Money·3 min read

Learn the Language: Taxes

Calculator with W-2
March 6, 2020

Whether you call your accountant every Jan or DIY last-minute, there are some tax terms you should know as an adult member of society. We Skimm’d them for you here. 

1040: The most popular tax return form. Where you tell the IRS all your secrets: your name, address, filing status, and how much you made in the past year.

1099: Your best friend in tax document form if you earn money from anywhere (or  anyone) other than your regular 9-5. Collect them from freelance clients or the bank that paid interest on your savings account. Then use the info to fill out your tax return.

Adjusted Gross Income (AGI): Your gross (aka total) income for the year minus certain payments you’ve made. Like student loan interest and IRA contributions. Hint: the more you can subtract, the better. 

Audit: When the IRS takes out their magnifying glass and double checks that you filed your taxes correctly. Not a reason to long as you told the truth, the whole truth, and nothing but the truth. 

Dependent: Anyone you support financially. Usually a child, spouse, or retired parent you ‘invited’ to move in. The more you have, the less you could pay in taxes. Yes, please.

Filing Status: A category that helps determine your tax liability and standard deduction amount. Based on things like your marital status and how much you contribute to household expenses.

Tax Bracket: One of seven buckets the gov puts you in based on how much money you make. Mo money, mo taxes.  

Tax Credit: An amount you can subtract from the taxes you owe because you did something the gov likes. Think: saving for retirement, investing in your education, having a kid, installing solar panels, etc. 

Tax Deduction: When the gov cuts you a break, and lets you subtract some costs from your taxable income. Choose between the standard (flat-rate) discount or itemized one, where you add up all the dolla bills you could get off and hope it’s higher. 

Tax Refund: Money mail you get if you paid more taxes than you needed to. Seems great, but actually means you gave the gov an interest-free loan. With money you could have invested or bought a pony with. 

Tax Return: The paperwork that stresses you out every April. And tells Uncle Sam whether he owes you or you owe him. 

W-2: The doc where your employer comes clean about how much they paid you in the past year...and how much they withheld for taxes. V helpful for filing your return. 

W-4: That form you fill out when you start a new job. It tells your company how much to withhold from your paycheck. might wanna edit yours when you: have a kid, get married, or cash a big tax refund check.

Withholding: The part of your paycheck that your boss puts toward your taxes. The amount depends on your earnings and how you filled out your W-4.

Subscribe to Skimm Money

Your source for the biggest financial headlines and trends, and how they affect your wallet.