Earned Income
Generally means wages, salaries, tips, other taxable employee compensation, net earnings from self-employment, and gross income received as a statutory employee.
Earned Income Credit (EIC)
A refundable tax credit for certain people who work and have earned income under a certain amount. The EIC may reduce the amount of tax you owe and may also give you a refund.
Educator Expenses
Ordinary and necessary expenses paid in connection with books, supplies, equipment, and other materials used in the classroom by an eligible educator. An eligible educator is a kindergarten through grade 12 teacher, instructor, counselor, principal, or aide in a school for at least 900 hours during a school year. You may deduct up to $250 ($500 if both the taxpayer and spouse are qualified educators and you file jointly) of qualified educator expenses from your income.
Electronic Filing (IRS e-fileĀ® )
IRS e-fileĀ® uses automation to replace most of the manual steps needed to process paper returns. As a result, the processing of e-file returns is faster and more accurate than the processing of paper returns. As with a paper return, you are responsible for making sure your return contains accurate information and is filed on time.
Elective Deferral
The amount contributed under a salary reduction arrangement. A salary reduction arrangement is a method under which you can elect to have your employer contribute part of your pay to your section 403(b) (tax-sheltered annuity) plan. Only the remaining portion of your pay is currently taxable. The tax on the contribution is deferred.
Eligible Foster Child
An individual who is placed by an authorized placement agency, or by judgment, decree, or other order of any competent jurisdiction.
Employee Business Expenses
Business-related expenses you incur as an employee. You may be able to deduct unreimbursed ordinary and necessary business-related expenses you have for travel, entertainment, gifts, or transportation. An ordinary expense is one that is common and accepted in your field of trade, business, or profession. A necessary expense is one that is helpful and appropriate for your business. An expense does not have to be required to be considered necessary.
Employee Stock Option
An option granted to you by your employer to purchase the employer’s stock. If you receive a nonstatutory option to buy or sell stock or other property as payment for your services, you will usually have income either when you receive the option or when you exercise the option (use it to buy or sell the stock or other property). However, if your option is a statutory stock option, you usually will not have any income until you sell or exchange your stock. Your employer can tell you which kind of option you hold.
Entertainment Expenses
If you are an employee or self-employed, you may be able to deduct business-related entertainment expenses you have for entertaining a client, customer, or employee. Examples include entertaining guests at nightclubs, theaters, sporting events, or on fishing trips. You can deduct entertainment expenses only if they are both ordinary and necessary and meet one of the following two tests: (1) directly related test or (2) associated test. To meet the directly related test, the entertainment must have taken place in a clear business setting, or the main purpose of entertainment was the active conduct of business. For the associated test the entertainment must be associated with your trade or business, and the entertainment must directly precede or follow a substantial business discussion. You generally can deduct only 50% of your unreimbursed entertainment expenses.
Estate tax
The tax on the assets of a decedent, reduced by any deductions or credits allowed. Income that a decedent had a right to receive is included in the decedent’s gross estate and is subject to estate tax. This income in respect of a decedent is also taxed when received by the recipient (estate or beneficiary). However, an income tax deduction is allowed to the recipient for the estate tax paid on the income.
Estimated Tax
The method used to pay tax on income that is not subject to withholding. This includes income from self-employment, interest, dividends, alimony, rent, gains from the sale of assets, prizes, and awards. You also may have to pay estimated tax if the amount of income tax being withheld from your salary, pension, or other income is low compared to your tax liability.
Exchange
Receiving property for property given or services rendered.
Exemption
An amount that reduces the income that is subject to tax. You are generally allowed one exemption for yourself and, if you are married, one exemption for your spouse (personal exemptions). You are also allowed one exemption for each person you claim as a dependent (dependent exemptions).