This chapter is a free excerpt from Ask the TaxGirl: Everything Parents Should Know About Filing Taxes (Including Child Care Expenses, Medical Costs, and the Earned Income Tax Credit.
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Alimony: Alimony is payment to or for a spouse or former spouse under a divorce or separation instrument. It is reportable as income by the person who receives the money and it is deductible "above the line" by the person who pays the money. Alimony does not include child support.
Amended Return: An amended return is a tax return that you file after you’ve already submitted your tax return to the IRS, usually to correct a mistake. The form you use to submit an amended return is called a federal form 1040X (downloads as a pdf).
Child support: Child support is a payment made under a divorce or separation agreement for the care of a child. Child support is considered tax neutral which means that it is not reportable by the person who receives the money and it is not deductible by the person who pays the money.
Credit: A credit is a dollar for dollar reduction in your tax due.
Deduction: A deduction is a reduction in your taxable income.
Earned Income: Earned income is income that you receive in exchange for your services, including wages, salary and tips.
Gross income: Gross income is defined as all of your income from all taxable sources before any adjustments, deductions or exemptions.
Modified Adjusted Gross Income (MAGI): Modified adjusted gross income (MAGI) is calculated by taking your AGI (as defined above) and adding back certain tax preference items such as foreign income, student loan deductions and IRA contribution deductions.
Phase Outs: Phase outs refer to the decrease in tax benefits as you approach certain income limits. For example, for purposes of the adoption credit, the credit begins to decrease if your modified adjusted gross income (MAGI) is more than $189,710 and the credit is completely phased out if your MAGI is more than $229,710.
Taxable Income: For purposes of your federal income tax return, taxable income is your income after subtracting all adjustments, deductions and exemptions. Taxable income is calculated on line 43 of your federal form 1040. That line multiplied by your applicable tax rate equals your total tax (line 44 of your federal form 1040).
Unearned Income: Unearned income is income that you receive that is not related to your services. This includes dividends, interest and capital gains.
Withholding: Withholding is the amount withheld from the pay of most employees. The amount of withholding employer depends on the amount you earn in each payroll period and the information reported on your federal form W-4 about your dependents and other income.
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