- Tax season brings with it a deluge of acronyms that you need to be familiar with.
- Here, we break down 10 of the major abbreviations you’ll encounter when filing your taxes.
This year’s new federal income tax form may be the size of a postcard, but that doesn’t mean filling it out will be a snap.
One of the less amusing parts of doing your taxes is getting through the alphabet soup it presents: AGI, EIN, EIC – what do all those abbreviations mean?
To help you navigate your tax forms, here are definitions of common abbreviations you may encounter while doing your taxes this year.
Adjusted gross income is a measure of the amount of money you earned during the year. It’s basically all your income – including any wages, dividends, alimony, retirement money, or other income – minus certain deductions. It is used to figure out how much of your income the government can tax.
There’s also modified adjusted gross income, another measure of income that is slightly but crucially different from AGI. To calculate MAGI, you take your AGI and add back certain deductions, but only if they apply to you. The deductions can include student loan interest, tuition expenses, IRA contributions, and more.
Social Security numbers are issued to all U.S. citizens, and some eligible U.S. residents, often as soon as they are born. The nine-digit number is used to track your income and report it to the Internal Revenue Service. You also use it for other purposes, like opening a bank account or applying for a mortgage.
An employer identification number is kind of like a Social Security number for a business or organization. It’s a nine-digit number assigned by the IRS to individuals, businesses, sole proprietors, non-profit organizations and other entities. The EIN identifies tax-paying entities that need to file business tax returns.
The Earned Income Credit is a “benefit for working people with low to moderate income,” according to the IRS. It is also called the Earned Income Tax Credit (EITC). You might be eligible for this credit depending on factors like income, filing status, and whether you have any qualifying children.
Parents may qualify for a Child Tax Credit for having child dependents under the age of 17. The credit may also apply for a grandchild, sibling, niece or nephew, adopted child,foster child, or any other family member who is under 17, has lived with you for more than half the tax year, and is claimed as a dependent on your tax return. Under the new tax plan, the credit has doubled to $2,000 per child, and much of it is refundable.
Those deductions taken out of each paycheck? Some of it is for the US federal payroll tax called the Federal Insurance Contributions Act. FICA “helps fund Social Security and Medicare programs,” which pay benefits to retirees, the disabled, and children, according to the Social Security Administration.
An individual retirement arrangement provides a way for you to save money for retirement while enjoying certain tax advantages. You set up an IRA through a bank or financial institution, and you may be able to deduct “some or all of your contributions to a traditional IRA” on your tax return, according to the IRS. There are different types, including traditional IRAs and Roth IRAs, each with their own tax rules.
A health savings account lets you put away pre-tax money to pay for qualified medical expenses, including deductibles and copayments. You are eligible to open one if you have a High Deductible Health Plan (HDHP) – a health plan with a deductible of at least $1,350 ($2,700 for a family). HSAs may earn interest, and the interest is not taxable.
In case you missed it, there’s been significant tax reform in the past year. The Tax Cuts and Jobs Act was enacted in December 2017, bringing many changes for the next tax-filing season, including reforms to deductions and tax rates. The IRS says the simplest way to make sure you file a complete and accurate return is to use tax-prep software like IRS Free File, IRS Free File Fillable Forms, or commercial software.
Source: Business Insider
To Read Our Daily News Updates, Please visit Inventiva or Subscribe Our Newsletter & Push.