Income Tax Preparation

CEL Financial Services - Income Tax Preparation - Mobile Tax Preparer - Serving Fillmore, CA

Income Tax Glossary

income tax return filing glossary

Income Tax Glossary

Use this glossary of common income tax service terms and their definitions to help you understand your tax situation

A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

A

Ability to pay - A concept of tax fairness that states that people with different amounts of wealth or different amounts of income should pay...
Adjusted gross income - Gross income reduced by certain amounts, such as a deductible IRA contribution or student loan interest.
Amount due - Money that taxpayers must pay to the government when the total tax is greater than their total tax payments.
Appeal - To call for a review of an IRS decision or proposed adjustment.
Authorized IRS e-file Provider - A business authorized by the IRS to participate in the IRS e-file Program. The business may be a sole proprietorship, a...

B

Benefits received - A concept of tax fairness that states that people should pay taxes in proportion to the benefits they receive from government...
Bonus - Compensation received by an employee for services performed. A bonus is given in addition to an employee's usual compensation.
Business - A continuous and regular activity that has income or profit as its primary purpose.

C

Citizen or Resident Test - Assuming all other dependency tests are met, the citizen or resident test allows taxpayers to claim a dependency exemption for...
Commission - Compensation received by an employee for services performed. Commissions are paid based on a percentage of sales made or a...
Compulsory payroll tax - An automatic tax collected from employers and employees to finance specific programs.

D

Deficit - The result of the government taking in less money than it spends.
Dependency exemption - Amount that taxpayers can claim for a "qualifying child" or "qualifying relative". Each exemption reduces the income subject to...
Dependent - A qualifying child or qualifying relative, other than the taxpayer or spouse, who entitles the taxpayer to claim a dependency...
Direct Deposit - This allows tax refunds to be deposited directly to the taxpayer's bank account. Direct Deposit is a fast, simple, safe, secure...
Direct tax - A tax that cannot be shifted to others, such as the federal income tax.

E

Earned income - Includes wages, salaries, tips, includible in gross income, and net earnings from self-employment earnings.
Earned Income Credit - A tax credit for certain people who work, meet certain requirements, and have earned income under a specified limit.
Electronic filing (e-file) - The transmission of tax information directly to the IRS using telephones or computers. Electronic filing options include (1)...
Electronic preparation - Electronic preparation means that tax preparation software and computers are used to complete tax returns. Electronic tax...
Electronic Return Originator (ERO) - The Authorized IRS e-file Provider that originates the electronic submission of an income tax return to the IRS. EROs may...
Employee - Works for an employer. Employers can control when, where, and how the employee performs the work.
Excise tax - A tax on the sale or use of specific products or transactions.
Exempt (from withholding) - Free from withholding of federal income tax. A person must meet certain income, tax liability, and dependency criteria. This...
Exemptions - Amount that taxpayers can claim for themselves, their spouses, and eligible dependents. There are two types of exemptions-...

F

Federal/State e-file - A program sponsored by the IRS in partnership with participating states that allows taxpayers to file federal and state income...
Federal income tax - The federal government levies a tax on personal income. The federal income tax provides for national programs such as defense,...
Federal Insurance Contributions Act (FICA) Tax - Provides benefits for retired workers and their dependents as well as for disabled workers and their dependents. Also known as...
File a return - To mail or otherwise transmit to an IRS service center the taxpayer's information, in specified format, about income and tax...
Filing status - Determines the rate at which income is taxed. The five filing statuses are: single, married filing a joint return, married...
Financial records - Spending and income records and items to keep for tax purposes, including paycheck stubs, statements of interest or dividends...
Flat tax - This is another term for a proportional tax.
Formal tax legislation process - This is another term for a proportional tax.
Form W-4, Employee's Withholding Allowance Certificate - Completed by the employee and used by the employer to determine the amount of income tax to withhold.
Foster child - A foster child is any child placed with a taxpayer by an authorized placement agency or by court order. Eligible foster...

G

Gasoline excise tax - An excise tax paid by consumers when they purchase gasoline. The tax covers the manufacture, sale, and use of gasoline.
Gross income - Money, goods, services, and property a person receives that must be reported on a tax return. Includes unemployment...

H

Head of Household filing status - You must meet the following requirements: 1. You are unmarried or considered unmarried on the last day of the year. 2. You paid...
Horizontal equity - The concept that people in the same income group should be taxed at the same rate. "Equals should be taxed equally."

I

Income taxes - Taxes on income, both earned (salaries, wages, tips, commissions) and unearned (interest, dividends). Income taxes can be...
Independent contractor - Performs services for others. The recipients of the services do not control the means or methods the independent contractor...
Indirect tax - A tax that can be shifted to others, such as business property taxes.
Infant industry - A new or developing domestic industry whose costs of production are higher than those of established firms in the same industry...
Inflation - The simultaneous increase of consumer prices and decrease in the value of money and credit.
Informal tax legislation process - Individuals and interest groups expressing and promoting their opinions about tax legislation.
Interest - The charge for the use of borrowed money.
Interest income - The income a person receives from certain bank accounts or from lending money to someone else.
Intermediate Service Provider - Assists in processing tax return information between the ERO (or the taxpayer, in the case of online filing) and the...
Internal Revenue Service (IRS) - The federal agency that collects income taxes in the United States.
Investment income - Includes taxable and tax-exempt interest, dividends, capital gains net income, certain rent and royalty income, and net passive...
IRS e-file - Refers to the preparation and transmission of tax return information to the IRS using telephone lines or a computer with a...

L

Lobbyist - A person who represents the concerns or special interests of a particular group or organization in meetings with lawmakers....
Long-distance telephone tax refund - Taxpayers are eligible to file for refunds of all excise tax they have paid on long-distance service billed to them after Feb....
Luxury tax - A tax paid on expensive goods and services considered by the government to be nonessential.

M

Market economy - An economic system based on private enterprise that rests upon three basic freedoms: freedom of the consumer to choose among...
Married Filing Joint filing status - You are married and both you and your spouse agree to file a joint return. (On a joint return, you report your combined income...
Married Filing Separate filing status - You must be married. This method may benefit you if you want to be responsible only for your own tax or if this method results...
Mass tax - A broad tax that affects a majority of taxpayers.
Medicare tax - Used to provide medical benefits for certain individuals when they reach age 65. Workers, retired workers, and the spouses of...

N

Nullification - A state's refusal to recognize or obey a federal law.

P

Payroll taxes - Include Social Security and Medicare taxes.
Personal exemption - Can be claimed for the taxpayer and spouse. Each personal exemption reduces the income subject to tax by the exemption amount.
Personal Identification Number (PIN) - Allow taxpayers to "sign" their tax returns electronically. The PIN, a five-digit self-selected number, ensures that...
Progressive tax - A tax that takes a larger percentage of income from high-income groups than from low-income groups.
Property taxes - Taxes on property, especially real estate, but also can be on boats, automobiles (often paid along with license fees),...
Proportional tax - A tax that takes the same percentage of income from all income groups.
Protective tariff - A tax levied on imported goods with the purpose of reducing domestic consumption of foreign-produced goods.
Public goods and services - Benefits that cannot be withheld from those who don't pay for them, and benefits that may be "consumed" by one person without...

Q

Qualifying child - To be a qualifying child, the dependent must meet eight tests: (1) relationship, (2) age, (3) residence, (4) support, (5)...
Qualifying relative - There are tests that must be met to be a qualifying relative, they are: (1) not a qualifying child, (2) member of household or...
Qualifying Widow(er) filing status - If your spouse died in 2009, you can use married filing jointly as your filing status for 2009 if you otherwise qualify to use...

R

Refund - Money owed to taxpayers when their total tax payments are greater than the total tax. Refunds are received from the government.
Regressive tax - A tax that takes a larger percentage of income from low-income groups than from high-income groups.
Resources - Factors needed to produce goods and services (natural, human, and capital goods).
Revenue - The income the nation collects from taxes.
Revenue tariff - A tax on imported goods levied primarily to generate revenue for the federal government.

S

Salary - Compensation received by an employee for services performed. A salary is a fixed sum paid for a specific period of time worked...
Sales tax - A tax on retail products based on a set percentage of retail cost.
Self-employment loss - Self-employment income minus self-employment expenses, when self-employment income is less than self-employment expenses.
Self-employment profit - Self-employment income minus self-employment expenses, when self-employment income is greater than self-employment expenses.
Self-employment tax - Similar to Social Security and Medicare taxes. The self-employment tax rate is 15.3 percent of self-employment profit. The self...
Single filing status - If on the last day of the year, you are unmarried or legally separated from your spouse under a divorce or separate maintenance...
Sin tax - A tax on goods such as tobacco and alcohol.
Social Security tax - Provides benefits for retired workers and their dependents as well as for the disabled and their dependents. Also known as the...
Software Developer - Develops software for the purposes of (1) formatting electronic tax return information according to IRS specifications, and/or...
Standard deduction - Reduces the income subject to tax and varies depending on filing status, age, blindness, and dependency.
Support - For dependency test purposes, support includes food, clothing, shelter, education, medical and dental care, recreation, and...

T

Tariff - A tax on products imported from foreign countries.
Taxable interest income - Interest income that is subject to income tax. All interest income is taxable unless specifically excluded.
Tax avoidance - An action taken to lessen tax liability and maximize after-tax income.
Tax code - The official body of tax laws and regulations.
Tax credit - A dollar-for-dollar reduction in the tax. Can be deducted directly from taxes owed.
Tax cut - A reduction in the amount of taxes taken by the government.
Tax deduction - An amount (often a personal or business expense) that reduces income subject to tax.
Taxes - Required payments of money to governments that are used to provide public goods and services for the benefit of the community...
Tax evasion - A failure to pay or a deliberate underpayment of taxes.
Tax-exempt interest income - Interest income that is not subject to income tax. Tax-exempt interest income is earned from bonds issued by states, cities, or...
Tax exemption - A part of a person's income on which no tax is imposed.
Tax liability (or total tax bill) - The amount of tax that must be paid. Taxpayers meet (or pay) their federal income tax liability through withholding, estimated...
Tax preparation software - Computer software designed to complete tax returns. The tax preparation software works with the IRS electronic filing system.
Tax shift - The process that occurs when a tax that has been levied on one person or group is in fact paid by others.
Telephone tax refund - Taxpayers are eligible to file for refunds of all excise tax they have paid on long-distance service billed to them after Feb....
Tip income - Money and goods received for services performed by food servers, baggage handlers, hairdressers, and others. Tips go beyond the...
Transaction taxes - Taxes on economic transactions, such as the sale of goods and services. These can be based on a set of percentages of the sales...
Transmit - To send a tax return to the IRS electronically. Tax returns prepared on paper can be sent through the mail.
Transmitter - Sends the electronic return data directly to the IRS.

U

Underground economy - Money-making activities that people don't report to the government, including both illegal and legal activities.
User fees - An excise tax, often in the form of a license or supplemental charge, levied to fund a public service.
User tax - A tax that is paid directly by the consumer of a good, product, or service.

V

Vertical equity - The concept that people in different income groups should pay different rates of taxes or different percentages of their...
Voluntary compliance - A system of compliance that relies on individual citizens to report their income freely and voluntarily, calculate their tax...
Volunteer Income Tax Assistance (VITA) - This provides free income tax return preparation for certain taxpayers. The VITA program assists taxpayers who have limited or...

W

Wages - Compensation received by employees for services performed. Usually, wages are computed by multiplying an hourly pay rate by the...
Withholding ("pay-as-you-earn" taxation) - Money, for example, that employers withhold from employees paychecks. This money is deposited for the government. (It will be...

Tax Term of The Week

Revenue tariff - A tax on imported goods levied primarily to generate revenue for the federal government. More...