Income Tax Fundamentals All Terms|2023 LATEST UPDATE|GUARANTEED SUCCESS

Individual A single human being as distinct from a group, class, or family. Form 1040 The standard IRS form that individual taxpayers use to file their annual income tax returns. Corporation A company or group of people authorized to act as a single entity and recognized as such in law. It is a legal entity that is separate and distinct from its owners. Partnership A formal arrangement by two or more people to oversee, manage, and operate a business and share its profits and liabilities. Gross Income A company's total income from all of its sources, including returns, discounts, and allowances, before deducting any expenses or taxes. Adjusted Gross Income The Internal Revenue Service's figure to determine an individual's income tax liability for the year. How is adjusted gross income calculated? It is calculated by subtracting certain adjustments from gross income, such as business expenses, student loan interest payments, and other expenses. Standard Deductions The portions of income that are not subject to tax that can be used to reduce and individual's tax bill. Itemized Deductions An expense that can be subtracted from adjusted gross income to reduce an individual's taxable income and therefore reduce the amount of taxes he or she owes. Single Filing Status An income tax filing status used by a taxpayer who is unmarried and does not qualify for any other filing status. Married Filing Jointly An income tax filing status used by a married couple that has wed before December 31st, which is the end of the tax year for individuals. Married Filing Separately An income tax filing status used by a married couple who choose to record their respective incomes, exemptions, and deductions on separate tax returns. Head of Household An income tax filing status available to an individual if he or she pays more than half the cost of supporting and housing a qualifying person. How does an individual qualify for the head of household filing status. The individual must file a separate individual tax return, be considered unmarried, and be entitled to an exemption for a qualifying person. Qualifying Widow or Widower An income tax filing status that allows a surviving spouse to use the married filing jointly tax rates on his or her individual return. Dependent A person who relies on someone else for financial support, and can include children or other relatives. Qualifying Child A child who meets the IRS requirements to be an individual's dependent, entitling the individual to claim a dependency exemption on their tax return. Qualifying Relative A non-qualifying child of an individual's household that can be claimed as a dependent assuming the individual provided considerable financial support for the qualifying relative during the tax year. Exemption A deduction allowed by law that reduces the amount of income that is subject to income tax. Capital Asset An assets that is used in a company's business operations to generate revenue over the course of more than one year. What are examples of capital assets? Significant pieces of property such as homes, cars, investment properties, stocks, bonds, and even collectibles or art.