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Don't Mess With Taxes

Translating taxes into money-saving English

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Tax Glossary P through T

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 P through T are below.

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

  • A through E
  • F through J
  • K through O
  • 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_PPay-as-you-earn taxation -- This concept is the foundation of the U.S. tax system. Taxes due are collected contemporaneously as they are earned, generally through withholding on salary and wage income. Where withholding is not used, such as investment earnings or payment for contract work and other self-employment services, taxpayers must pay due taxes via estimated tax payments.

Payroll taxes -- Another name for the Social Security and Medicare taxes, officially collected via withholding from workers' paychecks. These taxes are authorized under the Federal Insurance Contributions Act, or FICA, tax (details in the F through J section).

Progressive tax -- A tax that takes a larger percentage of income from high-income groups than from low-income groups. The progressive tax is best illustrated through the income tax rates and the brackets into which earnings fall. 

Property taxes -- A key way that local tax jurisdictions, generally counties (or parishes if you're in Louisiana) raise revenue, generally to pay for public schools. These taxes are primarily on real estate, but some property taxes also are levied on other tangible property, such as can be on boats, automobiles (often paid along with license fees), recreational vehicles, and business inventories.

Proportional tax -- A tax that takes the same percentage of income from all income groups. Also known as a flat tax (details in the F through J section).

 

Alphabet_Q Qualifying child -- To be a qualifying child for tax purposes, the dependent must meet certain tests. For exemption purposes, there are eight qualifying child tests: (1) relationship, (2) age, (3) residence, (4) support, (5) citizenship or residency, (6) joint return, (7) qualifying child of more than one person, and (8) dependent taxpayer.

Qualifying relative -- When a dependent is not eligible as a qualifying child, that person might be a qualifying relative. The qualifying relative tests are: (1) not be a qualifying child, (2) be a member of household or relationship, (3) citizenship or residency, (4) gross income, (5) support, (6) joint return, and (7) dependent taxpayer..

Qualifying Widow(er) filing status -- Also sometimes called surviving spouse status. This allows surviving spouses who are caring for a dependent child or children to continue to use the Married Filing Jointly status for the tax year that they lost their spouse. Eligible taxpayers also may be eligible to use qualifying widow(er) with dependent child as your filing status for two years following the year of death of your spouse.

Qui tam -- The type of fraud can be a violation of the federal False Claims Act, or similar state and local laws. A whistleblower who exposes fraud on the government can bring a qui tam lawsuit on behalf of the government, and can receive a share of the recovery as reward.

 

Alphabet_R Refund -- Money owed to taxpayers when their total tax payments are greater than their total tax liability. Refunds are received from the government.

Refundable credit -- When the amount of a tax credit is greater than the tax owed, taxpayers can receive that excess as a refund.

Regressive tax -- A tax that takes a larger percentage of income from low-income groups than from high-income groups.

Revenue -- The income the nation collects from taxes.

Revenue Ruling -- An official interpretation by the Internal Revenue Service of the tax laws and related statutes, treaties, and regulations that has been published in the Cumulative Bulletin. Revenue rulings are published for the information and guidance of taxpayers, IRS officials, and other concerned parties.

Rollover -- The tax-free transfer of funds from one individual retirement account to another or from a company plan to an IRA. If you take possession of the funds, the money must be deposited in the new IRA within 60 days. Beware that when the rollover method is used to move money from a company plan to an IRA, 20 percent of the amount will be withheld for the IRS, even though the rollover is tax-free if the money is in the IRA within 60 days. To avoid this automatic withholding, use the direct or trustee-to-trustee transfer method to move money from one plan to another.

Roth IRA -- Money contributed to this retirement account is not deductible when made. However, when you make qualified withdrawals from your account, those distributions are tax-free.

 

Alphabet_SSales tax -- A tax on retail products based on a set percentage of retail cost. There is no federal sales tax. States and often cities, counties and other special taxing jurisdictions enact sales taxes.

Savings Incentive Match Plan for Employees (SIMPLE) -- A retirement plan that can be offered by companies with 100 or fewer employees. The employer generally must match employee contributions up to 3 percent or contribute 2 percent of pay for each employee, regardless of  whether they contribute on their own. The rules are simpler than for other tax-qualified retirement plans, hence the acronym producing name.

Self-employment profit -- The result of self-employment income minus self-employment expenses where the income is greater than the expenses. For sole proprietors, this is figured and reported on Schedule C, which is filed with the self-employed worker's annual Form 1040.

Self-employment tax -- The self-employed worker's equivalent of FICA Social Security and Medicare taxes. The self-employment tax rate is 15.3 percent of self-employment profit. The self-employment tax is calculated on Schedule SE. One-half of the SE tax can be claimed as an income adjustment (aka above-the-line deduction; details in the A through E section) on Form 1040.

Shoebox method -- A common record keeping system in which a taxpayer collects all material and documents relevant to his/her tax affairs and stores them in a shoebox or similar repository, without any further indexing, tracking, arrangement or classification. It is very convenient for the taxpayer, but of questionable efficacy, and very annoying to your tax preparer.

SIMPLE -- This acronym is derived from the retirement plan's name: Savings Incentive Match PLan for Employees. Under a SIMPLE plan, employees can choose to make salary reduction contributions to the plan rather than receiving these amounts as part of their regular pay. In addition, the employer contributes matching or nonelective contributions. Details in Chapter 3 of IRS Publication 560.

SIMPLE IRA -- A retirement plan that uses SIMPLE IRAs for each eligible employee. Under a SIMPLE IRA plan, a SIMPLE IRA must be set up for each eligible employee. Details in Chapter 3 of IRS Publication 560.

Simplified Employee Pension (SEP) -- A tax-favored retirement plan mainly for self-employed taxpayers. Contributions to the plan are tax deductible.

Single filing status -- You file using this status if on the last day of the year, you are unmarried or legally separated from your spouse under a divorce or separate maintenance decree and you do not qualify for another filing status.

Sin tax -- A tax on goods which are generally deemed by public opinion as bad, such as tobacco and alcohol.

Social Security tax -- This portion of FICA that is dedicated to Social Security. The combined tax rate is 12.4 percent, with workers and employers each contributing 6.2 percent. The amount of income subject to the Social Security tax is limited; this earnings threshold is adjusted each year for inflation.

Standard deduction -- This amount, which varies based on your filing status and is adjusted annually for inflation, reduces the income subject to tax.

Stealth tax -- A new tax or tax increase that is introduced in a way that people do not easily notice, for example the phasing out of personal exemptions or itemized deductions on higher income taxpayers. Also used to describe a new payment that is the same as a tax, but is not officially classified as one.

Stepped-up basis -- The basis of inherited property is stepped-up to its value on the date of death of the owner, or a slightly later date if chosen by the executor of a taxable estate. In other words, tax on any appreciation during his or her lifetime is forgiven. The heir uses the higher basis to figure his or her gain when the property is ultimately sold.

Support -- For dependency test purposes, support includes food, clothing, shelter, education, medical and dental care, recreation, and transportation. It also includes welfare, food stamps, and housing provided by the state. Support includes all income, taxable and nontaxable.

 

Alphabet_T1040 -- Form 1040 is the official individual income tax return form. It first appeared in 1913, following the ratification of the Constitution's 16th Amendment, which authorized the income tax. There currently are three 1040 versions: 1040-EZ, the simplest filing form; 1040A which offers some more tax break options; and the 1040, two pages of various income adjustments, credits and deductions. You should use the simplest form that meets your tax-filing needs.

1099-MISC -- This tax form is the independent contractor's version of a salaried worker's W-2 form. Clients who pay a contractor more than $600 must send the worker a 1099-MISC; a copy goes to the IRS. Regardless of whether you receive a 1099-MISC for the year, you are responsible for reporting all income that you receive.

Tax avoidance -- An action taken to lessen tax liability and maximize after-tax income. Tax avoidance is not inherently illegal.

Tax Counseling for the Elderly (TCE) -- This program offers free tax help to individuals who are age 60 or older. Cooperative grant agreements are entered into between IRS and eligible organizations to provide tax assistance to elderly taxpayers. Tax return preparation assistance is provided to elderly taxpayers during the normal tax-filing period, Jan. 1 to April 15 each year. The program also ensures that elderly taxpayers receive tax assistance year-round. Usually referenced jointly with Volunteer Income Tax Assistance, or VITA (details in the U through Z section).

Tax code -- Shorthand name for the Internal Revenue Code, Title 26 of the United States Code. Title 26 contains the tax law of the United States.

Tax evasion -- A failure to pay or a deliberate underpayment of taxes. Tax evasion is illegal.

Tax exclusion -- An amount that does not count as income that a tax filer reports. A common exclusion is the home sale profit on a primary residence. Employer and employee contributions to certain workers' retirement savings plans also are excluded, that is, not counted as income to employees.

Tax exemption -- A part of a person's income on which no tax is imposed.

Tax liability -- Your total tax bill. The amount of tax that must be paid. Taxpayers meet (or pay) their federal income tax liability through withholding, estimated tax payments, and payments made with the tax forms they file with the government.

Taxable income -- The portion of an individual’s or organization’s earnings that is subject to income tax. A taxpayer's taxable income amount is reached by subtracting deducitons, credits and allowances from the indiviudal's gross income.

Taxes -- Required payments of money to governments that are used to provide public goods and services for the benefit of the community as a whole.

Taxpayer Identification Number (TIN) -- An Employer's Identification Number required of corporations, nonprofit organizations, associations, and partnerships. An individual's Social Security number is his or her TIN.

Tip income -- Money and goods received for services performed by food servers, baggage handlers, hairdressers, and others. Tips go beyond the stated amount of the bill and are given voluntarily. Tips, cash or otherwise, are taxable income.

Traditional IRA -- This retirement account comes in two versions. With a deductible traditional IRA, you can count some or all of your contributions to the account as an above-the-line deduction. With a nondeductible traditional IRA, you cannot reduce your income by the amount of your contributions, but those you do not pay tax on the earnings of your account until you make withdrawals. With a traditional IRA, you pay tax at ordinary tax rates on the account earnings when you make withdrawals from the account.

Treasury Inspector General for Tax Administration (TIGTA) -- This Treasury office was established under the IRS Restructuring and Reform Act of 1998 to provide independent oversight of IRS activities. TIGTA's goal is to promote efficient and effective administration of the tax laws. It also is tasked with the prevention and detection of fraud, waste, and abuse within the IRS and related entities

.

Continue alphabetically to more tax terms in
Tax Glossary U through Z.

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

  • Key 2023 federal tax deadlines — We made it through the first week of tax season 2023, but another deadline is looming. Jan. 31 is the filing, and tax payment, deadline for taxpayers who opted not to make their final 2022 estimated tax payment on Jan. 17. This tax calendar has that and other key individual tax due dates for the rest of this year. (Jan. 30, 2023)

  • Tax Tip; click pencil for all tax tip links

  • The 2023 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!

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 Year 2023 Countdown!

    Happy New Tax Year! Are you ready to file your 2022 tax return? Me neither. But at least this year we're getting some extra time to file and pay any tax we owe. Even better, it's not COVID-19 pandemic related. Tax Day 2023 is Tuesday, April 18. This later date is because April 15, 2023, is on Saturday, and the next business day, Monday, April 17, is Emancipation Day.
    When this Washington, D.C., holiday falls on the day our federal taxes are due, it bumps Tax Day nationwide to the next business day. So this year, we have until Tuesday, April 18, to finish our federal forms and, if we find we owe, come up with the money for Uncle Sam. The states that follow the federal tax calendar, which is most of them, also tend to abide by this date change.

    The countdown clock below should help us from missing out on making important tax-saving moves the rest of this year. Plus, the Tax Moves below the counter will list some timely tasks to take care this first month of 2023, and each of the remaining 11 when they arrive. They'll speed by quickly when you're having tax fun!
    Note: I'm in the Central Time Zone, so adjust accordingly for where you live.


Time for Tax Tasks


  • monthly tax moves


  • 🎆 Happy 🎉 New 🥂 Year! 🎆

    via GIPHY

    Hello 2023! I cannot tell you how happy I am to see you! I know, I said that about 2021 and 2022, but I really, really mean it. And I'm hoping you reciprocate, you brand spanking new year, on the personal front by letting go of COVID-19, and, on the tax side, by making this the year that taxes also get back to normal. Don't laugh. A gal can hope!

    Jan. 1: Once more for the official date — Happy New Year! One way to make things more enjoyable on the tax front is to get organized this month. Early this month. It will help you keep track of the myriad tax documents — W-2 earnings statements, 1099 forms, charitable donation receipts, year-end account statements — that will soon be on their way to your email or snail mail box. You'll need those (and more) to file your 2022 tax return as soon as the Internal Revenue Service starts accepting them.

    Jan. 3: It's the first official work day of 2023. It's also a deadline for employers, including those who are self-employed, who took advantage of the COVID relief option in 2021 to defer the employer's portion of the Social Security payroll tax; that's 6.2 percent of each worker's wages. If you didn't remit thr taxes before the end of December, today is the absolute final due date for paying the balance of those postponed tax collections.

    Jan. 6: It's Friday, the end of the first holiday-shortened work week of 2023. Even though most of us are thinking about filing our 2022 returns when the IRS opens filing season later this month, we also need to start our 2023 tax planning. Start with the inflation adjustments that apply to a variety of tax situations. You can find this year's figures in the ol' blog's 10-part tax inflation series.

    Jan. 9: Tonight, TCU's Horned Frogs and Georgia's Bulldogs face off at SoFi Stadium in Los Angeles to decide the men's college football championship. Thousands of fans are rooting for their teams. Even more people with no personal connections are betting on the game, thanks to the Supreme Court's 2018 ruling to allow states to accept sports wagers. If you're one of those bettors and your pick pays off, remember that you'll owe taxes on your winnings. The good news is that you won't have to share your luck with Uncle Sam until you file your 2023 return next year. The better news is that there are ways to reduce your taxable winnings.

    Jan. 10: Do you work as a server at a restaurant or at any other establishment where gratuities from customers are part of your compensation? I hope you got lots of financial thanks for doing your job well, but remember that those tips are taxable income.

    restaurant check tip iStock
    Whether you're dining in or, still COVID leery and getting food delivered to your home, if a tip isn't included on your restaurant or delivery bill, click the image above to calculate how much to tip the person who brought it to you.

    If you got at least $20 in gratuities in November, you must account for the tips today by using Form 4070 to report last month's tips total to your employer.

    Jan. 13: It's the first Friday the 13th of 2023. That might not worry you, but even non-superstitious folks are frightened a bit by taxes. However, on this or any other day, don't fear, or fall for, these 13 scary, but wrong, tax myths.

    Jan. 16: Every Martin Luther King Jr. Day, millions of people commit to a day of service.

     MLK Day logo
    Click image to find out ways
    you can volunteer on MLK Day.

    Taking time on the Rev. Dr. King's holiday to volunteer at a charity isn't tax deductible, but some costs associated with volunteering could help reduce your tax bill if you itemize.

    Jan. 17: Today is the due date for the final estimated tax tax payment for the 2022 tax year. It's usually on the 15th, but that fell on Sunday. Then Monday was the federal MLK Day holiday. So the final estimated tax payment deadline was shifted to the next business day, Tuesday, Jan. 17.

    Jan. 17: This date isn't firm yet, but the IRS and its Free File Alliance partners usually offer their no-cost online tax preparation and electronic filing program Free File around the middle of January. When the special Free File website at IRS.gov is available, take advantage of it if you qualify.

    IRS Free File; click image for details

    Free File last year was open to taxpayers whose adjusted gross income was $73,000 or less, but that earnings limit should be bumped up a bit for the 2023 filing season. Whatever the amount, the income level applies to all filing statuses.

    Jan. 23: If you make too much to use Free File, and don't want to use its Free Forms option, you always can purchase your own tax prep software or high a tax pro to handle your taxes. If you looking to hire someone, get to it now. At this point, if you can find a tax preparer taking new clients, you'll be at the end of the filings list. But at least you'll be on the list.

    Jan. 27: It was this week last year that the IRS started accepting and, more importantly, processing tax year returns. If you plan to be among the earliest of filers, you need to make sure you have all the necessary information and documentation. Check out this list of the statements, documents, and forms you'll need before you start work on your return.

    Jan. 31: Wow! The first month of 2023 is over? Time really does fly when you're having tax fun. We'll keep it going here in this new year with new Tax Moves to Make each month, which you also can find on their monthly tax tips pages. January already is filling up!

    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 Tax Forms 2023 page.

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I gotta tell ya ...

  • AKA Disclaimer:
    I am a professional journalist who has been covering tax issues since 1999.
    I am not a professional tax preparer.
    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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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-December 2022
    You can find medical coronavirus resource links in the next section.

COVID-19 Resources

  • COVID-19
    Need help finding a coronavirus vaccine in the United States?
    Call 1-800-232-0233
    or TTY 1-888-720-7489.
    More information and resources at:
    CDC Vaccines
    CDC Booster Shots
    HHS Combat COVID
    USA.Gov COVID Info

January 2023

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8 9 10 11 12 13 14
15 16 17 18 19 20 21
22 23 24 25 26 27 28
29 30 31        

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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