Taxation Concepts

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Ability to Pay Principle

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Principle that a fair tax is one that takes into consideration the taxpayer’s relative wealth and income when determining the amount of tax levied.

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Adjustable Gross Income (AGI)

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Total taxable income reported on your federal Form 1040 minus any adjustments to income.

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Adjustment to Income

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Qualified expenses that reduce your taxable income on your federal Form 1040.

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American Opportunity Credit

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Tax credit that pays up to 100% of qualified tuition and expenses such as books and course materials for college students in their first four years of undergraduate study.

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Audit

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Process during which the IRS reviews the information in your tax return and requests additional information from you.

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Benefits Received Principle

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Principle that it is fair for those who receive the benefit of tax expenditure to pay the tax.

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Childcare Tax Credit

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Federal income tax credit to help defray the cost of childcare for working families.

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Deduction

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Expenditure than can result in a reduction of taxable income.

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Earned Income

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Money received from an employer for work, as well as any income from self-employment.

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Earned Income Tax Credit

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Fully refundable federal income tax credit provided to low-income workers.