Navigating the intricacies of the tax system can be challenging. For business owners, seasoned taxpayers, and first-time filers alike, tax terminology often feels like a foreign language. Adding to the complexity, provisions of the Tax Cuts and Jobs Act (TCJA) are set to expire at the end of 2025, and potential changes from upcoming elections could further complicate the landscape.
If this sounds overwhelming, partnering with a trusted McAllen CPA can be a game-changer. Here, we provide a glossary of 20 key tax terms to help demystify some of the jargon you may encounter when managing your taxes.
Key Tax Terms to Know
- Adjusted Gross Income (AGI)
AGI represents your total income minus specific deductions, forming the basis for determining your taxable income. Understanding your AGI is a cornerstone of effective tax planning. - Basis
Basis refers to the original investment in a property, adjusted over time for improvements or depreciation. It’s crucial for calculating gains or losses when selling or exchanging property. - Capital Gains
These are profits from selling an asset or investment. Depending on how long you held the asset, capital gains may be classified as short-term (taxed as ordinary income) or long-term (taxed at 0%, 15%, or 20%, depending on income). - Deductions vs. Credits
Deductions lower your taxable income, while credits directly reduce the amount of tax you owe. For example, mortgage interest is a deduction, whereas the child tax credit reduces your liability dollar-for-dollar. - Dependent
A dependent is someone you financially support, typically a child or a relative. Claiming dependents may qualify you for tax credits and deductions. - Estate Tax
This tax applies to the transfer of assets after someone’s death. In 2024, the exemption threshold is $13.61 million for individuals and $27.22 million for married couples. - Filing Status
Your filing status—such as single, married filing jointly, or head of household—determines your tax rates and standard deduction. Choosing the right status is essential for maximizing tax benefits. - Gross Income
This encompasses all income sources not exempt from taxes, including wages, dividends, and gambling winnings. - Home Office Deductions
Self-employed individuals may deduct expenses related to the business use of their home. You can opt for detailed expense tracking or a simplified method that offers $5 per square foot of office space, up to $1,500. - Itemized Deductions
Instead of taking the standard deduction, you can deduct specific expenses like medical bills, state and local taxes, and charitable donations. However, you can’t itemize and claim the standard deduction in the same year. - Kiddie Tax
This provision applies to the unearned income of children under 18 or full-time students under 24, preventing parents from transferring investments to take advantage of lower tax brackets. - Levies vs. Liens
A levy allows the IRS to seize property for unpaid taxes, while a lien is a legal claim against property to secure payment of tax debt. - Nanny Tax
If you employ household workers and pay them $2,700 or more in 2024, you must withhold and pay Social Security and Medicare taxes. - Offer in Compromise (OIC)
This IRS program allows eligible taxpayers to settle tax debts for less than the total owed, though nearly half of applications are rejected. - Qualified Business Income (QBI) Deduction
Business owners may deduct up to 20% of QBI. This benefit, introduced under the TCJA, is set to expire in 2025 unless extended. - Refundable Tax Credits
Unlike nonrefundable credits, refundable credits can provide a tax refund even if your liability drops to zero. - Stepped-Up Basis
This provision adjusts the cost basis of inherited assets to their market value at the time of the original owner’s death, reducing potential capital gains taxes when sold. - Tax Cuts and Jobs Act (TCJA)
Enacted in 2017, the TCJA introduced sweeping changes, including lower tax rates and a higher standard deduction. Many of its provisions will expire at the end of 2025. - Underpayment Penalty
If you don’t pay enough taxes throughout the year through withholding or estimated payments, the IRS may impose penalties. - Wash Sale
This rule prevents taxpayers from deducting losses from selling securities if they repurchase the same or similar investments within 30 days.
Why Burton McCumber & Longoria is Your Best Resource
Even with a solid understanding of these terms, successfully navigating tax complexities often requires expert guidance. A McAllen CPA like BML can provide personalized advice, ensure compliance with ever-changing tax laws, and help maximize deductions and credits tailored to your situation.
Whether you’re a business owner strategizing for growth, a family planning for major life events, or an individual preparing for retirement, professional tax assistance can make a meaningful difference. Your CPA will not only handle filing but also assist with proactive strategies to minimize your tax burden and keep your financial goals on track.
Stay Prepared Amid Changing Tax Laws
With the expiration of TCJA provisions looming, staying proactive is essential. Reviewing your tax plan now can help you anticipate changes and make adjustments to protect your financial well-being. For instance:
- Business owners may need to reevaluate their use of QBI deductions.
- Individuals could benefit from advanced estate planning to take advantage of the current high exemption thresholds.
- Families might explore strategies for maximizing credits and deductions before they potentially phase out.
Tax planning isn’t just about filing your return; it’s about preparing for the future.
Partner with Burton McCumber & Longoria
The world of taxes doesn’t have to be intimidating. When you work with Burton McCumber & Longoria, you gain access to experienced McAllen CPAs who are dedicated to simplifying the process, optimizing your tax strategy, and offering peace of mind.
Whether you need help managing personal taxes, navigating business tax obligations, or preparing for legislative changes, our team is here to support you. Contact us today to schedule a consultation and experience the difference personalized expertise can make.
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