| Definitions
of tax terms: H-J |
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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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A
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D | E
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J | K
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L | M
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| Head
of Household |
An unmarried taxpayer
who provides more than half of the cost of keeping up a home
that was the main residence, for more than six months, for the
taxpayer and a qualifying relative can use this filing status.
Head of household provides a larger standard deduction and more
generous tax brackets than the single status. Similarly, some
tax breaks are more favorable for head of household filers than
for singles. |
| Hobby
Loss |
Loss from a hobby
or other activity you do not pursue for profit. You cannot claim
expenses from a hobby that exceed the amount of income that
you report. For example, if you had a part-time job and made
$10,000 and spent $12,000 on rebuilding an antique auto as a
hobby, you cannot claim the hobby loss because it would mean
you would have no earned
income for tax purposes. If you fail to show a profit for
three out of five years, the IRS may presume your business is
a hobby and disallow losses from it unless you show evidence
to the contrary. |
| Holding
Period |
The length of time
you hold an asset. Your holding period determines the maximum
tax rate you will pay on a gain from the sale of a capital
asset. Assets held for longer periods are usually taxed
at lower rates. |
| Home
Equity Debt |
Debt secured by
your home. Home equity interest usually is deductible as an
itemized
deduction. |
| Home
Office |
A part of your
home or other structure on your property for which you qualify
to take a deduction
for its business use. |
| Homestead
Exemption |
A property
tax refund
offered by some states and based on taxpayer's primary residence. |
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| Income
Tax |
The main source
of revenue for the federal government and many states. The tax
is based on your earned and
unearned income. You
are allowed certain deductions,
allowances
and credits
to reduce your tax, based on laws made by Congress. |
| Indirect
Tax |
A tax you do not
pay directly, but which is passed on to you by an increase in
your expenses. For instance, a company might have to pay a fuel
tax. The company pays the tax but can increase the cost of its
products so consumers are actually paying the tax indirectly
by paying more for the merchandise. |
| Individual
Retirement Arrangement (IRA) |
Also known as Individual
Retirement Account. A type of savings account for retirement.
Some IRA options are:
1. Deductible Traditional IRA: Special tax rules allow
you to reduce your taxable
income by your qualified contributions to your IRA. You
pay tax when you make withdrawals from your IRA.
2. Nondeductible Traditional IRA: Although you cannot
reduce your income by the amount of your current nondeductible
contributions, you do not pay tax on the earnings of your account
until you make withdrawals.
3. Roth IRA: You cannot deduct current contributions
to a Roth IRA, but when you make qualified withdrawals from
your account, you will not be taxed on the withdrawals. |
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| Individual
Taxpayer Identification Number (ITIN) |
The taxpayer identification
number for persons who do not qualify for a Social Security
number. It is usually assigned to aliens in the United States.
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| Innocent
Spouse Rule |
The IRS usually
holds that both signers of a joint
return are individually liable for the entire tax due plus
penalties and interest. That means that when you sign a joint
return you are liable for the entire tax due, even if you later
divorce your spouse, did not earn the income that generated
the tax and did not know about the omission of income or claiming
of erroneous deductions. Under the innocent spouse rule, a spouse
may claim not to be jointly liable if he or she did not know
about the errors and did not benefit from them. |
| Intangible
Asset |
Nonphysical resources
or rights to other assets. Patents, goodwill, permits and computer
programs are examples of intangible assets. |
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| Intangible
Property |
Property that does
not have value itself, but represents something else. Stocks,
bonds and franchises are examples of intangible property. Business
furniture and equipment are examples of tangible
personal property. |
| Interest
Income |
Earnings on investments
such as savings accounts, certificates of deposit and seller-financed
mortgages. Banks or other organizations or individuals who pay
interest usually report it on Form
1099-INT. |
| Investment
Income |
This generally
includes your gross
income from property held for investment (such as interest,
dividends,
annuities and royalties).
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| Itemized
Deductions |
Expenses that can
be deducted to reduce your income after your adjusted
gross income before you calculate the tax you owe. Itemized
deductions include medical expenses, taxes, deductible interest,
charitable
contributions, casualty
and theft losses, unreimbursed employee expenses and miscellaneous
deductions. |
| Joint
Return |
A tax return filed
by a married couple using the Married Filing Jointly status
that combines the income and deductions of both spouses on the
same tax return. |
| Joint
Return Test |
One of the five
tests a person must pass to qualify as your dependent.
To meet this test, the person must not file a joint
tax return with his or her spouse for the tax year in which
you claim the person as a dependent. This test does not apply
if the person is not required to file a return, files only to
receive a refund and would have no tax
liability for either spouse if they filed separate returns.
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| --Posted Oct. 29, 1999 |
