Tax Strategy Glossary

Total gross income minus specific above-the-line deductions such as retirement contributions, student loan interest, and alimony payments.

A parallel tax calculation that limits certain deductions and exemptions to ensure taxpayers above certain income levels pay at least a minimum amount of tax.

Profit realized from the sale of an asset such as stocks, real estate, or bonds, classified as short-term (held one year or less) or long-term (held more than one year).

The original value of an asset for tax purposes, used to calculate capital gains or losses upon sale. Adjusted for stock splits, dividends reinvested, and improvements.

An expense that can be subtracted from gross income to reduce taxable income, either as a standard deduction or through itemized deductions.

The tax deduction for the gradual loss in value of a business asset over its useful life, spreading the cost over multiple tax years.

The average rate at which income is taxed, calculated by dividing total tax paid by total taxable income.

A tax on the transfer of the estate of a deceased person, applied to the value of assets exceeding the lifetime exemption amount.

The classification used to determine tax rates and standard deduction amounts: Single, Married Filing Jointly, Married Filing Separately, Head of Household, or Qualifying Surviving Spouse.

A tax on the transfer of property from one individual to another while receiving nothing or less than full value in return.

A tax-advantaged savings account for individuals with high-deductible health plans, offering deductible contributions, tax-free growth, and tax-free medical withdrawals.

Specific expenses that taxpayers can claim instead of the standard deduction, including mortgage interest, state and local taxes, charitable contributions, and medical expenses.

A tax-deferred exchange of investment or business property for property of a similar nature under Section 1031 of the Internal Revenue Code.

The tax rate applied to the last dollar of income earned, reflecting the highest bracket into which a taxpayer's income falls.

A 3.8% surtax applied to investment income for taxpayers with modified AGI exceeding certain thresholds.

A business structure (S-corp, partnership, LLC, sole proprietorship) whose income passes through to the owners' personal tax returns rather than being taxed at the entity level.

A tax system in which the tax rate increases as the taxable amount increases, with income divided into brackets taxed at ascending rates.

A designated low-income area where investments in a Qualified Opportunity Zone Fund may receive preferential capital gains tax treatment.

The minimum amount that must be withdrawn annually from tax-deferred retirement accounts starting at age 73 under current law.

A retirement account funded with after-tax dollars that allows tax-free growth and tax-free qualified withdrawals in retirement.

The state and local tax deduction allows taxpayers to deduct state income taxes, local property taxes, and sales taxes, currently capped at $10,000 per return.

The adjustment of the cost basis of an inherited asset to its fair market value at the date of the decedent's death, potentially eliminating unrealized capital gains.

A dollar-for-dollar reduction in the amount of tax owed, which can be refundable (reducing tax below zero) or non-refundable (reducing tax to zero only).

The strategy of selling losing investments to realize capital losses that offset capital gains and reduce taxable income.

An IRS rule that disallows a capital loss deduction if a substantially identical security is purchased within 30 days before or after the sale.