Business Income Tax - Chapter 14

filing status

A classification for individual taxpayers reflecting marital and family situation and determining the rate schedule for the computation of tax liability.

joint return

A return filed by husband and wife reflecting their combined activities for the year.

joint and several liability

Each spouse on a joint tax return is individually liable for the entire tax for the year.

surviving spouse

Filing status that permits a widow or widower to use the married filing jointly rate schedule for two taxable years following the death of a spouse.

separate return

A return filed by a married individual reflecting his or her independent activity and tax liability for the year. The tax liability is based on the married filing separately rate schedule.

dependent

A member of a taxpayer’s family or household who receives more than half of their financial support from the taxpayer.

head of household

Filing status for an unmarried individual who maintains a home for a child or dependent family member.

single taxpayer

An unmarried individual who is neither a surviving spouse nor a head of household.

qualifying child

A child (or specified family member) who has the same principal residence as the taxpayer, who does not provide more than one-half of their own financial support, and who is younger than 19 years old or a student younger than 24 years old.

qualifying relative

A specified family member or member of the taxpayer’s household who receives more than one-half of their financial support from the taxpayer and whose annual gross income is less than an amount prescribed by Congress (indexed annually for inflation).

total income

The sum of the income items recognized by an individual during the year and listed on page 1, Form 1040.

adjusted gross income (AGI)

Total income less adjustments as computed on page 1, Form 1040. AGI is an intermediate step in the calculation of individual taxable income.

above-the-line deduction

An allowable deduction for an individual taxpayer that can be subtracted from total income to compute AGI.

standard deduction

A deduction from AGI based on filing status. The standard deduction amounts are indexed annually for inflation.

itemized deduction

An allowable deduction for an individual taxpayer that cannot be subtracted in the calculation of AGI.

bunching

A tax planning technique to concentrate itemized deductions into one year so that the total exceeds the standard deduction for the year.

senior deduction

The senior deduction is an above-the-line deduction available to taxpayers who reach the age of 65 in the current taxable year. The deduction is indexed for inflation and phases-out for higher income taxpayers.

qualified business income (QBI)

Active trade or business income from nonservice businesses eligible for the Section 199A deduction.

kiddie tax

The tax on a child’s unearned income based on the tax rate applicable to estates and trusts.

child credit

A credit based on both the number of dependent children under the age of 17, as well as other nonchild dependents of the taxpayer.

dependent care credit

A credit based on the taxpayer’s cost of caring for dependents either under age 13 or physically or mentally incapable of caring for themselves.

earned income credit

A refundable income tax credit that offsets the impact of the payroll tax on low-income workers.

excess Social Security tax withholding credit

An overpayment of employee Social Security tax allowed as a credit against income tax.

alternative minimum tax (AMT)

A second federal tax system parallel to the regular tax system. Congress enacted the AMT to ensure that every individual pays at least a minimal tax every year.

alternative minimum taxable income (AMTI)

Income calculated by adding back certain deductions and tax preference items to regular taxable income, used to determine liability under the Alternative Minimum Tax (AMT) system

estimated tax payments

Quarterly installment payments of estimated current year tax liability required of both corporate and individual taxpayers.

safe-harbor estimate

Estimated current year tax payments based on the preceding year’s tax liability that protect the taxpayer from the underpayment penalty.