Link Learn Irs Basic

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AARP

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American Association of Retired Persons

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Accrual method

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Accounting method that reports income when earned (not necessarily received) and expenses when incurred (not necessarily paid), as opposed to the cash method.

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Active Participation

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When a taxpayer makes significant rental or business management decisions, such as approving rental terms, repairs, expenditures, and new tenants (versus passive activity). Taxpayers who use a leasing agent or property manager are still considered active participants if they retain final management rights.

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Active Pay

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The military income a service member receives while on active duty (versus retirement or retainer pay).

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Actual Expense Method

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One of two methods for calculating business automobile expenses. For the actual expense method, the taxpayer determines the business portion of expenses for fuel, auto maintenance, parking fees and tolls, and auto loan interest. (The other method is the standard mileage method).

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Additional Child Tax Credit

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A credit that may be taken if the full amount of the child tax credit cannot be claimed.

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Adjusted Basis

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The adjusted basis is the taxpayer’s basis in a home increased or decreased by certain amounts. Increases include additions or improvements to the home such as installing a recreation room or putting on a new roof. In order to be considered an increase, the improvement must have a useful life of more than one year. Repairs that maintain the home in good condition are not considered improvements and should not be added to the basis of the property

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Adjusted Gross Income (AGI)

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The taxpayer’s total adjusted gross income (AGI) is the amount that is used to compute some limitations, such as the medical and dental deduction on Schedule A and the credit for child and dependent care expenses.

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Adoption Taxpayer Identification Number

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A nine-digit tax-processing number issued by the IRS for children who are in the process of being adopted and who can be claimed as a dependent or claimed for a childcare credit. The ATIN is used wherever the child’s social security number is requested.

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Advance EIC Payments

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Payments of the earned income credit (EIC) paid to qualified taxpayers through the regular paycheck.

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AEIC

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Advance Earned Income Credit Payments

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After-tax Contributions

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After-tax means the employee paid taxes on the money when it was contributed, i.e., the taxpayer has a cost basis in the plan.

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Age Test

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One of the tests for identifying a qualifying child: Was the potential dependent under age 19 and younger than the taxpayer at the end of the year? Or, was the person under age 24 at the end of the year and a full-time student for some part of each of five months during the year? Or, Was the person any age and permanently and totally disabled?

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Alimony

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Alimony is a payment to or for a spouse or former spouse under a separation or divorce instrument.

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Allocated Tips

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Tips an employer assigns to an employee. They are in addition to the tips the employee reported to the employer.

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Alternative Motor Vehicle Credit

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Taxpayers may be able to claim a credit for an alternative motor vehicle placed in service for business or personal use. Refer taxpayers who choose to claim this credit to a professional tax preparer.

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American Opportunity Tax Credit

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A tax credit that temporary changes the Hope educational credit, making it available to a broader range of taxpayers, including higher income taxpayers and those who owe no tax.

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American Recovery and Reinvestment Act (ARRA)

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The American Recovery and Reinvestment Act (ARRA) of 2009 provides a $250 payment to recipients of certain benefits received from the Social Security Administration or the Railroad Retirement Board. This economic recovery payment is not taxable, but it does reduce any making work pay tax credit the recipient may be entitled to.

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Amount Realized

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The amount realized is the selling price minus selling expenses commissions, advertising fees, legal fees, and loan charges paid by the seller, such as points).

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Annuity

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A series of payments under a contract from an insurance company, a trust company, or an individual. Annuity payments are made at regular intervals over a period of more than one full year.

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ARRA

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American Recovery and Reinvestment Act

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ATIN

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Adoption Taxpayer Identification Number

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At-Risk Rule

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One of two restrictions on how much a loss from passive activity can offset other sources of income. Taxpayers are restricted from claiming a loss for more than they could actually lose from the activity; they can claim a loss only up to the amount for which they are personally at-risk in the activity. (The other restriction is the passive activity rule.)

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BAH

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Basic allowance for housing, a type of excludable military income.

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BAS

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Basic allowance for subsistence, a type of excludable military income.

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Basis

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The basis in a home is determined by how the taxpayer obtained the home. If a taxpayer bought or built a home, the basis is what it cost the taxpayer to buy or build that home. If the taxpayer inherited the home, the basis is its fair market value on the date of the decedent’s death, or on the later alternate valuation date chosen by the representative for the estate.

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Before-tax Contributions

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Before-tax simply means that the employee did not pay taxes on the money at the time it was contributed, i.e., the taxpayer has no cost basis in the plan.

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Blocked income

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Blocked income is when a taxpayer cannot convert foreign currency to U.S. dollars due to local law or local government policy. Special tax rules allow taxpayers with blocked income to delay reporting part of their income.

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Bona Fide Residence Test

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To meet the bona fide residence test for the foreign earned income exclusion, taxpayers must show that they have set up permanent quarters in a foreign country for an entire, uninterrupted tax year.

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Business Travel Expenses

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Qualified business expenses for members of the armed forces such as uniforms, education and travel. Military employee business expenses are necessary business-related expenses incurred by active members of the U.S. Armed Forces.

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Cancellation of Debt For Principal Residence

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Under the Mortgage Forgiveness Debt Relief Act of 2007, taxpayers may exclude certain debt forgiven or canceled on their principal residence. This exclusion is applicable to the discharge of qualified principal residence indebtedness. If the canceled debt qualifies for exclusion from gross income, the debtor may be required to reduce tax attributes (certain credits, losses, and basis of assets) by the amount excluded.

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Capital Gain or Loss

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Sale of stock, mutual funds, and the sale of a personal residence. The Capital Gain or Loss lesson will help you identify the asset’s holding period, adjusted basis, net short-term and long-term capital gains or losses, the taxable gain or deductible loss, the tax liability, and the amount of any capital loss carryover.

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Capital Gain Distributions

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Capital gains passed to investors typically by Mutual funds (regulated investment companies) and real estate investment trusts (REITs)

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Capital Gains

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"See Capital Gain Distributions"

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Capital Loss Carryover

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A taxpayer cannot take net losses of more than $3,000 ($1,500 for married taxpayers filing separately) in figuring taxable income for any single tax year. The allowable loss is referred to as the deduction limit. Unused losses can be carried over to later years until they are completely used up. The carryover losses are combined with the gains and losses that actually occur in the next year.

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Cash Method

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Accounting method that reports income when constructively received (not earned) and expenses when paid (not incurred), as opposed to the accrual method.

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Child and Dependent Care Credit

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A nonrefundable credit that allows taxpayers to claim a credit for paying someone to care for their qualifying Dependents under the age of 13 or spouses or dependents who are unable to care for themselves. The credit ranges from 20 to 35% of the taxpayer’s expenses.

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Child Tax Credit

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A credit that may reduce tax by as much as $1,000 for each qualifying child.

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Citizen or Resident Test

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One of the tests for identifying a qualifying child or qualifying relative as a dependent: Assuming all other dependency tests are met, the citizen or resident test allows taxpayers to claim a dependency exemption for persons who are U.S. citizens for some part of the year or who live in the United States, Canada, or Mexico for some part of the year.

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Combat Zone

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Any area (1) the President of the United States designates by Executive Order as an area in which the U.S. Armed Forces are engaging or have engaged in combat, (2) the Department of Defense has certified for combat zone tax benefits due to its direct support of military operations, or (3) a Qualified Hazardous Duty Area established by statute where the service member receives imminent danger pay. Members of the U.S. Armed Forces who serve in a combat zone may exclude military pay from their taxable income.

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Compensation

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Wages, salaries, commissions, tips, bonuses, professional fees, earnings from self-employment, and alimony.

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Constructively Received

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When an amount is credited to the taxpayer's account or made available to the taxpayer (or taxpayer's agent) without restriction.

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Cost basis

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An amount for which taxes have already been paid.

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Coverdell ESA

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A Coverdell ESA is a trust or custodial account created or organized in the United States only for the purpose of paying the qualified education expenses of the designated beneficiary of the account.

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Credit

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A direct reduction of the taxpayer's liability. Credits are allowed for such purposes as child care expenses, higher education costs, qualifying children, and earned income of low-income taxpayers.

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Credit for the Elderly or Disabled

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The credit for the elderly or the disabled is calculated on Schedule R and reported in the Tax and Credits section of Form 1040. This credit can also be claimed on Form 1040A.

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Date of Transaction

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Either the date on a check made payable to the taxpayer or the date money is credited to the taxpayer's account. When converting foreign currency to U.S. dollars, the date of transaction is the date that determines the exchange rate to use.

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Dependency Exemptions

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Amount that taxpayers can claim for a "qualifying child" or "qualifying relative". Each exemption reduces the income subject to tax. The exemption amount is a set amount that changes from year to year. One exemption is allowed for each qualifying child or qualifying relative claimed as a dependent.

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Dependency Tests

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Tests used for identifying qualifying children or qualifying relatives as dependents. The tests are: Relationship test, Age test, Support test, Residence test, U.S. citizen or resident test, Joint return test, Qualifying child of more than one person test, and Dependent taxpayer test.

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Dependent

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An individual who may be claimed as a dependent on another person's tax return; that is, someone who is supported by another taxpayer and who meets all applicable dependency tests.

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Dependent Care Benefits

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These benefits include amounts employers pay to a taxpayer or directly to the care provider.

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Dependent Taxpayer Test

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One of the tests for identifying a qualifying child or qualifying relative as a dependent: Can the taxpayer or spouse (if filing jointly) be claimed as a dependent by another person?

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Depreciation

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An annual deduction that allows taxpayers to recover the cost of property used in a trade or business or held for the production of income. The amount of depreciation depends on the basis of the property, its recovery period, and the depreciation method.

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Disability Income

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This income comes from an employer's disability insurance, health plan, or pension plan. The payments replace wages for the time the taxpayer missed work because of the disability. The plan must provide for disability retirement for the payments to be considered disability income.

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Disability Pension

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Generally paid to a taxpayer who retires because of a disability before the minimum retirement age (set by the employer). The disability pension is considered regular pension income when the taxpayer reaches the minimum retirement age.

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DITY Move

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Do-it-yourself move. The most common form of military move is the partial DITY move, where the military provides a moving company to transport some of the service member's goods. Service members who receive DITY payments must include them in their gross income.

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Dividends

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A corporation's distributions to its shareholders from its earnings and profits.

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Divorced, separated, or never married parents

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Special rules apply if the dependent is supported by parents who are divorced or separated; these rules also apply to parents who were never married. In general, the child will be considered a dependent of the custodial parent, assuming the child meets all the rules for a qualifying child or qualifying relative. However, the custodial parent can agree to allow the noncustodial parent to treat the child as a qualifying child or qualifying relative if certain conditions are met. A signed Form 8332 or equivalent is required and must be attached to the noncustodial parent’s return, or attached to Form 8453 if filing electronically.

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Domicile

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A taxpayer's legal, permanent residence. It is not always where the person presently lives.

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Dual Status Alien

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An alien who is both a nonresident and resident alien during the same tax year. The most common dual-status tax years are the years of arrival and departure.

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Earned Income

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Includes wages, salaries, tips, and other employee compensation when the amounts are includible in gross income. Also, net earnings from self-employment and other income received for personal services.

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Earned Income Credit

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A credit that can be paid to low-income workers, even if no income tax was withheld from the worker's pay. To receive the credit, a taxpayer must file a tax return.

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Economic Recovery Payment

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A $250 Economic Recovery Payment paid automatically in 2009 to recipients of certain benefits administered by the Social Security Administration, Department of Veterans Affairs, and the Railroad Retirement Board.

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Education credits

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Credits that reduce the amount of tax due and are based on qualified education expenses that the taxpayer paid during the tax year.

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EIC

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Earned income credit.

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EITC

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"Earned Income Tax Credit. See EIC"

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Electronic Filing (e-file)

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The transmission of tax information directly to the IRS using computers. Electronic filing options include (1) Online self-prepared using a personal computer and tax preparation software, or (2) using a tax professional. Electronic filing may take place at the taxpayer's home, a volunteer site, the library, a financial institution, the workplace, malls and stores, or a tax professional's place of business.

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ESA

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Coverdell Education Savings Account

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Excludable Income

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Income that is not included in the taxpayer's gross income and therefore exempt from federal income tax.

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Exempt (from withholding)

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Free from withholding of federal income tax. Must meet certain income, tax liability, and dependency criteria. Does not exempt a person from other kinds of tax withholding, such as social security tax.

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EITC

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"Earned Income Tax Credit. See EIC"

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Electronic Filing (e-file)

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The transmission of tax information directly to the IRS using computers. Electronic filing options include (1) Online self-prepared using a personal computer and tax preparation software, or (2) using a tax professional. Electronic filing may take place at the taxpayer's home, a volunteer site, the library, a financial institution, the workplace, malls and stores, or a tax professional's place of business.

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ESA

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Coverdell Education Savings Account

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Excludable Income

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Income that is not included in the taxpayer's gross income and therefore exempt from federal income tax.

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Exempt (from withholding)

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Free from withholding of federal income tax. Must meet certain income, tax liability, and dependency criteria. Does not exempt a person from other kinds of tax withholding, such as social security tax.

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Exemption Amount

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The dollar amount that can be deducted from an individual's total income, thereby reducing the taxable income.

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Exemptions (Personal or Dependency)

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Amount that taxpayers can claim for themselves, their spouses, and eligible dependents. The total is subtracted from adjusted gross income before tax is figured on the remaining income (taxable income).

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Filing statuses

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Five taxpayer categories that determine the amount of tax and/or tax credits that apply to different taxpayers. The five filing statuses are (from lowest to highest tax): Married Filing Jointly; Qualifying Widow(er) with Dependent Child; Head of Household; Single; Married Filing Separately.

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First-time Homebuyer Credit

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First-time Homebuyer Credit

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Five-Year Test Period Suspension

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Taxpayers can choose to have the five-year test period for ownership and use suspended during any period the homeowner (either spouse if married) served on qualified official extended duty as a member of the uniformed services or Foreign Service of the United States, as an employee of the intelligence community, or as an employee or volunteer of the Peace Corps. This means that the taxpayer may be able to meet the two-year use test even if the taxpayer and/or spouse did not actually live in the home during the normal five-year period required of other taxpayers.

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Foreign Earned Income Exclusion

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The foreign earned income exclusion allows eligible taxpayers to avoid paying federal income tax on their foreign earned income.

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Foreign Tax Credit

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U.S. tax credit used to offset any foreign income tax taxpayers have paid on qualified income that is also subject to U.S. federal income tax.

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Form 1040

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Tax return used to report income from wages, salaries, and tips; qualified tuition program earnings; Alaska Permanent Fund dividends; taxable scholarships and fellowship grants; interest of $1,500 or less; and unemployment compensation.

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Form 1040 Schedule A

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Itemized Deductions

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Form 1040 Schedule B

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Interest and Ordinary Dividends

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Form 1040 Schedule C-EZ

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Net Profit from Business

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Form 1040 Schedule D

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Capital Gains and Losses

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Form 1040 Schedule E

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Supplemental Income and Loss

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Form 1040 Schedule L

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Standard Deduction for Certain Filers

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Form 1040 Schedule M

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Making Work Pay and Government Retiree Credits

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Form 1040 Schedule SE

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Self-Employment Tax

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Form 1040A

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Form 1040A

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Form 1040ES

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Estimated Tax for Individuals. This is a package used primarily for first-time filers of estimated taxes.

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Form 1040EZ

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Tax Return for Single and Joint Filers with No Dependents, used to report income from wages, salaries, and tips, plus income from dividends and interest greater than $1,500; capital gain distributions; IRA, pension, and annuity income; and social security and railroad retirement benefits.

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Form 1040NR

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U.S. Nonresident Alien Income Tax Return

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Form 1040NR-EZ

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U.S. Nonresident Alien Income Tax Return

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Form 1040X

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Amended U.S. Individual Income Tax Return, used to modify a previously filed tax return.

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Form 1041 Schedule K-1

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Beneficiary’s Share of Income, Deductions, Credits, etc.

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Form 1042-S

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Foreign Person's U.S. Source Income Subject to Withholding

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Form 1065 Schedule K-1

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Partner’s Share of Income, Deductions, Credits, etc.

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Form 1098

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Statement showing Mortgage Interest

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Form 1098-E

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Statement showing Student Loan Interest

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Form 1099-A

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Acquisition or Abandonment of Secured Property

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Form 1099-B

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Proceeds From Broker and Barter Exchange Transactions

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Form 1099-C

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Cancellation of Debt

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Form 1099-DIV

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Statement showing Dividends and Distributions

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Form 1099-G

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Statement showing certain government payments (such as Unemployment Compensation Income)

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Form 1099-INT

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Statement showing Interest Income

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Form 1099-LTC

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Long-term Care and Accelerated Death Benefits

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Form 1099-MISC

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Statement showing miscellaneous income (such as rents, royalties, fishing boat proceeds, non-employee compensation, medical and healthcare payments, substitute payments in lieu of dividends or interest, crop insurance proceeds, gross proceeds paid to an attorney, excess golden parachute payments, and other miscellaneous income)

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Form 1099-OID

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Statement showing Original Issue Discount

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Form 1099-R

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Statement showing Distributions from Pensions, Annuities, Retirement or Profit Sharing Plans, IRAs, Insurance Contracts, etc

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Form 1099-S

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Proceeds From Real Estate Transactions

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Form 1116

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Foreign Tax Credit (Individual, Estate or Trust)

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Form 1120S Schedule K-1

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Shareholder’s Share of Income , Deductions, Credits, etc.

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Form 13614-C

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Intake/Interview & Quality Review Sheet

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Form 2106

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Employee Business Expenses

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Form 2106-EZ

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Unreimbursed Employee Business Expenses

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Form 2120

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Multiple Support Declaration, allows taxpayers to identify other eligible individuals who paid over 10% of the support of another person.

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Form 2210

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Underpayment of Estimated Tax by Individual, Estate of Trust. In most cases, it is not necessary to file Form 2210. The IRS figures out penalties and sends taxpayers bills. Part I explains in detail when this form is required.

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Form 2441

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Child and Dependent Care Expenses

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Form 2555

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Foreign Earned Income Exclusion

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Form 2555-EZ

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Foreign Earned Income Exclusion

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Form 2848

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Power of Attorney and Declaration of Representative

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Form 3903

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Moving Expenses

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Form 4137

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Social Security and Medicare Tax on Unreported Tip Income, is used to report unreported tip income.

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Form 4506

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Request for Copy or Transcript of Tax Form

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Form 4852

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Substitute for Form W-2, Wage and Tax Statement, or Form 1099-R, Distributions from Pensions, Annuities, Retirement or Profit-Sharing Plans, IRA's, Insurance Contracts, Etc., used by taxpayers who have been unable to obtain (or have received incorrect) wage or distribution statements.

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Form 4868

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Application for Automatic Extension of Time to File U.S. Individual Income Tax Return.

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Form 4952

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Investment Interest Expense Deduction

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Form 5329

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Additional Taxes on Qualified Plans (including IRAs) and Other Tax Favored Accounts

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Form 5405

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First-Time Homebuyer Credit

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Form 5695

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Residential Energy Efficient Property Credit

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Form 8233

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Exemption From Withholding on Compensation for Independent Personal Services of a Nonresident Alien Individual

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Form 8316

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Information Regarding Request for Refund of Social Security Tax

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Form 8332

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Release/Revocation of Release of Claim to Exemption for Child by Custodial Parent. This form allows a taxpayer who is a custodial parent (and who was married to his or her child's noncustodial parent) to release his or her claim on the child's exemption.

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Form 8379

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Injured Spouse Claim and Allocation, allows taxpayers to request relief from a spouse's past due federal debts, including back child support and past due taxes.

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Form 843

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Claim for Refund and Request for Abatement

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Form 8453-OL

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Income tax declaration used for e-filing

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Form 8582

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Passive Activity Loss Limitations

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Form 8606

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Nondeductible IRAs, reports nondeductible contributions to traditional IRAs and/or distributions taken from certain IRAs. Part I explains in detail when this form is used.

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Form 8812

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Additional Child Tax Credit

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Form 8822

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Change of Address

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Form 8840

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Closer Connection Exception Statement for Aliens

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Form 8843

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Statement for Exempt Individuals and Individuals with a Medical Condition

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Form 8857

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Request for Innocent Spouse Relief. This form explains various forms of relief and who may qualify.

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Form 8863

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Education Credits, may be used instead of Form 2106, Employee Business Expenses, if education expenses were the only business expenses.