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Definitions of hard to understand tax and investment terminology and how to use them to your advantage.

Understanding Tax Terms

Flow-through Entities

If you are a small business owner filing your taxes as a sole proprietor, or you own a C-corporation, understanding flow through entity is important. Given the popularity of this business format, it will drive tax policy in the future. Here is what you need to know. Read article

The Tax Gap

The "tax gap" is a concept developed by the Internal Revenue Service to measure voluntary compliance with the tax laws by taxpayers. Here are some current figures. Read article

Contemporaneous Records

The Internal Revenue Service has a vocabulary of their own. One of the more important is their use of the word "contemporaneous". What does it mean, and why should you care? Read article

Don't overlook valuable tax credits

Tax credits are one of the most powerful ways to lower your income taxes. A tax credit reduces your tax bill dollar for dollar. A tax deduction, on the other hand, only reduces your taxable income, so your benefit is determined by your tax bracket... Read article

Wash Sales

If selling a stock or mutual fund to book a loss for your tax return, the Wash Sale rules are worth knowing. For the unaware, this rule could cost you your loss deduction. Read article

Tax Credits versus Tax Deductions

Deduct this or take a credit? Which is worth more to you? Often the answer is not as simple as you think. Read article

The Kiddie Tax

In 1986, a tax law was introduced to block parents from transfering investments to their children as a technique to lower their taxes. This law, commonly known as the kiddie tax, ensures that this unearned incomeis taxed at a parent's, usually higher, tax rate. But there is still a tax planning opportunity. Read article

Adjusted Gross Income (AGI)

Adjusted Gross Income (AGI) is a central term in the IRS vocabulary. Can you provide a working definition of the term? Doing so is often the starting point for effective tax planning. Read article

Applicable Federal Rates (AFRs)

The IRS often sees the transfer of funds as a loan, whether there is a loan agreement or not. This also means there is an implied term and interest payment. When the IRS says a transaction is a loan, what interest rate do they use? Enter AFRs. Here is what you need to know. Read article

The Earned Income Tax Credit (EITC)

The Earned Income Credit is one of the most common ways Americans reduce their tax bill. Yet per the IRS, 1 out of 5 people who could qualify for the credit do not file for it. Here are answers to some common questions. Read article

Understanding Tax Terms: Innocent Spouse Relief

Your ex filed a tax return, didn't pay the tax, and left you holding the bag. Unfair! There may be relief, but only if you know the innocent spouse rules. Read article

Depreciation Recapture

Too many taxpayers using a home office or having rental property are surprised by their tax bill when they sell their property. A little understood area of the tax code called depreciation recapture is often the culprit. Read article

Is Being Effective Better Than Being Marginal?

What is the difference between a Marginal Tax Rate and an Effective Tax rate? Who cares? You might if you add a second job and see some of your tax benefits disappear. Here is what you need to know. Read article

Understanding Tax Terms: Basis

This commonly used tax term is anything but common to most of us. Knowing the basics of basis can serve to lower your tax obligation when you sell property. Read article

Investments

Defending Fair Market Value

Determining the value of items on your tax return is always open to interpretation. You do not want that to happen to you during an audit as it can lead to additional tax and penalties. Here are some tips to help defend your Fair Market Value (FMV) determinations. Read article

Better Bartering Basics

The IRS wants all of us to capture bartering activity as income. Is it really that simple? Here are some tips. Read article

Is a Section 529 plan the right college savings plan for you?

There are many ways to save for college, but one thing is certain: it is never too early to start. Should you consider a 529 college saving plan? Read article

Large retirement account balances can cause Social Security tax problems

A big surprise can occur when you see your Social Security Retirement Benefits being subject to income tax. This "tax torpedo" is often triggered by Retirement Account distributions. Are you prepared for this? Read article

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Understanding Tax Terms

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