Some Key Tax Terms Important to Know

Maicher CPA Pllc provides a full range of tax services to individuals and businesses.  The tax code is rife with terminology.  We are committed to effectively communicating with our clients in a way which makes the tax laws and our related tax strategies understandable.  Below are some key tax terms important to know.   

    • Adjusted Gross Income (AGI) refers to taxable income minus certain deductions.  AGI determines whether you qualify for tax credits or deductions.
    • Nontaxable Income refers to any income that is not subject to taxes. Examples are:  child support payments, gifts and cash rebates.
  • Capital Gains – refers to gains resulting from the sale of a capital asset, such as real estate, stocks or bonds – essentially in excess of its acquisition price.  The amount of taxes paid depends on how long the capital asset is owned.  If the capital asset is owned for one year or less, gains are taxed at ordinary income tax rates.  If held for longer than a year, gains are taxed at capital gain tax rates, which are lower. 
  • Capital Losses – refers to the loss when a capital asset sells for less than what was paid for it. When total capital losses exceed capital gains in a year, a total loss up to $3,000 can be applied to reduce taxable income with the possibility of carryover of the loss to subsequent tax years. 
  • Tax Deduction refers to an amount that reduces the amount of income that is taxed, lowering the tax bill. Examples are:  standard deductions, itemized deductions or above-the-line deductions.
  • Standard Deduction – refers to the flat amount that the IRS allows a taxpayer to reduce taxes based on filing status. The IRS allows taxpayers to choose between deducting their itemized deductions or taking the applicable standard deduction. 
  • Itemized Deductions – refers to expenses that can be claimed to lower taxes. Examples are: medical and dental costs, charitable donations, state income taxes and casualty losses. 
  • Above-the-Line Deductions – refers to an amount that reduces the tax that is owed. Above-the-line deductions can be used regardless of whether or not a taxpayer elects to itemize deductions. Examples are:  educator expenses, student loan interest deduction, contributions to a health savings account.   
  • Below-the-Line Deductions refers to amounts claimed to reduce overall taxes. Generally, there are two types of below-the-line deductions: itemized deductions and the standard deduction. 
  • Tax Credits refers to a dollar for dollar deduction in tax owed.  A prominent example includes the Child and Dependent Care Credit.

Take-away:  Maicher is committed to making the tax laws and our related strategies as intelligible as possible for our clients.  Call us today for an appointment to put your best strategy in place. 

IRS Pub. – “Credits and Deductions” (October 5, 2023).
IRS Pub. – “Understanding Taxes.”  (2023).
“20 Tax Terms You Need To Know,” Forbes. (November 15, 2022).