHEDULE 2 FOR FORM 1040A FILERS.
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 THE TAX LIABILITY. SOME CREDITS ARE NONREFUNDABLE; THAT IS, THEY CAN ONLY REDUCE THE TAX LIABILITY TO ZERO. SOME CREDITS MAY BE CARRIED TO OTHER TAX YEARS.
HOPE CREDIT
A NONREFUNDABLE CREDIT OF UP TO $1,500 PER QUALIFIED STUDENT FOR TUITION AND FEES PAID FOR THE FIRST TWO YEARS OF POST-SECONDARY EDUCATION.
LIFETIME LEARNING CREDIT
A NONREFUNDABLE CREDIT EQUAL TO 20% OF THE FIRST $10,000 OF QUALIFIED HIGHER EDUCATION TUTION AND FEES PAID DURING THE YEAR ON BEHALF OF THE TAXPAYER, HIS SPOUSE, OR HIS DEPENDENTS.
NONREFUNDABLE CREDIT
A CREDIT WHICH CANNOT EXCEED THE TAXPAYER'S TAX LIABILITY.
REFUNDABLE CREDIT
A CREDIT FOR WHICH THE IRS WILL SEND THE TAXPAYER A REFUND FOR ANY AMOUNT IN EXCESS OF THE TAXPAYER'S TAX LIABILITY.
SPECIAL-NEEDS CHILD
FOR THE ADOPTION CREDIT, A CHILD DETERMINED BY THE STATE TO BE DIFFICULT TO ADOPT DUE TO FACTORS SUCH AS RACIAL OR ETHNIC BACKGROUND, AGE, A CONDITION THAT REQUIRES SPECIAL CARE, OR WHETER THE CHILD HAS SIBLINGS. A SPECIAL-NEEDS CHILD MUST BE A U.S. CITIZEN.
ACTIVE PARTICIPANT
A TAXPAYER WHO IS COVERED BY A QUALIFIED EMPLOYER-MAINTAINED RETIREMENT PLAN, OR A QUALIFIED SELF-EMPLOYED RETIREMENT PLAN, IF EVEN FOR ONLY ONE DAY DURING THE YEAR.
BENEFICIARY
THE OWNER OR RECIPIENT OF FUNDS IN AN ACCOUNT, SUCH AS AN IRA, OR FROM AN INSURANCE POLICY OR WILL.
COMPENSATION
WAGES, COMMISSIONS, TIPS, PROFESSIONAL FEES, AND NET SELF-EMPLOYMENT INCOME FROM SERVICES RENDERED; THAT IS, EARNED INCOME. FOR IRA PURPOSES, COMPENSATION ALSO INCLUDES ALIMONY AND SEPARATE MAINTENANCE PAYMENTS.
CONTRIBUTION
(1) GIFT TO A QUALIFIED CHARITABLE ORGANIZATION, GENERALLY DEDUCTIBLE ON SCHEDULE A.
(2) MONEY PLACED IN A RETIREMENT FUND SUCH AS AN INDIVIDUAL RETIREMENT ARRANGEMENT OR AN EMPLOYER-MAINTAINED RETIREMENT PLAN.
DISTRIBUTION
MONEY OR PROPERTY A TAXPAYER RECEIVES FROM A RETIREMENT PLAN SUCH AS AN INDIVIDUAL RETIREMENT ARRANGEMENT OR AN EMPLOYER-MAINTAINED RETIREMENT PLAN.
EARLY DISTRIBUTION
A DISTRIBUTION FROM A QUALIFIED RETIREMENT PLAN OR INDIVIDUAL RETIREMENT ARRANGEMENT BEFORE THE PLAN PARTICIPANT HAS REACHED AGE 59 ½. SUCH DISTRIBUTIONS GENERALLY ARE SUBJECT TO A 10% PENALTY TAX.
EMPLOYER-MAINTAINED RETIREMENT PLAN
A QUALIFIED RETIREMENT PLAN FUNDED IN FULL OR IN PART BY EMPLOYER CONTRIBUTIONS ON BEHALF OF EMPLOYEES.
NONPARTICIPATING SPOUSE
THE SPOUSE OF AN ACTIVE PARTICIPANT IN AN EMPLOYER-MAINTAINED RETIREMENT PLAN WHO IS NOT ALSO AN ACTIVE PARTICIPANT IN SUCH A PLAN.
ROLLOVER
A QUALIFIED TRANSFER OF FUNDS FROM ONE TAX-FAVORED ACCOUNT TO ANOTHER, USUALLY OF THE SAME TYPE. A ROLLOVER MUST TAKE PLACE WITHIN 60 DAYS OF RECEIVING THE FUNDS.
ROTH IRA
A TYPE OF INDIVIDUAL RETIREMENT ARRANGEMENT IN WHICH CONTRIBUTIONS ARE NOT TAX DEDUCTIBLE, EARNINGS GROW TAX DEFERRED, AND QUALIFIED WITHDRAWALS ARE TAX FREE.
SAVER’S CREDIT
A NONREFUNDABLE CREDIT BASED ON UP TO $2,000 IN CONTRIBUTIONS TO QUALIFIED RETIREMENT PLANS AND TRADITIONAL AND ROTH IRAS. THE CREDIT IS ALLOWED IN ADDITION TO ANY DEDUCTION AVAILABLE FOR THE CONTRIBUTIONS. THE CREDIT IS COMPLETED ON FORM 8880.
SPOUSAL IRA
AN IRA SET UP BY A TAXPAYER WHOSE SPOUSE HAS LITTLE OR NO COMPENSATION, FOR THE BENEFIT OF THAT SPOUSE. THE DESIGNATION “SPOUSAL” IS SIGNIFICANT FOR TAX PURPOSES ONLY. THERE IS NO CONNECTION BETWEEN A SPOUSAL IRA AND THE OTHER SPOUSE’S IRA, AND NO IRA MAY BE JOINTLY OWNED.
TRADITIONAL IRA
AN INDIVIDUAL RETIREMENT ARRANGEMENT, CONTRIBUTIONS TO WHICH MAY OR MAY NOT BE DEDUCTIBLE DEPENDING ON THE TAXPAYER’S AGI AND WHETHER OR NOT HE IS COVERED UNDER AN EMPLOYER-SPONSORED RETIREMENT PLAN. EARNINGS WITHIN A TRADITIONAL IRA GROW TAX-DEFERRED. DISTRIBUTIONS FROM A TRADITIONAL IRA ARE TAXABLE EXCEPT TO THE EXTENT THEY REPRESENT NONDEDUCTIBLE CONTRIBUTIONS.
TRUSTEE
A PERSON OR INSTITUTION THAT MANAGES THE ASSETS OF AN ACCOUNT (AN IRA, FOR EXAMPLE) FOR THE BENEFIT OF THE ACCOUNT OWNER OR A BENEFICIARY.
ADDITIONAL CHILD TAX CREDIT
A REFUNDABLE CREDIT AVAILABLE TO TAXPAYERS WITH EARNED INCOME EXCEEDING $11,000 OR WITH THREE OR MORE QUALIFYING CHILDREN AND WHOSE REGULAR CHILD TAX CREDIT EXCEEDS TAX LIABILITIES MINUS OTHER NONREFUNDABLE CREDITS. THE ADDITIONAL CHILD TAX CREDIT IS COMPUTED ON FORM 8812.
ADVANCE EARNED INCOME CREDIT
PAYMENT BY AN EMPLOYER BASED ON AN EMPLOYEE’S CLAIM TO ENTITLEMENT TO THE EARNED INCOME CREDIT. ADVANCE EARNED INCOME CREDIT PAYMENTS ARE TREATED AS ADDITIONAL TAXES ON THE TAX RETURN.
EARNED INCOME CREDIT
A REFUNDABLE TAX CREDIT FOR QUALIFIED TAXPAYERS BASED ON EARNED INCOME, ADJUSTED GROSS INCOME, AND THE NUMBER OF QUALIFYING CHILDREN.
ESTIMATED TAX
THE AMOUNT OF TAX A TAXPAYER EXPECTS TO OWE FOR THE YEAR AFTER SUBTRACTING EXPECTED AMOUNTS WITHHELD AND CERTAIN REFUNDABLE CREDITS.
ESTIMATED TAX VOUCHER
A STATEMENT BY AN INDIVIDUAL OF
(1) THE AMOUNT OF INCOME TAX HE ESTIMATES HE WILL INCUR DURING THE CURRENT TAXABLE YEAR ON INCOME THAT IS NOT SUBJECT TO WITHHOLDING,
(2) THE EXCESS AMOUNT OVER THAT WITHHELD ON INCOME WHICH IS SUBJECT TO WITHHOLDING, AND
(3) HIS ESTIMATED SELF-EMPLOYMENT TAX. ADVANCE PAYMENT OF TAX MAY BE REQUIRED (ON AS MANY AS FOUR PAYMENT DATES) UNLESS ESTIMATED TAX DUE AFTER WITHHOLDING AND CREDITS IS LESS THAN $1,000.
EXEMPTION FROM WITHHOLDING
STATUS CLAIMED ON FORM W-4 DIRECTING THE EMPLOYER NOT TO WITHHOLD FEDERAL INCOME TAXES FROM THE EMPLOYEE. AN EMPLOYEE WHO HAD NO TAX LIABILITY AND RECEIVED A FULL REFUND OF ANY FEDERAL INCOME TAX WITHHELD IN THE PRECEDING TAX YEAR, AND WHO EXPECTS THE SAME CONDITIONS TO APPLY IN THE CURRENT TAX YEAR, MAY CLAIM EXEMPTION FROM WITHHOLDING.
UNDERPAYMENT PENALTY
IF A TAXPAYER DID NOT PAY ENOUGH TAX ON A TIMELY BASIS DURING THE YEAR, HE MAY BE REQUIRED TO PAY AN UNDERPAYMENT PENALTY. THE PENALTY, IF ANY, IS COMPUTED ON FORM 2210.
WITHHOLDING ALLOWANCES
AN INCREAS BY WHICH INCOME TAX WITHHOLDING ON CERTAIN INCOME IS REDUCED. THAT IS, EACH INDIVIDUAL WITHHOLDING ALLOWANCE DECREASES THE AMOUNT OF TAX WITHHELD FROM THE INCOME BY THE PAYER.