Filing taxes can be intimidating! Below you can find key terms and definitions to help you feel more confident when filing.
Gross and Taxable Income
Gross income is your total income over the course of the year. This includes wages, tips, interest, and dividends or capital gains earned.
Taxable income is your gross income minus any above-the-line deductions.
Tax deductions
Above-the-line deductions
These are also called adjustments to income. The above-the-line deductions are deductions the IRS allows a taxpayer to subtract from their gross income for the taxable year. Some examples include IRA contributions and health savings account contributions. Learn more here.
Itemized deductions
These are also called below-the-line deductions. If you spend enough on certain types of expenses, such that the total you spent exceeds your standard deduction, you can choose to itemize deductions instead of taking the standard deduction. You can claim itemized deductions by filling out Schedule A and attaching it to your Form 1040. Click here for a brief overview or see the IRS' article Should I Itemize?
Standard deduction
If you choose not to itemize, you can generally qualify to take a standard deduction. This is available to most people, though certain restrictions apply, and the amount is generally determined by your filing status. You may choose to itemize if your itemized deductions would exceed the amount of the standard deduction. Learn more here.
Tax credit
A tax credit reduces the amount of tax you owe the government dollar for dollar. In some cases, if your credit exceeds how much you owe, you’re entitled to get the difference back as a refund. Learn more here.
Dependents
A dependent is someone you support financially—for example, elderly parents or children. Claiming dependents may help qualify you for credits. Learn more here.
Tax brackets
Because the U.S. income tax system is progressive, different portions of your income are taxed at different rates. Income levels are divided into brackets with higher tax rates on higher brackets of income. Learn more here and see the 2019 tax table here.