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Tax Terms and Definitions |
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Audit |
an official examination of financial records The IRS conducted an audit of his tax records last year. |
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Capital Gain |
the amount that an asset has increased from purchase price to selling price She reported a capital gain on her tax form when she sold her stock. |
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Charitable Contribution |
a donation given to a nonprofit organization that may be recognized as a deduction for tax purposes At the end of the year, many people like to make a charitable contribution to nonprofit organizations they wish to support. |
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Credit |
a dollar for dollar reduction in taxes owed Many parents take advantage of the education tax credit. |
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Deduction |
A reduction in income that is subject to tax A contribution to an IRA is a common tax deduction. |
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Revenue |
income collected by a government authority from taxpayers The Internal Revenue Service (IRS) is the agency that collects tax revenue. |
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Standard Deduction |
as determined by the government, the amount allowed as a reduction in income subject to tax The couple chose to take the standard deduction rather than itemizing deductions because it was the best way to reduce the taxes they owed. |
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Taxpayer |
an individual or a business that is required to pay money (tax) to the government A taxpayer should pay all of their income taxes by the April 15th deadline. |
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Tax Return |
the form used for listing income and expenses to calculate taxes owed Three common tax return forms are the 1040, the 1040A and the 1040EZ. |
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Withholding |
the portion of an employee’s wages that is sent to a tax authority for payment of income taxes Her paycheck indicated that her company was withholding money for payment of state taxes. |
