| Definitions
of tax terms: D-E |
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| One of the
hardest things about taxes is learning the language. You've
got all the forms and instructions, but it seems they're harder
to decipher than your VCR user manual! Here are some of the
more common tax terms to help you become tax fluent in no time. |
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J | K
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L | M
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| Decedent
|
A person who has
died. |
| Deductions
|
These are expenses
the IRS allows you to subtract from your taxable
income. If you have taxable income of $30,000 and deductions
of $3,000, then you would figure how much tax you owe on the
difference -- $27,000. Even if you don't itemize, the IRS allows
you to deduct alimony payments, capital
losses, moving
expenses, business losses, and deductible IRA
and Keogh
contributions. If you have more deductible expenses -- medical
costs, mortgage
interest, state and local
taxes, employee business expenses and charitable
contributions -- you must itemize
them to use the deductions. |
| Deferred
Compensation |
The amount your
employer deducts from your pay and puts into a qualified
retirement plan, for you to collect at a later date, usually
when you retire. You do not pay tax on qualified deferred compensation
until you receive the payout. |
| Dependent |
A person who relies
on someone else for financial support. If you have dependents,
you can claim them as exemptions,
which will reduce the amount of your income that is taxed. To
qualify as a dependent, the person must meet all five of the
following tests, which are discussed separately here in the
glossary:
1. Relationship
or member of household test
2. Citizenship
test
3. Joint
return test
4. Gross
income test
5. Support
test |
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| Depreciation
|
This is a deduction
you are allowed for the wearing away and expensing over time
of such items as office equipment, vehicles, buildings and furniture.
For tax purposes, the IRS determines the amount of time such
material is expected to last, and you depreciate, or spread
the cost of, the asset over its estimated useful
life rather than deducting the entire cost in the year you
got it. |
| Direct
Tax |
A tax that you
pay directly, as opposed to indirect
taxes, such as tariffs and business taxes. The income
tax is a direct tax, as are property
taxes. See also Indirect
Tax. |
| Disaster
Loss |
If you suffer
damage or property loss from a storm in an area the president
has declared eligible for federal disaster assistance, this
is a disaster loss. These losses get special tax treatment:
You can choose to deduct the loss in the year it happened, or
you can file an amended
return and deduct the loss in the prior year. This gives
you the option of receiving your tax benefit sooner. |
| Dividends
|
The portion of
a company's earnings and profits that are paid to you as a stockholder
in the company. These payments may be ordinary
dividends, capital
gain distributions or nontaxable
distributions. You usually receive dividends in cash, but
you may receive them in the form of more stock, stock rights,
property or services. Companies or brokerage firms report dividend
income to you on Form
1099-DIV. |
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| Earned
Income |
All the money you
earn. This includes any wages, salaries, tips, net earnings
(if you're self-employed) and any other income received for
personal services. Investment
income, such as dividends
and interest,
is not counted as earned income. See also Unearned
Income. |
| Earned
Income Credit |
A credit
that low-income workers can receive. If you are eligible, you
must file a tax return to get the credit, even if you didn't
have any income
tax withheld from your pay. |
| Education
Individual Retirement Arrangement (IRA) |
This savings plan
was created in 1998 so that parents could make nondeductible
contributions to an account for a child under age 18. This program
is not technically a retirement plan; rather, it is a trust
or custodial account for the child, who is the designated beneficiary
of the account. The child will be able to make tax-free withdrawals
from the account to pay for qualified higher education expenses.
There are income limits on who may open an Education IRA, and
only $500 a year may be put in the account. |
| Electronic
Filing |
Taxpayers can
now file their tax information with personal computers and tax
preparation software. The information goes directly to the IRS
and the IRS can directly deposit refunds into the taxpayer's
bank account. |
| Employer
Identification Number (EIN) |
A nine-digit number
assigned by the IRS for businesses, estates and trusts. |
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| Estate
Tax |
A
tax based on the fair
market value of property, less any liabilities, at the time
of the owner's death. Tax returns do not have to be filed for
estates under a certain value, which is $650,000 in 1999 and
$675,000 in 2000 and 2001. |
| Estimated
Tax Payments |
Quarterly tax payments
you make to the IRS if the amount you pay through paycheck withholding
is not enough to cover your annual tax
liability. This system generally is used by persons who
get a lot of income from sources other than their paychecks,
such as interest
or dividend payments
or income from a second, freelance job. |
| Excise
Taxes |
These are taxes
on the sale or use of certain products or transactions. Some
common excise taxes are charged on the cost of airline tickets,
gasoline, liquor or tobacco. |
| Exempt
from Withholding |
You might be exempt
from withholding
if you meet certain income, tax
liability and dependency requirements. In fact, you could
be exempt from having certain taxes taken out of your paycheck.
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| Exemption
|
A deduction
from taxable
income for you, your spouse and your dependents.
The IRS allows a dollar amount for each exemption you claim
and you subtract this amount from your adjusted
gross income to come up with the amount of money which you
must pay taxes on. |
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| --Posted Oct. 29, 1999 |
