Adjusted Gross Income

Adjusted gross income (also commonly referred to as AGI) is the income that remains after subtracting certain allowed deductions from gross income. AGI is typically used to set the limits on exemptions, contributions to certain tax advantaged investments, itemized deductions, etc.

Alternative Minimum Tax

Alternative minimum tax (commonly referred to as AMT) is a separate tax computation that must be calculated in addition to the regular income tax computation.

Capital Gain

A capital gain is a positive difference between the purchase price and selling price of a capital asset as defined by the IRS.

Capital Loss

A capital loss is a negative difference between the purchase price and selling price of a capital asset as defined by the IRS.

Effective Tax Rate

Your effective tax rate is a blended combination of all the ordinary income tax rates that apply to your taxable income.

Estimated Tax

Estimated tax is the method used to pay tax on income that is not subject to withholding.

Gross Income

Gross income includes all the income you received in the form of money, goods, property, and services that is not exempt from tax.

Long Term

Long term refers to the time period of holding an investment for more than one year (i.e. one year and one day).

Marginal Tax Rate

Your marginal tax rate is the percentage of tax that is paid on your last dollar of ordinary income.

Ordinary Income

Ordinary income is income that does not qualify for capital gains treatment (i.e. wages and interest). There are different ordinary income tax rates currently in effect. These tax rates are progressive, meaning that each tax rate applies to a specific range of ordinary income.

Short Term

Short term refers to the time period of holding an investment for one year or less.

Tax Credit

A tax credit is a reduction in the amount of tax owed. A tax credit is more favorable than a tax deduction.

Tax Deduction

A tax deduction is an expenditure that may reduce the amount of income subject to tax. A tax deduction is less favorable than a tax credit.

Taxable Income

Taxable income is income that is subject to taxation.