Understanding Common Tax Terminology: A Helpful Guide
1. Taxable Income – This is the amount of income that’s actually taxed. You get taxable income by taking your AGI and subtracting either:
- the standard deduction, or
- itemized deductions (whichever is larger).
2. Standard Deduction
- The standard deduction is a fixed amount the government allows everyone to subtract
from their income, reducing how much tax they owe. The amount changes each year and
depends on your filing status (single, married filing jointly, etc.).
3. Itemized Deductions
- Rather than taking the standard deduction, you can list (“itemize”) specific deductible
expenses—such as mortgage interest, charitable contributions, and medical costs. You
typically only itemize if these expenses are greater than the standard deduction.
4. Extension
- A tax extension gives you extra time to file your return—typically until October—but not
extra time to pay your taxes.