Terms You Should Know For Tax Purposes

Terms You Should Know For Tax Purposes

As tax time nears there are terms every person should know before singing on the dotted line. If you are a person that uses tax services, then you need to speak their language or you may be in a risk of receiving an audit. Remember when you sign the tax documents you are stating that you know and understand everything in the documents, which many do not. Learn these basic terms that are used in the accounting world below.

Adjusted Gross Income: This is the total income that you made minus any acceptable deductions. This number is crucial for calculating your tax liability. This will determine which tax bracket that you fall in and how much you can contribute to your tax deferred retirement.

Defined Benefit Plan: Another name that this goes by is a traditional pension plan; this is the type of retirement plan that promises a certain benefit at the end of the month to its participants. The benefits are usually based on the persons age, salary and the number of years that she or he worked for the sponsoring company.

Defined Contribution Plan: This is the more common benefit plan and this type of retirement plan includes both the contributions from the employer and employee. Based on the monies that are made and the value of the contributions of the account will change. There are several defined contribution plans, there is the 403B, the profit-sharing plan, employee stock ownership plan and the 401K plan is all examples of defined contribution plans.

Exempt from Withholding: Exempt from withholding simply means that you do not have any federal income tax being removed from your check. To be excused from withholding you should have a certain income, dependency criteria and tax liability. You will still have to pay social security tax even if you do not have to pay federal tax.

Itemized Deduction: This deduction is for anyone that is employed or self employed and medical, dental, taxes, interest from your mortgage, charitable contributions, investment interest, miscellaneous deductions, and casualty and theft losses are all deductions that can be used as an itemized deduction. When filing, you can only file either standard deductions or itemized but never both.

Tax credit: The tax credit lessens the amount of your tax liability. This credit is given for higher educational costs, child care expenses, and earned income credit for lower income families and for qualifying children.

It's only fair to share...facebook Terms You Should Know For Tax Purposesfacebook Terms You Should Know For Tax Purposesfacebook Terms You Should Know For Tax Purposesfacebook Terms You Should Know For Tax Purposesfacebook Terms You Should Know For Tax Purposesfacebook Terms You Should Know For Tax Purposesfacebook Terms You Should Know For Tax Purposes