Abandoned spouse

The abandoned spouse IRS tax provision enables a married taxpayer, with a dependent child ,whose spouse did not live in the taxpayer’s home during the last six months of the tax year to file as a head of household. This is the alternative rather than filing as married filing separately.

Acquisition indebtedness

Acquisition indebtedness is debt incurred in acquiring, building, or substantially improving a qualified residence that the taxpayer owns.It defines what most people call home mortgage debt, on which the interest is deductible because the interest on such loans is deductible as qualified residence interest. Remember the limits because interest on such debt is deductible only on the portion of the indebtedness that does not exceed $1,000,000 ($500,000 for married persons filing separate returns). Further, the taxpayer must itemize deductions in order to take advantage of acquisition indebtedness

Adjusted Basis

Adjusted basis is the cost or other basis of property reduced by depreciation. Basically, the net cost of an asset in the hands of a taxpayer after adjusting for various tax-related items. This would include allowed or allowable depreciation and increased by capital improvements.

Adjusted gross income (AGI)

Adjusted gross income is a key tax concept and represents gross income less deductions (the standard deduction or itemized deductions) and personal and dependent exemptions are deducted to arrive at the amount of taxable income that will actually be taxed. In the business context, it is gross income minus business expenses. AGI will be used for an individual taxpayer to determine what benefits and phase-outs they are are subject to.

Alimony and separate maintenance payments.

Alimony and separate maintenance payments are includible in the gross income of the recipient and are deductible by the payor. Qualifying payments (alimony) to an ex-spouse that can be deducted as adjustments to income. This is true even if a taxpayer does not itemize. The recipient must include the payments in his or her taxable income. Lastly, the payments must be made in discharge of a legal obligation that is enforceable under law. There is a strict rule that child support and voluntary payments are not treated as alimony.

Alternative minimum tax (AMT)

The AMT is a special set of tax laws aimed at preventing the wealthy from not paying any taxes. The alternative minimum tax is imposed only to the extent it exceeds the regular income tax. The AMT calculates tax benefits allowed by the regular rules differently and applies special rates — 26% and 28% — to a larger amount of income than is hit by the regular tax. In the end, the taxpayer pays the highest of either the AMT or the regular tax bill.

Blind for tax purposes

There is a certain test that taxpayers must use to determine if they are blind for tax purposes. If you are blind for on the last day of the tax year and you do not itemize deductions, you are entitled to a higher standard deduction. You qualify for this benefit if you are totally or partly blind. If you are partly blind, you must get a certified statement from an eye doctor or registered optometrist that meets certain requirements. The IRS must be able to see this statement if requested.

Business Expenses

These are expenses that are ordinary and necessary to carry on a business.

Capital Asset

Generally, all assets are capital except those specifically excluded by the Code. Major categories of noncapital assets include property held for resale in the normal course of business (inventory), trade accounts and notes receivable, and depreciable property and real estate used in a trade or business. Determining whether something is a capital asset is important because it can determine if gain is capital gain or ordinary gain.

Capital Gains

Most assets that are held for more than one year are capital assets and will be subject to capital gains when sold. When a capital asset is sold by a taxpayer, the difference between the basis in the asset and the amount it is sold for is a capital gain or a capital loss. Capital assets generally include the profit from the sale of such property as stocks, mutual-funds, and real estate. Long term-gains from the sale of collectibles are currently taxed at 28%.