Glossary

Glossary definitions provided in part by the Jump$tart Coalition for Personal Financial Literacy.

Tax Deduction : An expense that a taxpayer can subtract from taxable income. Examples include deductions for home mortgage interest and for charitable gifts. (See Tax credit and Tax exemption.)

Tax deferral: The feature of an investment in which taxes due on principal and/or earnings are postponed until funds are withdrawn, often at retirement.

Tax Exemption : Earnings, such as interest from municipal bonds, that are free of certain taxes. (See Tax credit and Tax deduction.)

Tax Rate : A tax rate is used to calculate the amount of tax a taxpayer owes. It is a percentage of adjusted gross income for a particular range of incomes. The ranges are called "tax brackets."

Tax Withholding : The law requires that all eligible taxpayers who earn above a low annual minimum pay their estimated tax bill throughout the year for which they're due. This is normally done by employers who routinely deducted, or "withheld," taxes from every pay check or when self-employed individuals make quarterly payments directly to the IRS.

Taxable Income : Income Subject to tax; total income adjusted for deductions, exemptions, and credits. (See Adjusted Gross Income.)

Tax-Advantaged: An economic bonus which applies to certain accounts or investments that are, by law, tax-reduced, tax-deferred, or tax-free

Tax-Deferred : Investments where taxes due on the amount invested and/or it's earning are postponed until funds are withdrawn, usually at retirement.

Tax-Exempt (Tax-Free) : Investments (e.g., municipal bonds) whose earnings are free from tax liability.

Third-Party Notifications: Someone who may be indirectly involved but is not a principal party to an arrangement.

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