{"id":79,"date":"2012-03-01T18:17:53","date_gmt":"2012-03-01T18:17:53","guid":{"rendered":"https:\/\/ayoub-associates.com\/blog\/?p=79"},"modified":"2012-07-31T04:46:37","modified_gmt":"2012-07-31T04:46:37","slug":"7-tax-terms-explained","status":"publish","type":"post","link":"https:\/\/ayoub-associates.com\/blog\/7-tax-terms-explained\/","title":{"rendered":"7 Tax Terms Explained"},"content":{"rendered":"

It’s tax season and that means the
\nlingo is flying around and much of it goes right over some our heads. Much of
\nthe tax vocabulary is terms we should know as we attempt to manage our finances
\nin a more tax friendly way throughout the entire year. For that reason, we’ve
\nput together some of the terms that you should know as you complete your 2011
\ntaxes.<\/p>\n

AGI
\n<\/strong>Adjusted gross income (AGI) is the amount of money you made after you’ve factored in selected deductions, credits
\nand certain business expenses. Your AGI does not include the standard or
\nitemized deductions.<\/p>\n

Let’s assume that you made $50,000 last year, which includes your paycheck, interest payments and investment
\ngains. You were able to gain $8,000 in allowable deductions making your AGI
\n$42,000.<\/p>\n

Tax Credit Vs. Deduction
\n<\/strong>You should be happy about a deduction and jumping for joy when you get a tax credit. A tax deduction reduces your
\ntaxable income. If you had a $1,000 deduction on that $50,000, your taxable
\nincome is now $49,000. That doesn’t mean that you will receive the full $1,000
\nback. In fact, you’ll receive much less than that.<\/p>\n

A tax credit is applied directly towards your tax bill. If you owed $8,000 in taxes last year, a $1,000 credit
\nwould make your tax bill $7,000. Unlike the deduction, you get the full $1,000
\nback and in most cases, you get it even if you didn’t owe any taxes.<\/p>\n

Standard Deduction
\n<\/strong>Regardless of your tax status, the Internal Revenue Service (IRS) offers a standard deduction to all taxpayers.
\nInstead of going through the process of deducting many small deductions, the
\nIRS would rather offer you a set amount. That amount changes depending on your
\nfiling status and the rate of inflation. If you don’t own a home, have no
\nchildren and have few other tax altering events, you can probably claim the
\nstandard deduction each year.<\/p>\n

If you itemize your deductions and the amount is larger than the standard deduction, you would elect to itemize on
\nyour taxes. You cannot claim the standard deduction and itemize. You would pick
\nthe higher of the two amounts.<\/p>\n

Exemption
\n<\/strong>An exemption is anybody who relies on your income for basic needs. You can claim yourself, your spouse, children
\nand any other dependents. Once you find your AGI, each exemption is applied to
\nthat number to calculate your taxable income.<\/p>\n

Taxable Income
\n<\/strong>Taxable income<\/a>\u00a0is your final income once all of the deductions and credits are applied. This
\nnumber is the figure used to calculate your final tax bill.<\/p>\n

Withholding
\n<\/strong>In order to assure that you can pay your tax bill at the end of the year, the IRS requires employers to withhold a
\nportion of your check. This money is placed on deposit with the IRS and once
\nyou complete your taxes, it is applied to your tax bill often leaving a
\nrefundable amount.<\/p>\n

The Bottom Line
\n<\/strong>There are many other tax terms worth learning but these few will get you started. Visit the IRS website<\/a> for even more valuable information
\nas you become a more tax conscious citizen.<\/p>\n

By <\/cite>Tim Parker<\/em> | <\/cite>Investopedia<\/em> \u2013 Wed, Feb 22, 2012 1:12 PM EST<\/cite><\/p>\n","protected":false},"excerpt":{"rendered":"

It’s tax season and that means the lingo is flying around and much of it goes right over some our heads. Much of the tax vocabulary is terms we should […]<\/p>\n","protected":false},"author":88890,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3],"tags":[],"class_list":["post-79","post","type-post","status-publish","format-standard","hentry","category-tax-tips"],"yoast_head":"\n7 Tax Terms Explained - Ayoub Sidhum & Co.<\/title>\n<meta name=\"description\" content=\"Ayoub and Associates CPA Firm is a full service Corona CPA firm that provides services in accounting, tax preparation and planning, IRS audit, and sales tax. 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