Chapter 6 Study Guide: Individual Deductions

Vocabulary flashcards covering key individual deduction terms, definitions, and rules from Chapter 6.

Tax Deduction

An expense that lowers the amount of income on which an individual pays taxes.

For AGI Deductions

Deductions that are subtracted before calculating adjusted gross income ($\text{AGI}$).

From AGI Deductions

Deductions that are subtracted after calculating adjusted gross income ($\text{AGI}$), including itemized deductions or the standard deduction.

Adjusted Gross Income (AGI)

Gross income minus for $\text{AGI}$ deductions ($\text{AGI}=\text{Gross Income}-\text{For AGI Deductions}$).

Ordinary Expense

A business expense that is common for the business.

Necessary Expense

A business expense that is helpful for the business.

Reasonable Expense

A business expense that is not too expensive or excessive.

Schedule C

The tax form schedule used to report self-employed business income and expenses.

Schedule E

The tax form schedule used to report rental, royalty, and certain pass-through income and expenses.

Net Capital Loss

The amount by which capital losses exceed capital gains, deductible up to a maximum of $\$3,000$ per year for most taxpayers, with remaining amounts carried forward.

Health Savings Account (HSA)

A tax-advantaged account used to save for medical expenses, where qualified withdrawals are tax-free and other withdrawals face income tax plus an additional $20\%$ tax.

Phase-out

A tax provision rule under which an allowable deduction gradually decreases as income increases.

Itemized Deductions

Specific personal expenses that a taxpayer can subtract from $\text{AGI}$ instead of claiming the standard deduction.

Medical Expense Deduction

A deduction from $\text{AGI}$ for unreimbursed qualified medical expenses, deductible only to the extent they exceed $7.5\%$ of $\text{AGI}$.

State and Local Taxes (SALT) Deduction

An itemized deduction covering state and local income, property, or sales taxes, subject to a $2026$ cap of $\$40,400$ ($\$20,200$ for married filing separately).

Fair Market Value (FMV)

A valuation term representing what property or an asset is worth.

Basis

A taxpayer's tax cost in an item of property.

Capital Gain Property

Donated property that has increased in value.

Ordinary Income Property

Donated property that is subject to ordinary-income treatment under charitable donation tax rules.

Standard Deduction

A fixed dollar amount that lowers taxable income, chosen when it exceeds total allowable itemized deductions.

Bunching Deductions

The tax planning strategy of shifting eligible deductible expenses into a single tax year to exceed the standard deduction threshold and achieve a higher itemized deduction.

Qualified Business Income (QBI) Deduction

A deduction from $\text{AGI}$ available to eligible business owners, subject to business and income limitations.

Excess Business Loss Threshold

A loss limitation threshold set at $\$256,000$ for single taxpayers and $\$512,000$ for married taxpayers filing jointly.