Tax Ch.4 - Individual Income Tax Overview, Dependents, and Filing Status

Abandoned Spouse

a married taxpayer who lives apart from their spouse for the last six months of the year (excluding temporary absences), who files a tax return separate from their spouse, and who maintains a household for a qualifying child.

Adjusted Gross Income (AGI)

gross income less deductions for AGI. AGI is an important reference point that is often used in other tax calculations.

All-Inclusive Income Concept

a definition of income that says that gross income means all income from whatever source derived.

Alternative Minimum Tax (AMT)

a tax on a broader tax base than the base for the “regular” tax; the additional tax paid when the tentative minimum tax (based on the alternative minimum tax base) exceeds the regular tax (based on the regular tax base).

Character of Income

a type of income that is treated differently for tax purposes from other types of income. Common income characters (or types of income) include ordinary, capital, and qualified dividend.

Deductions

amounts that are subtracted from gross income in calculating taxable income.

Deductions Above the Line

for AGI deductions or deductions subtracted from gross income to determine AGI.

Deductions Below the Line

from AGI deductions or deductions subtracted from AGI to calculate taxable income.

Deferrals

realized income that will be taxed as income in a subsequent year.

Estimated Tax Payments

quarterly tax payments that a taxpayer makes to the government if the tax withholding is insufficient to meet the taxpayer’s tax liability.

Exclusions

realized income that is exempted from income taxation.

Filing Status

filing status places taxpayers into one of five categories (married filing jointly, married filing separately, qualifying surviving spouse, head of household, and single) by marital status and family situation as of the end of the year.

For AGI Deductions

deductions that are subtracted from gross income to determine AGI.

From AGI Deductions

deductions subtracted from AGI to calculate taxable income.

Gross Income

realized income minus excluded and deferred income.

Head of Household

one of five primary filing statuses. A taxpayer may file as head of household if they are unmarried as of the end of the year and pays more than half of the cost to maintain a household for a qualifying person who lives with the taxpayer for more than half of the year; or they pay more than half the costs to maintain a household for a parent who qualifies as the taxpayer’s dependent.

Itemized Deductions

certain types of expenditures that Congress allows taxpayers to deduct as from AGI deductions.

Legislative Grace

the concept that taxpayers receive certain tax benefits only because Congress writes laws that allow taxpayers to receive the tax benefits.

Married Filing Jointly

one of five primary filing statuses. A taxpayer may file jointly if they are legally married as of the end of the year (or one spouse died during the year and the surviving spouse did not remarry) and both spouses agree to jointly file. Married couples filing joint returns combine their income and deductions and share joint and several liability for the resulting tax.

Married Filing Separately

one of five primary filing statuses. When married couples file separately, each spouse reports the income they received during the year and the deductions they paid on a tax return separate from the other spouse.

Net Capital Gains

the excess of net long-term capital gain for the taxable year over net short-term capital loss for such year.

Qualifying Child

an individual who qualifies as a dependent of a taxpayer by meeting a relationship, age, residence, and support test with respect to the taxpayer.

Qualifying Relative

an individual who is not a qualifying child of another taxpayer and who meets a relationship, support, and gross income test and thus qualifies to be a dependent of another taxpayer.

Qualifying Surviving Spouse

one of five primary filing statuses. Applies for up to two years after the year in which the taxpayer’s spouse dies (the taxpayer files married filing jointly in the year of the spouse’s death) as long as the taxpayer remains unmarried and maintains a household for a dependent child.

Realized Income

income generated in a transaction with a second party in which there is a measurable change in property rights between parties.

Self-Employment Taxes

Social Security and Medicare taxes paid by the self-employed on a taxpayer’s net earnings from self-employment. For self-employed taxpayers, the terms “self-employment tax” and “FICA tax” are synonymous.

Single

one of five primary filing statuses. A taxpayer files as single if they are unmarried as of the end of the year and does not qualify for any of the other filing statuses. A taxpayer is considered single if they are unmarried or legally separated from their spouse under a divorce or separate maintenance decree.

Standard Deduction

a fixed deduction offered in lieu of itemized deductions. The amount of the standard deduction depends on the taxpayer’s filing status.

Tax Credits

items that directly reduce a taxpayer’s tax liability.

Tax Rate Schedule

a schedule of progressive tax rates and the income ranges to which the rates apply that taxpayers may use to compute their gross tax liability.

Tax Tables

IRS-provided tables that specify the federal income tax liability for individuals with taxable income within a specific range. The tables differ by filing status and reflect tax rates that increase with taxable income.

Taxable Income

the tax base for the income tax.

Withholdings

taxes collected and remitted to the government by an employer from an employee’s wages.