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Common Terms Used by the IRS and What They Mean

Common Terms Used by the IRS and What They Mean

By on Jun 25, 2015 in IRS | 0 comments

Common Terms Used by the IRS and What They MeanTaxes can be difficult and even intimidating for many reasons. One thing that can be especially overwhelming is the number of forms and terms that are thrown around by the IRS, often with very little explanation. We have compiled a list of some common tax terms the IRS commonly uses so you can feel confident in your knowledge about the process.

 

Adjusted Gross Income (AGI): This is your total income, from all taxable sources. AGI is used to determine if you are eligible for certain tax benefits. This is also the amount that is used to deduct standardized and itemized deductions and dependent exemptions (think HSAs, IRAs, alimony, etc.) to arrive at your taxable income.

 

Audit: An audit is a review of your tax return by the IRS. Your responsibility in an audit is to prove that the deductions and income have been reported correctly. Most audit communication occurs by mail and only involves specific questions about a portion of your return.

 

Deductions: Deductions are items that you can legally write off, subtracting from your gross income to calculate your taxable income. The lower your taxable income, the more money you keep in your pocket. On your taxes, you can either take the standard deduction or you can itemize your deductions, depending on what is best for you. If you itemize your deductions, you will need to keep documentation of the items you deduct.

 

Dependents: Someone that you support throughout the year and that you can claim on your tax return. Each dependent that you have will give you a deduction on your taxable income.

 

Installment Agreement: A payment agreement that you can reach with the IRS to pay your tax debt in monthly installments over time, rather than in one large lump sum.

 

Offer in Compromise: An IRS program that allows a taxpayer to negotiate a payment to the IRS that is less than the amount that they owe. You must be able to prove that paying the full amount would cause a financial hardship.

 

Tax Levy: A tax levy is the seizure of your property (wages, personal property, etc.) to satisfy a tax debt. The IRS may take money from your paycheck, bank account and/or seize your home or business in some cases, but this is always after many, repeated written notices.

 

Tax Lien: If the IRS files a tax lien against you, they are serving a notice that you owe them a debt. A lien is usually filed in a public place (i.e. Register of Deeds Office) and includes a dollar amount that you owe. It is a type of claim against your property that secures payment of a tax debt.

 

Taxable Income: This is the portion of your income that your tax bill is calculated from. Your taxable income is your income after you subtract any adjustments, deductions, and exemptions.

 

If you find yourself in need of assistance to make sense of the annual tax return process or with any other tax-related issue, contact Success Tax Relief. We’re a full service firm that supports American taxpayers who need help dealing with the IRS.

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