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 panic...as 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. Psst...you 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.
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You can probably think of a ton of excuses to avoid budgeting. Now, not speaking the language can’t be one of them.
The terms you need to know to build credibility with the financial world.
Because money makes the world go 'round.