Tangible personal property is any property that can be seen or touched that is not real property. For example, it includes machinery, equipment, and property contained in or attached to a building (other than structural components), such as refrigerators, grocery store counters, and office equipment.
A required contribution used for the support of a government. Most taxpayers use either the Tax Table or the Tax Rate Schedules to calculate their income tax. However, there are special methods if your income includes any capital gains, lump-sum distributions, farm income, or investment income over $1,600 for children under age 14.
The Internal Revenue Service allows you to deduct certain amounts from your gross income before you calculate the tax. These deductions include any allowable exemptions or adjustments, and the standard deduction (or itemized deductions if you can itemize). The remainder is your taxable income.
The period of time covered by your tax return. Most individual tax returns cover a calendar year (the 12-month period from January 1 through December 31). You may use a fiscal year as your taxable year if necessary. A regular fiscal year is a 12-month period that ends on the last day of any month except December.
Tax Benefit Rule
You must include a recovery (such as a reimbursement or rebate) in your income in the year you receive it if the recovered item reduced your tax in the earlier year.
Your income is not all taxed at one rate. It is partially taxed in each of the tax brackets up to the highest bracket in which your taxable income falls. The applicable income ranges for these tax brackets differ depending on your filing status, but the percentages are the same.
An amount the Internal Revenue Service allows you to deduct directly from the tax calculated on your taxable income. It is a dollar for dollar reduction of your taxes. Some of the credits include the Earned Income Credit, Child and Dependent Care Credit, Child Tax Credit, education credits, and Credit for the Elderly or Disabled. Credits can be nonrefundable (cannot reduce your tax liability below zero), or refundable (can reduce your liability below zero), entitling you to a refund.
Items subtracted from your income to arrive at your taxable income. Examples are educator expenses, IRA contributions, moving expenses, and the standard deduction or itemized deductions
Any income the Internal Revenue Service specifies is not subject to tax and is therefore excluded from your gross income. You might still need to report it on your tax return, but it will not be taken into account when calculating your tax liability. Tax-exempt income includes certain Social Security benefits, welfare benefits, nontaxable life insurance proceeds, Armed Forces family allotments, nontaxable pensions, and tax-exempt interest.
If you must file a tax return, you are required to show any tax-exempt interest you received on your return. This is an information-reporting requirement only. It does not change tax-exempt interest to taxable interest. Interest may be exempt for federal income tax purposes, but may be taxable for state income tax purposes (for example municipal bond interest).
Generally, your regular place of business or post of duty, regardless of where you maintain your family home. If you have more than one regular place of business, your tax home is your main place of business. If you do not have a regular or a main place of business because of the nature of your work, your tax home may be the place where you regularly live. If you do not have a regular place of business or post of duty and there is no place where you regularly live, you are considered a transient and your tax home is wherever you work. As a transient, you cannot claim a travel expense deduction because you are never considered to be traveling away from home.
The amount of tax that must be paid based on your taxable income. You meet (or pay) your federal income tax liability through withholding, estimated tax payments, and payments made with the tax forms you file with the Internal Revenue Service.
Tax Preference Items
Items that are excluded from regular taxable income but that are added back to determine your alternative minimum taxable income. Examples of tax preference items include tax-exempt interest from certain private activity bonds, depletion, intangible drilling costs, accelerated depreciation on leased personal or real property placed in service before 1987, amortization of certain pollution control costs or facilities placed in service before 1987, and certain leased property subject to accelerated cost recovery.
Tax Rate Schedules
Charts that list income ranges and applicable tax rates you must use to calculate your tax liability if your taxable income is over $100,000. There are different schedules depending on your filing status.
If your taxable income is less than $100,000, you generally must use the Tax Tables to determine your tax liability. The Tax Tables are simple to use because no calculations are necessary. To determine your tax rate, find the range in which your taxable income falls and look up the corresponding tax under the appropriate column for your filing status.
You may regularly work at your tax home and another location. It may not be practical to return home from this other location at the end of each workday. If your assignment or job away from your main place of work is temporary, your tax home does not change. You are considered to be away from home for the whole period you are away from your main place of work. You can deduct your travel expenses, if they otherwise qualify for deduction. Generally, a temporary assignment in a single location is one that is realistically expected to last (and does in fact last) for one year or less.
The ten-year tax option that uses a special formula to calculate a separate tax on the ordinary income part of a lump-sum distribution. You pay the tax only once, for the year in which you receive the distribution, not over the next 10 years. You can elect this treatment only once for any plan participant and only if the plan participant was born before 1936.
Tenancy by the Entirety
A form of property ownership where two or more people own the property jointly. The survivors are entitled to the decedent’s share of the property upon death.
Tenancy in Common
A form of property ownership where two or more people own the property separately. The survivors are not automatically entitled to the decedent’s share of the property upon death.
All tips you receive are income and are subject to federal income tax. Tips are payments that go beyond the stated amount of the bill and are given voluntarily. You must include in gross income all tips you receive directly from customers, tips from charge customers that are paid to you by your employer, and your share of any tips you receive under a tip-splitting or tip-pooling arrangement. The value of noncash tips, such as tickets, passes, or other items of value, are also income and subject to tax.
The date you contract to buy, sell, or exchange an asset is called the trade date. Do not confuse the trade date with the settlement date, which is the date by which the asset must be delivered and payment must be made.
When you purchase a property and offer another property as partial payment, this reduces the amount of cash you need to pay the seller to satisfy the purchase agreement. The amount of cash reduced by this exchange is the trade-in allowance. For example, you trade in your old car when purchasing a new one to reduce the amount of cash you must give to the dealer. Note that a dealer’s offer for your car as a trade-in on a new car does not necessarily reflect a measure of its true value.
Transfer taxes (or stamp taxes) and similar taxes and charges on the sale of a personal home are not deductible. If they are paid by the seller, they are expenses of the sale and reduce the amount realized on the sale. If paid by the buyer, they are included in the cost basis of the property.
The cost of transportation when you are not traveling away from home. Transportation can be by air, rail, bus, taxi, etc., or the cost of driving and maintaining your car. Transportation expenses include the ordinary and necessary costs of getting from one workplace to another in the course of your business or profession when you are traveling within your tax home, visiting clients or customers, going to a business meeting away from your regular workplace, or getting from your home to a temporary workplace when you have one or more regular places of work.
To be deductible for tax purposes, travel expenses are the ordinary and necessary expenses of traveling away from home for your business, profession, or job. These include transportation, meals, and lodging.
A trust is a legal entity created under state or common law, whereby a trustee holds property for the benefit of some other person called a beneficiary. A trust may be created during an individual’s life or under a will upon their death. A trust (except for a grantor-type trust) is a separate legal entity for federal tax purposes. A trust calculates its income tax liability the same way that an individual does and is allowed most of the credits and deductions that an individual is allowed. Amounts distributed to the beneficiary are reported on the beneficiary’s individual tax returns.