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Glossary

Alternative minimum tax (AMT)

The alternative minimum tax, or AMT, was enacted by Congress in the late 1960s to ensure that individuals pay at least a minimum amount of taxes.  The AMT applies to taxpayers who have certain types of income that receive favorable treatment, or who qualify for certain deductions, under the tax law. These tax benefits can reduce the regular tax of some taxpayers; the AMT sets a limit on the amount these benefits can be used to reduce total tax. Because the law does not automatically index the AMT exemption to inflation, Congress must act periodically to raise the exemption level.  At the time of the creation of the Tax Calculator, the AMT exemption had not yet been raised.

Charitable contributions

A contribution of money or property made to any organizations qualified under section 170(c) of the Internal Revenue Code.

Dependent

A qualifying child or qualifying relative for whom another individual is financially responsible.

Dividends

Distributions of property or money a corporation pays because of stock ownership in that corporation. For purposes of the Tax Calculator, all dividend income entered is considered to be “qualified dividends” which receive favorable tax treatment.

Excise tax

A tax on the manufacture or sale of a good or service over and above all other taxes paid on it.

Federal adjusted gross income (AGI)

Adjusted gross income, or AGI, is found by subtracting those specific deductions allowed from all the income received during the year.  Wages, interest, dividends, business income, income from real estate, pensions and capital gains are examples of income.  Deductions can include moving expenses, alimony, IRA deductions, student loan interest and others.  Calculating adjusted gross income is one of the first steps taxpayers take to calculate their final federal income tax bill. 

Gross wages

The total amount of compensation prior to taxes and other payroll deductions being taken out.

Long-term capital gain income

A profit on the sale of a capital asset that has been held for more than one year.  Almost everything you own and use for personal or investment purposes is a capital asset and includes a home, household furnishings and stocks and bonds held in a personal account.

Net investment income

Income such as interest, rental income, annuity income or short term capital gains minus their respective expenses.

Personal property tax

The tax that an owner is required to pay on the value of the personal property being taxed.  Most moveable items (as opposed to real estate) are considered personal property.

Self-employment income

If you are in business (farm or non-farm) for yourself, you are self-employed and the money you earn is called self-employment income.  That income is subject to self-employment tax in addition to the usual federal, state and local income taxes.

Taxable income

The amount of income on which tax is paid. It is found by starting with AGI and subtracting an amount that corresponds to the number of personal exemptions allowed, and either the total amount of allowable itemized deductions or the standard deduction.