Taxes

60 Taxes terms, defined in plain English — part of the 1345-term Finicade finance glossary. Each one has its own page, and links to the free game that teaches it.

Adjusted Gross Income (AGI): AGI is gross income minus above-the-line adjustments — retirement and HSA contributions, student loan interest, half of self-employment tax.
Alternative Minimum Tax (AMT): The AMT is a parallel tax calculation that disallows many deductions and preferences, with you owing whichever result is higher.
Capital Gains Tax: Capital gains tax is charged on the profit from selling an asset, not on its value while you hold it.
Child Tax Credit: The Child Tax Credit reduces tax for each qualifying child, with part of it refundable so lower-income families receive value even with no tax owed.
Corporate Tax Rate: The corporate tax rate is the statutory rate on company profits — 21% federally in the US since 2017, with state taxes on top.
Dependent: A dependent is a child or relative you support who unlocks tax credits and better filing status.
Depreciation Recapture: Depreciation recapture taxes back the depreciation deductions you claimed when you sell the asset, at rates up to 25% for real estate.
Dividend Withholding Tax: Dividend withholding tax is deducted at source by the country where a company is based before the dividend leaves for a foreign shareholder.
Double Taxation: Double taxation is the same income being taxed twice — classically corporate profit taxed at the company, then again as a dividend in the shareholder's hands.
Earned Income Tax Credit: The EITC is a refundable credit for low and moderate earners, scaled by income and number of children.
Effective Tax Rate: Your effective tax rate is total tax divided by total income — the average share you actually paid.
Estate Tax: Estate tax is levied on the value of assets transferred at death above an exemption threshold.
Estimated Tax Payments: Estimated tax payments are quarterly instalments owed by people whose income isn't withheld — the self-employed, investors, landlords.
Excise Tax: An excise tax is levied on a specific good — fuel, alcohol, tobacco, sugary drinks — usually per unit rather than as a percentage.
FICA: FICA is the US payroll tax funding Social Security and Medicare — 6.2% and 1.45% from you, matched by your employer.
Filing Status: Filing status determines your bracket thresholds and standard deduction: single, married filing jointly or separately, or head of household.
Fiscal Drag: Fiscal drag is inflation pushing incomes into higher tax brackets when thresholds aren't indexed, raising effective tax rates without any law changing.
Flat Tax: A flat tax applies one rate to all income, usually paired with a large exempt allowance.
Form 1040: Form 1040 is the main US individual income tax return, the two pages onto which every schedule eventually flows.
Form 1099: A 1099 reports income paid to someone who isn't an employee — contract work, interest, dividends, brokerage proceeds.
Form W-2: A W-2 is the annual statement a US employer sends reporting your wages and every tax withheld.
Form W-4: The W-4 is the form telling your US employer how much tax to withhold.
Gift Tax: Gift tax exists to stop people avoiding estate tax by giving everything away before death.
Itemized Deductions: Itemized deductions are specific expenses — mortgage interest, state taxes, charity, big medical bills — claimed instead of the standard deduction.
Long-Term vs Short-Term Capital Gains: Gains on assets held longer than a year are long-term and taxed at preferential rates; anything shorter is short-term and taxed as ordinary income.
Marginal Tax Rate: Your marginal tax rate is the rate applied to your next dollar of income, and it's the only rate relevant to a decision.
Modified Adjusted Gross Income (MAGI): MAGI is AGI with certain deductions added back, and it is the income test for Roth eligibility, the investment surtax and health insurance subsidies.
Net Investment Income Tax: The net investment income tax adds 3.8% on investment income — interest, dividends, capital gains, rents — for taxpayers above a MAGI threshold.
Pass-Through Entity: A pass-through entity pays no entity-level income tax; profits flow to the owners' personal returns.
Payroll Tax: Payroll tax is levied on wages specifically, usually split nominally between employer and employee and earmarked for social insurance.
Probate: Probate is the court process that validates a will, settles debts and transfers what's left to heirs.
Progressive Tax: A progressive tax takes a larger share of income as income rises, which is what a system of rising brackets produces.
Property Tax: Property tax is an annual levy on real estate, based on an assessed value and a local rate, and it's the main funding source for US schools and local services.
Qualified Business Income Deduction: The QBI deduction lets owners of pass-through businesses deduct up to 20% of qualified business income.
Qualified Dividend: A qualified dividend is taxed at the lower long-term capital gains rates rather than as ordinary income.
Refundable Tax Credit: A refundable tax credit can take your tax below zero and pay you the difference; a non-refundable one can only reduce tax to zero.
Regressive Tax: A regressive tax takes a larger share of income from lower earners, even when everyone pays the same rate.
Sales Tax: Sales tax is a single-stage tax collected at the final retail sale, used at state and local level across the US with rates that vary by city.
Schedule K-1: A K-1 reports your share of a partnership's or S-corp's income, deductions and credits, which you then report on your personal return.
Section 179 Deduction: Section 179 lets a business deduct the full cost of qualifying equipment in the year it's placed in service, rather than depreciating it over years.
Self-Employment Tax: Self-employment tax is both halves of FICA — 15.3% — paid by people with no employer to cover the other half.
Standard Deduction: The standard deduction is a flat amount subtracted from income that requires no receipts or justification.
Step-Up in Basis: A step-up in basis resets an inherited asset cost basis to its value at death, erasing every unrealised capital gain built up in the owner lifetime.
Tax Avoidance vs Tax Evasion: Tax avoidance is arranging your affairs within the law to pay less; tax evasion is concealing income or falsifying facts, which is a crime.
Tax Bracket: A tax bracket is a band of income taxed at a particular rate.
Tax Credit: A tax credit reduces your tax bill dollar for dollar, which makes it worth far more than a deduction of the same size.
Tax Deduction: A tax deduction reduces the income you're taxed on, so its value equals the deduction times your marginal rate — $1,000 saves $220 at a 22% rate, not $1,000.
Tax Deferral: Tax deferral means paying tax later rather than now, which is valuable because the money you would have paid keeps compounding in the meantime.
Tax Haven: A tax haven is a jurisdiction offering very low or zero tax plus, historically, secrecy — attracting profits and assets with no real activity behind them.
Tax Refund: A tax refund is the return of tax you overpaid during the year, usually through excess payroll withholding.
Tax Treaty: A tax treaty is a bilateral agreement setting which country taxes what when income crosses a border, primarily to prevent the same income being taxed twice.
Tax-Advantaged Account: A tax-advantaged account shelters investments from some or all tax — deferring it until withdrawal, eliminating it entirely, or both.
Tax-Equivalent Yield: Tax-equivalent yield converts a tax-free yield into the taxable yield that leaves you equally well off, so munis and corporates compare honestly.
Tax-Loss Harvesting: Tax-loss harvesting is deliberately selling losers to realise losses that offset gains, then reinvesting in something similar to stay in the market.
Taxable Income: Taxable income is what's left after every deduction you're entitled to, and it's the figure your tax brackets are actually applied to.
Transfer Pricing: Transfer pricing sets the prices charged between subsidiaries of one multinational — and those prices decide which country the profit is taxed in.
Trust: A trust is a legal arrangement where a trustee holds assets for beneficiaries under rules set by whoever created it.
Value Added Tax (VAT): VAT is charged at each stage of production on the value added, with businesses reclaiming the VAT they paid so only final consumption is taxed.
Wash Sale Rule: The wash sale rule disallows a capital loss if you buy a substantially identical security within 30 days before or after the sale.
Withholding: Withholding is tax your employer deducts from each paycheck and sends to the tax authority on your behalf.

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