Common Tax Terms Defined
Taxable Income - Net amount of income after allowable deductions, on which income tax is computed
Earned Income - Money received for personal effort, usually in the form of wages, salary, commission, fees, tips and bonuses.
Investment Income - Money received in the form of dividends, interest, or rent from investments.
Tax Deferred Income - Income that will be taxed at a later date.
Tax Exempt Income - Income that is not subjected to tax.
Adjusted Gross Income - Gross income after certain reductions are made. These reductions are called adjustments to income.
Tax Deduction - Amount subtracted from adjusted income to arrive at the taxable income
Standard Deductions - A fixed amount on which no taxes are paid.
Itemized Deductions - Expenses that can be deducted from gross income. eg. medical expenses, real estate property taxes, home mortgage interest, charitable contributions.
Exemption - Deduction from adjusted gross income for yourself, spouse and qualified dependents.
Tax Credit - Amount subtracted directly from the amount of taxes owed.