When reviewing your tax return with your preparer, you may encounter terms that are unfamiliar or difficult to understand. Developing a strong understanding of common tax terminology can help you make the most of your time during your tax meeting, confidently review and understand your return, and leave the meeting feeling informed and prepared.

Below are some of the most commonly used, and frequently misunderstood, tax terms to help you navigate the process with greater confidence.

1. Filing Status: Determines the rate at which income is taxed. The five filing statuses are: single, married filing a joint return, married filing a separate return, head of household, and qualifying widow(er) with dependent child.
   
   

2. Gross Income: Your Gross Income is determined by money, goods, services, and property that you receive that must be reported on your tax filing. Includes unemployment compensation and certain scholarships. It does not include welfare benefits and nontaxable Social Security benefits.
   
   

3. Adjusted Gross Income AGI: Gross income reduced by certain amounts, such as a deductible IRA contribution or student loan interest.
   
   

4. 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 more than half the cost of keeping up a home for the year. 3. A qualifying person lived with you in the home for more than half the year (except temporary absences, such as school). However, a dependent parent does not have to live with the taxpayer.
   
   

5. Married filing Jointly: You are married and both you and your spouse agree to file a joint return. (On a joint return, you report your combined income and deduct your combined allowable expenses.)
   
   

6. Married Filing Separately: 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 in less tax than a joint return. If you and your spouse do not agree to file a joint return, you may have to use this filing status.
   
   

7. Withholding: Money, for example, that employers withhold from employees paychecks. This money is deposited for the government. (It will be credited against the employees' tax liability when they file their returns.) Employers withhold money for federal income taxes, Social Security taxes and state and local income taxes in some states and localities.
   
   

8. Income Taxes: Taxes on income, both earned (salaries, wages, tips, commissions) and unearned (interest, dividends). Income taxes can be levied on both individuals (personal income taxes) and businesses (business and corporate income taxes).
   
   

9. Standard Deduction: Reduces the income subject to tax and varies depending on filing status, age, blindness, and dependency.

   
   

All definitions come from the IRS’s official guide to understanding taxes. It’s important to understand what you are reading, especially when it comes to your taxes. If you become familiar with these terms, when looking over your results you may find that you have less or, sometimes, even more questions. 

At Maverick Tax & Bookkeeping Services, we encourage our clients to ask questions about terms they may not fully understand. We value our clients' comprehension of their results.

Have more questions? Get in touch