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Financial Literacy - Taxes
Tax planning tool kit
Calculators, work sheets and resources to help make paying taxes almost painless.
Taxes made easy

Tax glossary

34. Effective tax rate -- The actual percentage of income paid in taxes. It ends up being less than the marginal tax rate due to the progressive tax rate. Your income is taxed at different rates in graduated levels, so only a portion of your income is taxed at the highest rate for your income level. As an example, in 2007 the effective tax rate for someone earning $50,000 who is in the 25 percent tax bracket is slightly less than 18 percent.

35. Enrolled agent -- A tax law professional who has passed an IRS-administered tax examination. Enrolled agents are hired by taxpayers to advise them and represent them before the IRS, and may make claims against the government on behalf of taxpayers.

36. 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.

37. Exclusion -- Income that tax law specifically allows a taxpayer to not count when computing adjusted gross income.

38. Exemption -- A deduction allowed by the IRS to help you arrive at a lower taxable income. Exemptions can be claimed by you, your spouse and your dependents. The IRS allows a dollar amount for each exemption and this amount is subtracted from your adjusted gross income.

39. Filing extension -- An additional amount of time to file your return. You must file Form 4868 to get an extension. A filing extension, however, does not give you more time to pay your taxes.

40. Filing status -- Your filing status determines your tax bracket and the amount of taxes you must pay. Your filing status is an important factor in determining your standard deduction and tax rate and whether you must file a return. The five filing status types are: single; married filing jointly; married filing separately; head of household; and qualifying widow/er.

41. Foreign tax credit or deduction -- A tax break available to most U.S. taxpayers who pay income taxes to another country.

42. Form 1040EZ -- This form is the simplest one to use to file your annual tax return. You may use it if you're single or married, don't have any dependents, are under age 65 and not legally blind, your income is $100,000 or less and your interest income is $1,500 or less.

43. Form 1099-DIV -- A statement you get from the brokerage firm or mutual fund company that summarizes dividends and capital gains from individual stocks and funds. The main purpose of this form is to report the dividends you received, income tax withheld from dividends and foreign taxes paid on dividends.

44. Form 1099-INT -- The statement you receive from payers of interest income, such as banks and savings institutions, that summarizes your interest income for the year. This form is also used to report other tax items related to your interest income, such as early withdrawal penalties, federal tax withheld and foreign tax paid.

45. Form 1099-R -- An IRS form used to report distributions from retirement accounts, pensions, annuities, profit-sharing plans and insurance contracts. It is sent out by plan custodians to the owner of the account after the end of the year in which the distributions were made.

46. Form 4868 -- A form filed with the IRS for a six-month extension of time to file your tax return.

-- Posted: Dec. 17, 2007
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