Tax Glossary

Tax Glossary

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There are currently 22 Definitions in this directory beginning with the letter A.
American Association of Retired Persons

Accrual method
Accounting method that reports income when earned (not necessarily received) and expenses when incurred (not necessarily paid), as opposed to the cash method.

Active Participation
When a taxpayer makes significant rental or business management decisions, such as approving rental terms, repairs, expenditures, and new tenants (versus passive activity). Taxpayers who use a leasing agent or property manager are still considered active participants if they retain final management rights.

Active Pay
The military income a service member receives while on active duty (versus retirement or retainer pay).

Actual Expense Method
One of two methods for calculating business automobile expenses. For the actual expense method, the taxpayer determines the business portion of expenses for fuel, auto maintenance, parking fees and tolls, and auto loan interest. (The other method is the standard mileage method). The actual expense method is out of scope for the VITA/TCE programs.

Additional Child Tax Credit
A credit that may be taken if the full amount of the child tax credit cannot be claimed.

Adjusted Basis
The adjusted basis is the taxpayer's basis in a home increased or decreased by certain amounts. Increases include additions or improvements to the home such as installing a recreation room or putting on a new roof. In order to be considered an increase, the improvement must have a useful life of more than one year. Repairs that maintain the home in good condition are not considered improvements and should not be added to the basis of the property

Adjusted Gross Income (AGI)
The taxpayer's total adjusted gross income (AGI) is the amount that is used to compute some limitations, such as the medical and dental deduction on Schedule A and the credit for child and dependent care expenses.

Adoption Taxpayer Identification Number
A nine-digit tax-processing number issued by the IRS for children who are in the process of being adopted and who can be claimed as a dependent or claimed for a childcare credit. The ATIN is used wherever the child's social security number is requested.

Advance EIC Payments
Payments of the earned income credit (EIC) paid to qualified taxpayers through the regular paycheck.

Advance Earned Income Credit Payments

After-tax Contributions
After-tax means the employee paid taxes on the money when it was contributed, i.e., the taxpayer has a cost basis in the plan.

Age Test
One of the tests for identifying a qualifying child: Was the potential dependent under age 19 and younger than the taxpayer at the end of the year? Or, was the person under age 24 at the end of the year and a full-time student for some part of each of five months during the year? Or, Was the person any age and permanently and totally disabled?

Alimony is a payment to or for a spouse or former spouse under a separation or divorce instrument.

Allocated Tips
Tips an employer assigns to an employee. They are in addition to the tips the employee reported to the employer.

Alternative Motor Vehicle Credit
Taxpayers may be able to claim a credit for an alternative motor vehicle placed in service for business or personal use. Refer taxpayers who choose to claim this credit to a professional tax preparer.

American Opportunity Tax Credit
A tax credit that temporary changes the Hope educational credit, making it available to a broader range of taxpayers, including higher income taxpayers and those who owe no tax.

Amount Realized
The amount realized is the selling price minus selling expenses commissions, advertising fees, legal fees, and loan charges paid by the seller, such as points).

A series of payments under a contract from an insurance company, a trust company, or an individual. Annuity payments are made at regular intervals over a period of more than one full year.

American Recovery and Reinvestment Act

At-Risk Rule
One of two restrictions on how much a loss from passive activity can offset other sources of income. Taxpayers are restricted from claiming a loss for more than they could actually lose from the activity; they can claim a loss only up to the amount for which they are personally at-risk in the activity. (The other restriction is the passive activity rule.)

Adoption Taxpayer Identification Number, issued by the IRS while a final domestic adoption is pending and the child does not have a social security number.