A tax assessment is a schedule issued by HM Revenue and Customs (HMRC) showing a calculation of a taxpayer's liability to income tax. Income sources are identified separately, and individuals could receive multiple tax assessments for each fiscal year, depending on the number of different income sources.
The specified domain on which a tax is levied, such as an individual's income for income tax, the estate of a deceased person for inheritance tax, and the profits of a company for corporation tax.
A tax bracket refers to a range of income that is taxed at a specific rate. As income increases and moves into higher brackets, the rate of taxation is adjusted according to predefined thresholds set by the tax authority.
The tax code refers to the body of tax law applicable in a country, within which tax legislation is codified rather than laid down by statute. Understanding the nuances of the tax code is essential for both individuals and businesses to ensure compliance with tax obligations.
A non-refundable tax credit designed to support elderly and disabled taxpayers by reducing their federal tax liability.
A tax deduction reduces the amount of income subject to tax, thereby decreasing the total tax bill for individuals or businesses. Tax deductions can encompass a wide range of expenses, from mortgage interest to medical expenses.
A Tax Deposit Certificate is issued by HM Revenue and Customs (HMRC) to a taxpayer who has made an advance payment for future liabilities such as income tax, capital-gains tax, or inheritance tax. It offers an interest-bearing option for managing tax obligations efficiently.
A tax exemption refers to a statutory provision which reduces or eliminates the obligation to pay a financial charge (tax) that would otherwise be imposed by a governing body.
Penalties imposed by tax authorities for failing to meet statutory tax requirements, differing for income tax, corporation tax, and value-added tax (VAT).
Tax Rate Schedules provide predefined percentages applicable to various income ranges, crucial for the taxation process of individuals and entities. These schedules must be utilized by taxpayers with taxable income of $100,000 or more, while others typically use detailed tax tables.
The Tax Reform Act of 1986 (TRA 1986) represents the most comprehensive tax legislation since the onset of World War II. It aimed to ensure that individuals with equal incomes paid equal taxes, minimized the role of tax incentives in addressing social and economic issues, and primarily used taxes to generate revenues.
A tax refund is the reimbursement issued by the government to a taxpayer when they have overpaid their taxes throughout the year. This typically occurs due to over-withholding, overestimating income, or underestimating deductions, exemptions, and credits.
Tax relief is a reduction in the amount of tax that an individual or corporation owes to the government, typically through various statutory provisions. In the UK, tax relief can be applied to income tax, capital gains tax, and inheritance tax through different mechanisms such as allowances, exemptions, and credits.
A tax return is an annual statement of income and personal circumstances filed by a taxpayer to calculate and report individual tax liabilities and claim personal allowances.
Tax treaties are agreements negotiated between two or more countries to avoid double taxation of income earned in one country by residents of another and to prevent tax evasion.
An agreement between two countries that specifies how income, profits, or gains are taxed to prevent double taxation and provide tax relief.
A tax year is a period used for calculating annual income tax returns. It is commonly a calendar year but can also be a fiscal year, which is any consecutive 12-month period that does not necessarily start on January 1st.
Denoting an amount that can be deducted from income or profits, in accordance with the tax legislation, before establishing the amount of income or profits that is subject to tax.
Tax-exempt income refers to specific types of income that are not subject to federal income tax. This includes certain Social Security benefits, welfare benefits, nontaxable life insurance proceeds, armed forces family allotments, nontaxable pensions, and tax-exempt interest.
A tax-free designation refers to any payment, allowance, or benefit that is not subject to taxation, providing financial advantages to recipients without impacting their taxable income.
A detailed explanation of taxable income, along with examples, related terms, frequently asked questions, online resources, and further reading materials.
A levy imposed on individuals and corporate bodies by central or local governments to finance government expenditures and implement fiscal policies, excluding payments for specific services rendered.
A portion of Social Security benefits may be included in taxable income, contingent upon the taxpayer's filing status and total income.
The UK legislation consolidating the law relating to the administration and collection of income tax, corporation tax, and capital gains tax.
Ten-year averaging is a method used to calculate income tax on a lump-sum distribution from a qualified benefit plan. This method was designed to reduce the tax liability of the beneficiary on large, one-time distributions. The ten-year averaging rule applies to individuals who were participants in a qualified benefit plan, were at least 50 years of age before January 1, 1986, and had been participants in the plan for at least five years before the year they receive the distribution.
The top rate of income tax is the highest percentage of income that individuals in the highest income bracket are required to pay. This rate often affects high-income earners more significantly.
Total income refers to the income of a taxpayer from all sources before any income-tax allowances are applied. This is often referred to as statutory total income and includes income calculated on various bases depending on the source of income. This concept is pivotal for calculating a person's income tax for a given year.
Trade, particularly in the context of income tax, refers to activities or transactions that could be subject to income tax charges as opposed to capital gains tax. Determining whether an activity is classified as a 'trade' involves evaluating various factors or 'badges of trade'.
Under-Withholding refers to a situation where taxpayers have insufficient federal, state, or local income tax withheld from their wages, potentially resulting in tax liability upon filing returns and incurring penalties and interest.
Unilateral relief is a measure taken by the UK authorities to provide relief against double taxation for taxes paid in a country with which the UK does not have a double-taxation agreement.
For income tax purposes, a United States Person (USP) refers to any individual or entity that falls under the umbrella of being liable to U.S. taxation, including citizens, residents, domestic partnerships, corporations, and certain estates and trusts.
Unrealized appreciation refers to the increase in the value of an asset that has not yet been sold, calculated as the excess of the asset's fair market value over its adjusted basis. This appreciation is recognized for financial reporting purposes but does not incur income tax until the asset is sold.
Withholding tax is a tax deducted at source from dividends or other income paid to non-residents of a country. If there is a double taxation agreement between the country in which the income is paid and the country in which the recipient is resident, the tax can be reclaimed.
