Tax returns can be notoriously complex and intimidating, but they’re not impossible. And since they come around every year, it’s worth it to invest a little bit of time in getting familiar with common tax terms and concepts that affect your return. By deepening your understanding of this terminology, you put yourself in a much better space to accurately and confidently fill out your own taxes. Be sure to consult with a tax professional for advice on your personal tax scenarios.
These are amounts that you can claim to reduce your overall tax bill, using the Schedule 1 form. So, if you have things like student loan interest, health savings account contributions, educator expenses, or retirement contributions, those are above-the-line deductions.
This is your income from all taxable sources (minus above-the-line deductions). Your AGI – minus your deductions, whether that’s itemized or standard – is how you get the total amount of income that will actually be taxed.
If you make a mistake or need to change a previous tax return that has been filed in the last three years, you file an amended return (Form 1040-X). Depending on the changes you made, you might see a shift in how much you owe or the refund you’re getting back.
More recently, we’ve seen the addition of deductions that you can claim after your AGI is calculated but are separate from itemized or standard deductions. This includes things like income from tips, income from overtime pay, car loan interest, and a senior deduction.
This is available to households who pay for the care of either a child under the age of 13 or a disabled dependent at any age.
You can claim this credit for each dependent child under age 17 who you can claim on your return as a dependent. The child must have a valid Social Security Number and live with you for at least half of the year.
There are a few different credits to help lessen your tax bill:
• The American Opportunity Credit – Up to $2,500 per student for the first four years of qualified vocational school or college
• The Lifetime Learning Credit – Up to $2,000 per year per student for qualifying higher education expenses
There are two different types that you choose from, and then that number is subtracted from your AGI to lower your tax bill.
• Itemized deductions are things like business expenses, mortgage interest, medical and dental expenses, state and local taxes, charitable contributions, etc. You total these up and then compare it to your standard deduction.
• Standard deductions are a no-questions-asked write-off that varies based on your AGI and filing status. Most people end up using the standard deduction because it’s higher than their itemized deductions.
A dependent is someone who relies on you for financial support. Each dependent credit can reduce your total tax bill.
These have to do with improvement projects to your home that boost energy efficiency, and there two main types:
• The Residential Clean Energy Credit – Helps taxpayers pay for residential alternative energy equipment (expires after the 2025 tax year)
• The Energy Efficient Home Improvement Credit – For qualified energy-efficient improvements like new windows or better insulation (expires after the 2025 tax year)
For low- to moderate-income households who have an AGI below a certain amount, this tax credit can provide additional financial assistance.
For contract work, business owners, self-employment, or any other kind of income where federal taxes are not withheld automatically, you make quarterly estimated tax payments to cover your tax liability. Any payments you make are credited to you in your tax return.
This is used to determine your standard deduction, as well as what tax bracket you’re in. The statuses are:
• Single – For those who are unmarried, divorced, or legally separated
• Married filing jointly – For those who are married or those whose spouse passed away during the year
• Married filing separately – For those who are married and don’t want to file jointly or find that filing separately lowers their taxes
• Head of household – For those who are single and provide more than half of the living expenses for themselves and a qualifying dependent
• Qualifying surviving spouse – For those whose spouse died during the past 2 years and have a dependent child
This means any money you receive that you don’t have to pay taxes on. This includes S corporation distributions, gifts under $19,000, inheritances that don’t qualify for the estate tax, alimony and child support payments, and so on.
This is income you receive from working as a freelancer, contractor, or sole proprietor. A lot of times you will report this using a 1099-NEC or 1099-MISC form.
This is your income after subtracting all deductions and adjustments and is the amount that’s used to calculate how much tax you owe.
This is a table used by the IRS that sets out what amount of your taxable income is to be taxed at a particular rate. So as of 2025, if you are a single payer who earned $47,000 that year, you’d be described as being in the 12% tax bracket.
BUT not all of your income is taxed at 12%. Per the chart, the first $11,925 of your income is taxed at 10%, and the remainder is then taxed at 12%.
For any job where you have to file a W-4, the amount you get paid is what’s left after your employer withholds a portion to cover income taxes, Social Security, and Medicare.