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Don't Mess With Taxes

Translating taxes into money-saving English

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Tax Glossary K through O

NOTE: The Tax Glossary, which debuted in this form on Dictionary Day 2015, has five sections. If a term you think should be here isn't, or you can add to or clarify a definition that is here, let me know via Twitter or Facebook.

One of the hardest things about filing your taxes is trying to decipher the forms. You practically have to learn a new, tax-specific language.

Dictionary_3_1 Unfortunately, IRS-speak is a native tongue for very few folks. And it's not easy to decipher. In fact, reading tax documents makes that dang VCR manual (yes, a few of us still use those antiquated devices!) seem almost coherent!

To help out, Don't Mess With Taxes has gathered some common tax terms and phrases and their plain English meanings in this Tax Glossary (and the Tax Glossary's precursor, a mini tax dictionary, if you will, that was a blog post back in 2007). Yes, I've been working on this for a while! 

As you can imagine, the IRS dictionary gives Merriam-Webster a run for its money, so I've broken the Don't Mess With Taxes glossary into several sections for ease of page loading. Tax terms starting with K through O are below.

You can check out the other sections by clicking the links below:

  • A through E
  • F through J
  • P through T
  • U through Z

And since tax laws are continually changing (thank you, Congress ... Not!), this is an ongoing list. I'll do my best to keep it updated, but if you find a tax word that's got you stumped, e-mail it to me and I'll to make sure it and its definition is added. The same goes for any tax term I've overlooked.

Alphabet_k

Keogh plan -- A pension or profit-sharing plan available to self-employed individuals and their employees. Also known as an H.R. 10 plan. It offers a way to save more than some other self-employment retirement plans, but has more administrative requirements.

Kiddie tax -- This tax is imposed on unearned income of children who are under age 19 at the end of the year and dependent students who are under age 24. The rate is the parents' higher tax rate, not that of the child. The amount of investment income to which it applies is adjusted annually for inflation.

 

Alphabet_L Like-king exchange -- The tax-free exchange of similar assets, such as real estate for real estate. The tax on profit accrued in the first property is deferred until the subsequent property is sold.

Long-term care insurance premium -- Premiums paid for long-term care insurance can be deducted as an itemized medical expense. The maximum annual deduction is based on your age.

Lump-sum distribution -- The payment within one year of the full amount of your interest in a pension or profit-sharing plan. To qualify as a lump-sum distribution, and receive favorable tax treatment, other requirements must be met.

 

Alphabet_M Marginal tax rate -- The tax rate that will apply to the next marginal, or incremental, amount of income. Most individuals use the term marginal tax rate interchangeably with the top tax bracket into which their final dollar of taxable income falls. However, because of the progressive nature of the U.S. tax code and the use of deductions, credits and allowances, taxpayers rarely pay that top tax rate on their income. See also Effective Tax Rate.

Married Filing Joint filing status -- You are married and both you and your spouse agree to file a joint return. On a joint return, taxpayers report combined income and deduct combined allowable expenses.

Married Filing Separate filing status -- You must be married but opt to file separate 1040s. This method may benefit you if you want to be responsible only for your own tax or if this method results in less tax than a joint return. If you and your spouse do not agree to file a joint return, you may have to use this filing status.

Material participation -- The test used to determine whether a taxpayer is involved enough in a business to avoid the passive-loss rules. To be considered a material participant, you must be involved on a "regular, continuous and substantial basis."

Medicare tax -- This portion of FICA is used to provide medical benefits for certain individuals when they reach age 65. Workers, retired workers, and the spouses of workers and retired workers are eligible to receive Medicare benefits upon reaching age 65. The Medicare tax rate is 2.9 percdent, with employers and employees contributing 1.45 percent each. Unlike the Social Security portion of FICA, there is no earnings cap on Medicare tax collection.

Modified adjusted gross income (MAGI) -- This figure is calculated by starting with your adjusted gross income (AGI) and then adding back certain amounts you previously subtracted to get to you AGI. The precise deductions you have to reconsider usually depend on the tax benefit that uses your MAGI. For example, it's your MAGI, not your AGI, that determines whether you can open or contribute to a Roth IRA. MAGI also affects eligibility for many educational and child-related tax breaks, as well as taxability of Social Security benefits. In each case, how MAGI is figured might be different, so read the instructions carefully.

Moving expenses -- An above-the-line deduction (see Adjustments to Income) is allowed against some of the costs of moving in connection with taking a new job. Deductible expenses include the cost of moving your household goods, as well as travel and lodging expenses for you and your family. To qualify for the deduction, the new job must be at least 50 miles farther from your old home than your old job was. To qualify for the deduction, the new job must be at least 50 miles farther from your old home than your old job was.

 

Alphabet_NNet Investment Income Tax (NIIT) -- Effective with the 2013 tax year and beyond, this 3.8 percent tax applies to individuals, estates and trusts that have net investment income above applicable threshold amounts. For individuals the thresholds are $250,000 for married filing jointly or qualifying widow(er) with dependent child; $125,000 for married filing separately; and $200,000 in all other cases. In general, net investment income for purpose of this tax, includes but is not limited to interest, dividends, certain annuities, royalties, and rents (unless derived in a trade or business in which the NIIT does not apply. The NIIT does not apply to certain types of income that taxpayers can exclude for regular income tax purposes, such as tax-exempt state or municipal bond interest, Veterans Administration benefits, or gain from the sale of a principal residence but only that amount excluded for income tax purposes.

Net Operating Loss -- Any loss or negative income generated by the operation of an income-producing activity.

Nonrefundable credit -- This type of tax credit allows taxpayers to reduce the amount of tax owed, possiblity zeroing it out. Any excess amount of credit over tax owed cannot be used; that is, it will not produce a refund for the taxpayer.

 

Alphabet_OOffer in compromise (OIC) -- This agreement with the IRS allows you to settle your tax debt for less than the full amount you owe. It may be a legitimate option if you can't pay your full tax liability, or doing so creates a financial hardship. In deciding whether to accept an OIC, the IRS consider the taxpayer's unique set of facts and circumstances, including the ability to pay, income, expenses and asset equity. The IRS generally approves an OIC when the amount offered represents the most the agency can expect to collect within a reasonable period of time.

Online payment agreement (OPA) -- The electronic option for a qualified taxpayer or authorized representative to arrange for an installment payment plan for a tax debt. The OPA option is available if you owe $50,000 or less in combined tax, penalties and interest, and filed all required returns. You may also qualify for a short term agreement if your balance is under $100,000. Once you complete the online process, you will receive immediate notification of whether your agreement has been approved. 

Offshore Voluntary Disclosure Initiative (OVDI) -- Under the paramenter of this IRS program, the IRS offers taxpayers with undisclosed income from offshore accounts an  opportunity to get current with their tax returns. The IRS began this open-ended OVDP in January 2012, but may discontinue it at any time. A penalty is assessed to participating taxpayers, but the OVDI offers other benefits to encourage taxpayers to disclose foreign accounts now rather than risk detection by the IRS and possible criminal prosecution.

Ordinary tax rates -- These are the seven (for now) income tax rates -- 10%, 15%, 25%, 28%, 33%, 35% and 3.6% -- that apply to a filer's taxable income.

 

Continue alphabetically to more tax terms in
Tax Glossary P through T.

As with any language, terms are added and eliminated over the years, or the course of a Congressional session. Check back regularly for new tax terms.

Today's Tax Tip

  • IRS paying billions in late refund interest — If you're waiting for your IRS refund, there's not much that can help ease your frustration. But if Uncle Sam takes more than 45 days, you could at least get a bit of interest added to your delayed tax cash. So far, the agency has paid $3.3 billion in such interest amounts. And the amount could grow, since on July 1 the quarterly adjustment to the interest rate goes up a percentage point. (May 20, 2022)

  • Tax Tip; click pencil for all tax tip links

  • The 2022 Tax Tips offer ways to file your annual return, along with post-filing advice, important tax news and, of course, ways to cut your current tax year bill. You'll find the monthly assemblages on their own respective pages: January, February, March, April, May, June, July, August, September, October, November and December. Remember, tax tasks and tips don't stop after you file your annual return!

COVID-19 & Taxes

  • COVID-19
    Coronavirus has wreaked havoc
    on the 2020 and 2021 tax seasons.
    These three Coronavirus (COVID-19) and Taxes pages have details:
    March-July 2020,
    August-December 2020,
    January-December 2021, and
    January-… 2022
    You can find medical coronavirus resource links further down this column.

All About Kay

  • OK, some about Kay
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    Kay Bell — Native Texan (the blog title totally makes sense now, right?). Professional journalist. Tax geek.

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Tick ... Tick ... Tick

  • Tax Season 2022 continues!

    Tax Day 2022 is finally over … unless you're one of the millions who have more time to file — looking at you taxpayers abroad and those in major disaster areas — or you got an extension to file your 2021 tax year return. That's fine. In fact, the Internal Revenue Service appreciates some of us spreading out our filings, especially when we and the agency still are dealing with all the complications of COVID-19 and taxes.

    That's why the ol' blog's focus now is on all y'all still working on returns. But I haven't forgotten my organized taxpayer readers, who are already looking for ways to reduce their 2022 tax year bills. Yep, that amount is adding up, but there are moves you can make. The monthly tips and reminders a little further down this column can help everyone, regardless of which tax year you're working on.

    Those on extension should keep a keen eye on the countdown clock below. It will help you track the days tick, tick, ticking off toward that absolutely final fall filing due date of Oct. 17. Yep, it's a few days later this year.
    Note: I'm in the Central Time Zone, so adjust accordingly for where you live.


Time for Tax Tasks


  • monthly tax moves


  • May has arrived!
    That exclamation mark is sincere and deserved. You've got to love a month that starts with a celebration.

    May Pole Dance via GIPHY


    After the May Day dances are done, the commemorative days just keep coming. There are well-known ones, like Cinco de Mayo, Mother's Day, and Memorial Day, as well as some more obscure ones, like Visit Your Relatives Day, National Smile Day, and my favorite, Eat What You Want Day.

    But even with all these (and more!) celebrations, there's still time to make some money-saving May tax moves. Let's get to it!

    May 1: While May Day isn't a big holiday in the United States, globally the first day of May is a time for celebrating workers' contributions. But that can apply here, too, in connection with some employment-related tax tasks. If you got a big refund or owed more tax than you expected when you filed (or got an extension) last month, today's the perfect time to do paycheck check-up to determine how you should adjust your withholding.

    May 5: ¡Feliz Cinco de Mayo!

    Feliz Cinco de Mayo

    Fiestas are back this year, as more of us have been taken advantage of COVID-19 vaccinations and boosters. Still, be careful out there celebrating this Mexican holiday (and no, it's NOT Mexican Independence Day) that tends to spur more festivities here north of the border. Party responsibly, both when it come to the lingering pandemic and imbibing your favorite adult beverage, likely a margarita, which included the cost of state and federal alcohol taxes. Your state tax collector also will raise a glass to your fiscal contribution, since during the pandemic, sin taxes were a revenue bright spot for many states.

    May 8: Happy Mother's Day!

    Happy Mother's Day

    If you're just this year making up for pandemic paused family visits, give your mom a longer hug on her special day. Love, flowers, and the best of health and happiness to every mother, from the new ones just discovering the joys, tax and otherwise, of new parenthood to those gracefully maneuvering their Golden Years while getting some tax-advantaged help from their families.

    May 10: Eateries are still recovering from the challenges of operating during a national health crisis. Restaurants closed, then opened, then closed again. Others relied on and have stuck with take-out and deliveries. Whether you're dining in or still getting food brought to your house, remember to tip your server or delivery person.

    restaurant check tip iStock
    If a tip isn't included in your food delivery charge, click the image above to calculate how much to tip the person who brought it to you.

    As for servers who now are back on the job, remember that your tips are taxable income. If you worked at least some of March at a job where you got gratuities, you need to account for them today if they came to at least $20 last month. Use Form 4070 to report your tips today to your employer.

    May 16: Before the seasonal shift into summer, take care of spring tax cleaning. Give away clothing and household goods you no longer use. Your philanthropy could provide you a charitable tax deduction.

    May 23: Kick spring cleaning up a notch. Go beyond housekeeping and house clearing and make those home repairs you've been putting off. Many home improvements, including landscaping, could pay off in by increasing your home's basis, which means your profit for tax purposes will be smaller and stay under the amount that's tax-free when you eventually sell your home.

    May 27: If you're heading out early for the long Memorial Day weekend that traditionally kicks off summer, be sure to plan for added costs, like the price of getting to your holiday destination. Most of us will hit the highways, so even though gasoline prices have come down a bit, they still will take a bite of our travel budgets. Sorry, it's not enough to get Congress to create a federal gas tax holiday. And if you're renting your home to incoming tourists, be sure to pay the state and/or local taxes added to short-term home rentals.

    May 30: As you honor military personnel this Memorial Day who made the ultimate sacrifice, don't forget about their families. There are some tax considerations offered survivors of lost soldiers, sailors, and air crew.

    Small Business Tax Calendar: Important filing, deposit and record keeping dates throughout the year that your company needs to know. You can get more tax calendar information at the IRS' online calendar page and view the full year's important business and individual tax dates in IRS Pub. 509.

State Tax Help

  • Don't forget your state taxes!
    Forty-three states and D.C. collect personal income taxes. But even if you live in of the seven states without an income levy, you still face other state (and local) taxes.

    State Tax Departments provides links to your state's Web page. The companion page, Tax Tidbits, is the compilation of blurbs about each state's tax laws. And for more state tax news, check out all our state tax bloggings.

Tax Forms

  • Tax Forms
    Thanks to our increased use of tax preparers and computer software, many of us don't see our tax forms until we sign and file them. But knowing what's on these documents, either in paper or digital form, and why the IRS wants it is key to understanding our tax system. And knowledge definitely is power, especially when it comes to tax savings. Find this valuable information in the ol' blog's special Talking Tax Forms page.

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    The content on Don't Mess With Taxes is my personal opinion based on my study and understanding of tax laws, policies and regulations. It is provided for your private, noncommercial, educational and informational purposes only. It is not a recommendation of any specific tax action(s) you should or should not take. Similarly, mentions of products or services are not endorsements. In other words, my ramblings on the ol' blog are free advice and you know what they say about getting what you pay for. That's why when it comes to filing your taxes, I urge you to get additional, professional, paid-for guidance from an accountant, Enrolled Agent or other qualified tax preparer who is familiar with your individual tax circumstances.

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Tell it to the Hill

  • DMWT Politics Posts
  • While it's easy to rail at the IRS, for the most part we can thank — or blame — our tax laws on Congress and the White House. So if you have an issue with tax legislation or want a tax bill passed, you need to let your federal legislators and the White House occupant know of your concerns. You can find out who in Washington, D.C., to contact (and how), as well as get information on your local lawmakers for matters, tax or otherwise, closer to home, at USA Gov.

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