10 Terms to Know for Tax Season
There are many forms and terms to know when it comes to tax season. With a basic understanding of what each of the forms mean, and what makes up your tax return, you can be ready to file your taxes in no time. This list will guide you through the process of filing your taxes, so you can be ready to file or simply brush up on tax terms to grow your understanding.
- 1040 Forms
- The 1040EZ is the shortest of the 1040 forms, as it doesn’t allow you to list any itemized deductions. There are certain requirements to use a 1040EZ, though: you must have taxable income less than $100,000, have no dependents, and filing as single or as married-filing jointly.
- A more extensive version is the 1040A, which allows you to make more deductions than the 1040EZ. However, this form does not allow you to make itemized deductions.
- The “long form” is the 1040, the most extensive of the tax forms. This allows you to make itemized deductions, but requires more paper and other additional forms.
- Your adjusted gross income, or (AGI), is your gross income minus any deductions. It is used to calculate your total taxable income.
- Taxable income decides how much you owe in taxes, and is found by subtracting the tax deductions you qualify for from your gross income.
- Your filing status, or your relationship status, determines the rate that your income is taxed. You can file as: single, marred-filing jointly, married-filing separate, head of household, or qualifying widow(er) with child.
- Dependents. Typically, you file your children and spouse as dependents, or people who rely on your income.
- Deductions. Throughout the year, there are expenses that you will accumulate and the IRS allows you to subtract from your gross income. When it comes time to file your taxes, these are known as deductions. Common deductions that you may have are student loans, charitable donations, or moving expenses. These are helpful, generally speaking, as less taxable income means a lower tax bill. Most people file their deductions in two separate ways:
- Standard deductions- This is a fixed dollar amount applied to your gross income, based off of your filing status.
- Itemized deductions- These are alternative deductions available if you choose to utilize standard deductions. This amount is decided by qualifying expenses, then subtracted from your gross income. When filing itemized deductions, you are required to fill out a 1040 and detail your individual deductions on another form called a Schedule A.
- The exemption is another amount subtracted from your gross income. Unlike deductions, however, this amount is based on the number of dependents you claim.
- At the start of any job, you will fill out a W-4 Form. The information on this form determines how much income tax will be taken out of your pay.
- Another tax form tied to your employment is your W-2 Form, which your employer supplies for you to turn in with your 1040. The W-2 details the wages you’ve earned this year, your social security information, and the amount of federal and state income tax that was taken from your wages.
- Along with your paycheck comes the withholding, the amount that the government withholds from you on payday. This is designated towards your social security and income taxes, and is deducted based on your salary, found on your W-4.
Understanding these tax terms will help you prepare your mind (and your forms) and make this tax season a breeze.