In general, amounts on a tax return that are deductible from gross income before arriving at Adjusted Gross Income (AGI), such as IRA contributions, half of the self-employment tax, self-employed health insurance deduction, Keogh retirement plan and self-employed SEP deduction, penalty on early withdrawal of savings, and alimony paid.
The adjusted tax basis is the value used for calculating gain or loss upon the sale or disposition of an asset, reflecting adjustments for various tax-related incentives, improvements, or expenses.
Age Allowance is a tax relief designed to benefit senior citizens, allowing them to retain a greater portion of their income by providing a higher personal allowance as they reach a certain age.
In the USA, alimony payments in a divorce settlement are treated as deductions from the adjusted gross income by the payer, but the recipient treats them as income for tax purposes.
A federal tax designed to ensure that wealthy individuals, estates, trusts, and corporations pay a minimum amount of tax regardless of deductions, credits, or exemptions.
In the context of investments, 'at risk' refers to being exposed to the danger of a financial loss. Specifically, for investors in a limited partnership, they can claim tax deductions only if they can demonstrate a possibility of losing their invested capital.
Balancing allowance is the allowance available on disposal of an asset when the proceeds are less than the written-down value for tax purposes. It compensates for the loss in value of the asset beyond its depreciation.
A business bad debt is a debt that arises from the operations of a taxpayer's trade or business and has become worthless. Identifying and properly handling bad debt is crucial for accurate financial reporting and tax deductions.
Carryback is a tax provision allowing deductions or credits of one taxable year that cannot be used to reduce tax liability in that year to be applied against tax liability in an earlier year or years.
Carryforward refers to a provision in tax law allowing individuals or corporations to apply an unused deduction, credit, or loss from one tax year to future tax years, effectively reducing future taxable income or taxes owed.
Casualty loss refers to the loss of property due to events such as fire, storm, shipwreck, or theft. Such losses are allowable as deductions from taxable income, net of any insurance reimbursements. To qualify, the loss must result from a sudden, unexpected, or unusual event. Personal casualty losses can be deducted only if they exceed a $100 floor and 10% of adjusted gross income.
An itemized deduction allowed for donations made to qualifying charities. Several limitations apply to this deduction, especially for noncash property donations.
A deduction is an amount allowed to taxpayers under the Internal Revenue Code as an offset against gross income or adjusted gross income.
Deductions from Gross Income refer to the allowable reductions from an individual's gross income to arrive at their taxable income, applicable within the framework of personal income tax.
A dependent is any person whom a taxpayer can claim a dependency exemption for, defined by the Internal Revenue Code as any individual supported by the taxpayer who is related to the taxpayer in specified ways or who makes their principal abode in the taxpayer's household.
The concept of depreciable basis is essential in determining the amount that can be depreciated for tax purposes. It represents the initial cost of an asset, including certain expenditures necessary to put the asset into use.
Depreciation Recapture refers to the portion of taxable capital gain from the sale of an asset, which represents the depreciation previously deducted for that asset.
An Employee Stock Ownership Plan (ESOP) is a program that encourages employees to purchase stock in their company, thus allowing them to participate in the management of the company. Companies with such plans may take tax deductions for ESOP dividends passed on to participating employees and for dividends that go to repay stock acquisition loans.
Entertainment expenses and business meals are deductible only if they are 'directly related to' or 'associated with' the active conduct of a taxpayer's trade or business. These expenses are deductible to the extent of 50% of cost, excluding any lavish or extravagant costs.
The estate tax is a levy on the total value of a decedent's estate, including all real, tangible, and intangible property, minus any liabilities. This tax is levied by the government based on the estate's fair market value at the time of death. The amount due may be reduced by applying available credits and exemptions. Comprehensive knowledge of federal and state tax laws is necessary for accurate calculation and assessment.
An exemption is a deduction allowed to a taxpayer based on their status or circumstances, reducing the amount of income subject to taxation. Exemptions can apply in various contexts including personal income tax, homestead exemptions, and the alternative minimum tax.
Exemption Phase-Out refers to the gradual reduction in the amount that can be claimed as a deduction for personal exemptions as Adjusted Gross Income (AGI) rises above a specified threshold.
The Foreign Tax Deduction allows individuals to deduct foreign income taxes paid or accrued from their U.S. income tax, or alternatively, apply the taxes as a credit against U.S. income tax liabilities.
Gross corporation tax is the total amount of corporation tax payable on the profits chargeable to corporation tax for an accounting period, calculated before deduction of any income tax suffered on investment income.
A hobby loss refers to losses incurred by a taxpayer in an activity not pursued for profit. Hobby losses are deductible only to the extent of income generated by the hobby. An activity that generates a profit in three of five years is presumed to be operated for profit.
Home mortgage interest refers to any interest paid on a loan secured by the taxpayer's personal residence, including the principal residence or a second home.
Income tax allowances are amounts that may be deducted from a taxpayer's gross income before calculating the liability to income tax. These allowances can significantly reduce the amount of tax an individual or couple is required to pay.
Interest deductions refer to the tax deduction of interest paid on various types of loans. This guide will explore the different types of interest deductions available, their limitations, and their applications.
The Internal Revenue Code of 1986 (IRC) is a comprehensive statute passed by Congress that outlines the laws governing the taxation of income. It details how income is to be taxed, what may be deducted from taxable income, and the provisions for enforcement and interpretation.
The Investment Tax Credit (ITC) is a significant taxation provision that promotes certain types of investments by offering tax incentives for investing in qualifying assets, especially in areas like renewable energy, technology, and equipment.
Itemized deductions are specific, individualized tax deductions allowed under provisions of the Internal Revenue Code and state and municipal tax codes for particular expenses incurred by the taxpayer during the taxable year. These deductions are permitted in computing taxable income, but there is an overall limitation on certain itemized deductions. An alternative to itemizing deductions is to claim the standard deduction.
Expenses incurred while looking for a new job in the same line of work, whether or not a new job is found. These miscellaneous itemized deductions for tax purposes are subject to the 2% Adjusted Gross Income (AGI) floor. Expenses of search for one's first job after completing school are not deductible.
Loss carryover refers to a tax mechanism that allows individuals or businesses to apply a net operating loss (NOL) to future tax years, offsetting taxable income.
Various provisions of the tax law that require married people to pay more taxes in some situations than if they were single. The penalty is most pronounced for high-tax bracket couples earning equal amounts of income.
Meals and entertainment expenses are costs incurred by businesses for client meals or entertainment activities that qualify for tax deductions. These expenses must have a bona fide business purpose to be eligible.
Mileage (Tax) refers to the deduction that taxpayers can claim for the business use of their vehicle, either by using the actual expenses method or the standard mileage rate method.
Job expenses and other miscellaneous expenses that are deductible by individual taxpayers but do not fall under medical expenses, taxes, interest, charitable contributions, casualty and theft losses, or moving expenses.
Modified Adjusted Gross Income (MAGI) is a measure used by the IRS to determine eligibility for certain tax credits, deductions, and additional taxes. It starts with Adjusted Gross Income (AGI) from federal Form 1040 and adds back certain tax-exempt interest income and other deductions.
The mortgage interest deduction is a tax incentive provided to homeowners, allowing them to reduce their taxable income by the amount of interest paid on a qualified home loan. This deduction is a substantial financial benefit for many taxpayers, promoting homeownership.
An asset of little or no value, often used for capital gains tax purposes. Such assets can be treated as sold and immediately reacquired at a negligible value, resulting in an allowable capital loss.
An analysis of Net Operating Loss (NOL), detailing its definition, examples, frequently asked questions, related terms, resources, and suggested readings.
A tax term that allows a current deduction for business expenses; contrasted with capital expenditures. An ordinary and necessary business expense of a sole proprietor would appear on Schedule C of Form 1040.
In determining taxable income, an individual taxpayer is entitled to a deduction for each allowable personal exemption. This exemption reduces the amount of income subject to tax and can be claimed for the taxpayer, their spouse, and each dependent.
The Personal Exemption Phaseout (PEP) reduces or entirely eliminates personal exemptions for high-income taxpayers based on their adjusted gross income (AGI).
An in-depth explanation of Personal Interest Expense, how it differs from business interest expenses, examples, FAQs, related terms, and additional resources.
The number of years over which the cost of an asset may be depreciated.
The specific charge-off method allows for the deduction of bad debt at the time a specific receivable is determined to be uncollectible, following the exhaustion of all possible collection methods. Accrual basis taxpayers are required to use this method for tax purposes, as they can no longer accrue reserves for bad debts.
The Tax Benefit Rule addresses the treatment of certain recoveries or repayments as taxable or deductible based on how they affect tax liability in prior years.
A financial loss incurred by an organization that can be carried forward to subsequent periods to reduce the tax payable in those periods.
A tax shelter, also known as a tax shield, is any financial arrangement made to legally lower an individual or a corporation's tax liabilities. These shelters can involve transactions or methods that result in deductions, credits, or reductions in taxable income.
A tax shield refers to allowable deductions that reduce a taxpayer's taxable income, thereby decreasing the amount of tax owed.
Tax tables are guides issued by HM Revenue and Customs to assist employers in calculating the tax due from their employees under the pay-as-you-earn (PAYE) system.
Denoting an amount that can be deducted from income or profits, in accordance with the tax legislation, before establishing the amount of income or profits that is subject to tax.
Relief for a loss made by a company, partnership, or sole trader during the last 12 months of trading. The business or profession must be permanently discontinued to qualify. The trading loss arising in the accounting period in which the trade ceases may be carried back and offset against the profits of the three years ending immediately before the commencement of the final period of trading.
A derisive term for lavish lunches characterized by having three martinis and claimed as tax-deductible business expenses. The three-martini lunch became a symbol for business extravagance and resulted in 1993 tax act provisions making only 50% of the cost of business meals deductible for tax purposes.
Travel and Entertainment (T&E) expenses are ordinary and necessary expenses incurred while traveling away from home for business purposes, subject to specific tax regulations.
Writing-down allowance (WDA) is a type of capital allowance available to UK traders, allowing the reduction in value of certain assets over time for tax purposes.
