The subject of taxes is not something people would enjoy talking about. But because it is one of the two things that are certain in life, everyone must face and understand it, especially the terminologies.
Adjusted Gross Income – The amount of money left after credits, certain business expenses, and other selected deductions are made. This excludes standardised or itemised deductions.
Tax Deduction – The amount that reduces your taxable income. A $1,000 tax deduction, for example, will make your taxable income of $50,000 to $49,000. You’re unlikely to receive back the full deducted amount.
Tax Credit – The amount of tax refund given to you in the event that you overpaid tax. It is directly applied towards your tax bill, the amount of which you will get back in full, even if you don’t owe any taxes.
Taxable Income – The number used to calculate your final tax bill based on your final income which results when all deductions and credits are applied.
Standard Deduction – The standard amount deducted from all taxpayers. This can vary depending on the rate of inflation and your filing status.
Exemption – This refers to anyone dependent on your income for their basic needs, such as your children, spouse, yourself, and other dependents.
Withholding – The portion of your check that a tax agency withholds to ensure that you can pay your tax bill at the end of the year. This applies to your tax bill once you complete your taxes and may result in a refund.
Make sure to learn other tax-related terms to make this part of your employment or business easier to deal with.