taxes

Capital Gains

Profits from the sale of capital assets such as stocks, bonds, or real estate

Earned Income

Money received for personal effort, such as wages, salaries, commissions, fees, tips, or bonuses

Estate Tax

A tax imposed on the value of a person's property at the time of death

Excise Tax

A tax imposed on specific goods and services, such as gasoline, cigarettes, alcoholic beverages, tires, and air travel

Inheritance Tax

A tax levied on the value of property bequeathed by a deceased person

Itemized Deduction

Expenses that can be deducted from adjusted gross income, such as medical expenses, real estate property, taxes, home mortgage interest, charitable contributions, casualty losses, and certain work-related expenses

Marginal Tax Rate

The rates used to calculate tax on the last (and next) dollar of taxable income

Passive Income

Income resulting from business activities in which you do not actively participate

Standard Deduction

A set amount on which no taxes are paid

Taxable Income

The net amount of income, after allowable deductions, on which income tax is computed

Tax Audit

A detailed examination of your tax return by the Internal Revenue Service

Tax Avoidance

The use of legitimate methods to reduce one's taxes

Tax Credit

An amount subtracted directly from the amount of taxes owed

Tax Deduction

An amount subtracted from adjusted gross income to arrive at taxable income

Tax-deferred Income

Income that will be taxed at a later date

Tax Evasion

The use of illegal actions to reduce one's taxes

Tax-exempt Income

income that is not subject to tax

Four Categories of Taxes

Taxes on Purchases, property, wealth, and earnings

Traditional IRA

Available only to people who do not participate in employer-sponsored retirement plans or who have an adjusted gross income under a certain amount

Roth IRA

A personal savings plan; contributions are not tax-deductible; earnings are tax-free after 5 years

SEP-IRA Plan

Retirement plan for self-employed individuals.

401(K) Plan

a tax-deferred investment and savings plan that acts as a personal pension fund for employees

529 Plan

a savings plan for education operated by a state or educational institution

FICA

taxes that fund Social Security and Medicare