Definitions - Key Income Tax Words

Cola Tax & Solutions
Total Income – The sum of income from all sources such as wages, interest, dividends, alimony, IRA distributions, see the Income column on the 1040 for more info.
Adjusted Gross Income (AGI) – Your total income minus above the line deductions such as moving expenses, early withdrawal penalties, IRA contributions, student loan interest, see the AGI column on the 1040 for more info.
Standard Deduction – the basic deduction the IRS gives you from being single, head of household, or married.
Itemized Deduction – Schedule A, Instead of taking the standard deduction you can itemize your deductions such as your medical expense, taxes you paid, interest you paid (mortgage and mortgage insurance premium), charity donations, job expenses, for more information view the schedule A
Taxable Income – The amount you owe tax on after you subtract your standard or itemized deduction and exemptions from your AGI.
Tax - The net tax you owe off your taxable income. You can either use the tax schedule or the tax table to configure your tax. It is best to do both and use the lowest, this might save you as much as $8.
Total Tax – The tax subtracted from your total credits is your total tax. After you have your total tax subtract all payments and EIC, if any, that will give you your refund or payment amount.
Self Employment Tax – Any one with self employed income of more than $400 has to file self employment tax, SE tax is your Social Security and Medicaid tax. At a job you usually pay half and your employer pays another half for you when you are self employed you are responsible for the whole bit. For more information view the SE form
Education Credits – If you are a student or a parent of a full-time student you can claim either the HOPE or Lifetime credit if your AGI is less than 57,000 for single and 114,000 for married. These credits are taken off the tax you owe dollar for dollar.
Earned Income Tax Credit (EIC) – to qualify you must make less than 39,800 in 2007, and either be over the age of 25 or have a qualifying child. To see how much you can get check out EIC page 44-50.
Tuition and Fees Deduction – Much like the education credits except it lowers your AGI instead of dollar for dollar against the tax bill, on the other hand it has a higher income limit of 80,000 for single and 160,000 for married. (Only one of the three can be claimed for the same child in the same tax year)
Cola Tax & Solutions