Abatement - A reduction on an assessed amount. For example, an abatement of taxes is the reduction or elimination of the assessed tax amount.
Abatement of Civil Penalty - A reduction of an assessed civil penalty amount. The IRS may approve an abatement of a penalty for: (a) IRS error; (b) reasonable cause; (c) administrative and collection costs not warranting collection of penalty; (d) discharge of penalty in bankruptcy; or (e) the IRS’s acceptance of partial payment of assessed penalty.
Ability to Pay - A concept of tax fairness that states that people with different amounts of wealth or different levels of income should pay tax at different rates. Wealth includes assets such as houses, cars, stocks, bonds, and savings accounts. Income includes wages, interest and dividends, and other payments.
Above-the-Line Deduction - A type of deduction that may be claimed without having to itemize. These deductions are also called adjustments to income because they lead to your Adjusted Gross Income.
Abusive Tax Scheme - An illegal series of tax transaction designed to evade paying taxes or hide income from the IRS.
Adjusted Gross Income (AGI) - An individual's gross or total income, minus any statutory adjustments---also known as Above-the-Line Deductions.
Allowances - An amount reported on your tax withholding form (Form W-4) that tells your employer how much money to withhold from your wages or paycheck. The higher number of allowances, the less amount of taxes withheld from your paycheck.
Alternative Minimum Tax (AMT) - A special tax designed to keep wealthy individuals from taking advantage of loop holes or special tax breaks that allowed them to pay little or no federal income tax.
Amended Return - A corrected tax return (Form 1040X) filed to revise a previous year's tax return, usually due to a mistake.
Amount Due - The total amount you owe in taxes. Said differently, your total tax bill.
Audit - A review or examination of your tax return by the IRS. Although many audits are completely random, some returns may be deliberately chosen for audit due to a number of red flags.
Automated Substitute for Return Program - Under this program, the IRS uses information returns from third parties (such as Forms W-2 and 1099) to identify tax return delinquencies (non-filers), constructs tax returns for certain non-filers based on that third-party information, and assesses tax, interest, and penalties based on the substitute returns.
Automated Underreporter Program - Under this program, the IRS uses information returns from third parties (such as Forms W-2 and 1099) to identify unreported income on returns filed by taxpayers.
Basis - The value of a piece of property at the time you first acquire it.
Blind - An individual is considered blind for tax purposes if they cannot see better than 20/200 with their best eye using contacts or glasses, or if they have a field of vision which is 20 degrees or less.
Bonus - Compensation received by an employee for services performed. A bonus is given in addition to an employee's usual compensation.
Business - A continuous and regular activity that has income or profit as its primary purpose.
Capital Gain - The profit from the sale of investment property (e.g., stocks, real estate, etc.) held for at least one year.
Casualty Loss - A type of deduction taken for the damage done to property as a result of a natural disaster or other qualifying event.
Child Tax Credit - Compensation received by an employee for services performed. A bonus is given in addition to an employee's usual compensation.
Civil Penalties - The failure to comply with federal tax laws may result in civil penalties. Civil penalties are generally payable upon notice and demand and are generally assessed, collected, and paid in the same manner as taxes.
Collection Due Process (CDP) Hearing - A case where a taxpayer requested a hearing with an independent CDP officer in response to a notice of Federal tax lien or notice of intent to levy. The CDP hearing provides the taxpayer an opportunity, early in the collection process, to work with an independent hearing officer to resolve the collection of the taxpayer’s liability.
Combat Pay - Income earned by members of the U.S. Armed Forces while serving in a federally declared combat zone. This type of pay is generally not subject to federal income tax.
Commission - Compensation received by an employee for services performed. Commissions are paid based on a percentage of sales made or a fixed amount per sale.
Community Property - A law in certain states which stipulates that any income earned or property acquired by married couples are owned equally by both spouses.
Constructive Receipt - A legal concept that income is taxed at the point in time it is earned or made available to you without restriction, regardless of whether you actually cash the check or withdraw the funds from your account. Likewise, if you authorize someone to be your agent and receive income for you, you are considered to have received it when your agent receives it. On the other hand, income is not constructively received if your control of its receipt is subject to substantial restrictions or limitations.
Credit - A dollar-for-dollar reduction in taxes owed.
Criminal Investigation Program - A program that serves the American public by investigating potential criminal violations of the Internal Revenue Code and related financial crimes in a manner that fosters confidence in the tax system and compliance with the law.
Deduction - An amount substracted from your taxable income for certain expenses.
Deficiency - The amount of taxes the IRS determines you owe after an audit or examination of your tax return(s).
Defined Contribution Retirement Plan - A retirement plan that provides an individual account for each participant and that bases benefits solely on amounts contributed to the participant’s account and any earnings on these contributions. Types of defined contribution plans include profit sharing, stock bonus, money purchases, target benefit, leveraged employee stock ownership plan, and non-leveraged employee stock ownership plan.
Dependent - A qualifying child or qualifying relative, other than the taxpayer or spouse, who entitles the taxpayer to claim certain tax credits (e.g., the Child Tax Credit and the Credit for Other Dependents).
Depreciation - An annual deduction that allows you to recover the cost of your business or investment property over a certain number of years. Depreciation starts when you first use the property in your business or first use the property to produce income. It ends when you either: (a) take the property out of service; (b) deduct all your depreciable cost or basis; or (c) no longer use the property in your business or to produce income.
Direct Tax - A tax paid directly to the the federal, state, or local government, such as income tax and property tax.
Disaster Loss - A tax deduction that may be claimed by those who suffered the loss or damage of property as a result of a federally declared disaster.
Dividend - A type of distribution provided to the holders of a stock that may be in the form of cash, property, services, stock rights, or additional stock.
Earned Income - The money (or other form of compensation) you receive for working, regardless of whether you are self-employed or an employee.
Earned Income Tax Credit (EITC) - A tax benefit for working taxpayers with low-to-moderate income. The amount of the EITC for which taxpayers may qualify for increases relative to their income, filing status, and the number of claimed dependents.
Electronic Return Originator (ERO) - The Authorized IRS e-file Provider that originates the electronic submission of an income tax return to the IRS. EROs may originate the electronic submission of income tax returns they either prepared or collected from taxpayers. Some EROs charge a fee for submitting returns electronically.
Employee - A person who works for an employer. Individuals who receive a Form W-2 are considered employees. An individuals may also be considered an employee if their employer can control when, where, and how the employee performs their work.
Employer Identification Number (EIN) - A unique set of numbers assigned to employers. Each employer can be identified by its unique EIN.
Employment Tax - A tax paid by employers that consists of amounts withheld from employee wages (also known as payroll taxes) and the employer's required contribution. Employment taxes must be reported to the IRS quarterly, and must be deposited with an appropriate federal depository on either a monthly or semi-weekly basis.
Estate Tax - A tax on the right to transfer property upon the death of the owner. For 2020, an estate tax only applied if the gross estate (i.e., total value) of the deceased owner equaled $11,580,000 or more.
Estimated Tax - The quarterly payment paid towards your annual tax bill. You are generally required to make estimated tax payments to the IRS if you expect to owe more than $1,000 in taxes for the year and if your income taxes are not being automatically withheld by your employer.
Examination - Also known as an audit, an examination is a review of an organization's or an individual's accounts and financial information to ensure information is being reported correctly to the IRS, and to verify the accuracy of the reported tax amount.
Excise Tax - A tax imposed on the sale of specific goods or services, or on certain uses. Federal excise tax is usually imposed on the sale of things like fuel, airline tickets, heavy trucks and highway tractors, indoor tanning, tires, tobacco and other goods and services.
Extension - The process by which you may extend the time you have to file your taxes by an additional three months. An extension is obtained by filing a Form 4868. Note, however, this only extends the deadline you have to file a tax return, not the deadline to pay your taxes.