Definitions of 33 commonly-confused tax terms — AGI, QBI, SALT, REPS, Backdoor Roth, and more. Each entry links to the calculator that uses the term in context.
Your total income minus 'above-the-line' deductions (Traditional IRA, HSA, half of self-employment tax, student loan interest, etc.). AGI is the basis for most deduction phaseouts and credit eligibility — many tax thresholds reference AGI rather than gross income or taxable income.
A deduction taken before AGI is calculated. Includes Traditional IRA contributions, HSA contributions, the self-employed health insurance deduction, half of self-employment tax, student loan interest (up to $2,500), educator expenses ($300), and SEP-IRA / Solo 401(k) employer contributions. You don't need to itemize to take above-the-line deductions.
A parallel tax calculation that disallows certain deductions and exemptions. After the 2017 TCJA dramatically raised AMT exemptions and indexed them to inflation, AMT now affects far fewer households (mostly those exercising large amounts of incentive stock options, or with very large state-tax deductions before the SALT cap was reduced).
A workaround for high earners whose income exceeds the Roth IRA contribution limit. You contribute up to $7,000 to a Traditional IRA (no income limit on contributions, but the deduction phases out), then convert it to a Roth IRA shortly after. Done correctly with no other Traditional IRA balances, there's no tax owed on the conversion. Watch the pro-rata rule carefully.
An accelerated depreciation deduction for qualifying business property. Phasing down: 60% for 2024, 40% for 2025, 20% for 2026, 0% in 2027 (under current law). Most powerful when paired with cost segregation studies on real estate.
Tax on profit from selling an investment held for more than a year (long-term) or one year or less (short-term). Long-term rates: 0% / 15% / 20% based on income, plus 3.8% NIIT above $200k single / $250k married. Short-term capital gains are taxed at ordinary income rates.
An engineering study that reclassifies parts of a property's basis (appliances, flooring, parking lots, landscaping) from 27.5/39-year lives to shorter 5/7/15-year lives. Combined with bonus depreciation, can accelerate $30,000-$80,000 of deductions into year 1 on a $500k+ property. Costs $3,000-$8,000 for the study.
$2,000 per qualifying child under 17 ($1,700 of which is refundable). Phases out at AGI above $200,000 single / $400,000 married filing jointly, by $50 per $1,000 over the threshold.
A retirement plan promising a specific benefit at retirement, with contributions calculated actuarially. Self-employed business owners 45+ with stable income can shelter $100k-$300k+/year. Setup costs ~$2,000-$5,000/year for plan administration. Best paired with Solo 401(k) for older high earners.
When you sell depreciated property, the IRS 'recaptures' the depreciation you took (or could have taken) at a special 25% rate, on top of any capital gains tax on appreciation. Even if your sale qualifies for the §121 primary-residence exclusion, depreciation recapture still applies. 1031 exchanges defer this.
A charitable giving account where you contribute a lump sum (taking the immediate tax deduction), then distribute to charities over time. Used for the 'bunching' strategy: pile multiple years of donations into one tax year to exceed the standard deduction. Fidelity Charitable, Schwab Charitable, Vanguard Charitable are the main providers.
A refundable credit for low-to-moderate-income workers, especially those with qualifying children. For 2024, max credit ranges from $632 (no kids) to $7,830 (3+ kids). Heavily phased out at higher incomes. Often missed by filers eligible based on a temporary income drop.
The combined 15.3% Social Security (12.4%) + Medicare (2.9%) tax. Split 50/50 between employer and employee for W-2 workers ($7.65% each). Self-employed pay both halves themselves (the full 15.3%) but get to deduct half on Schedule 1. Social Security portion caps at the $176,100 wage base; Medicare portion has no cap and adds an extra 0.9% above $200k single / $250k married.
Triple-tax-advantaged account for medical expenses: contributions are deductible, growth is tax-free, withdrawals for qualified medical expenses are tax-free. 2025 limits: $4,300 self-only / $8,550 family. Requires a High-Deductible Health Plan (HDHP). After 65, can withdraw for non-medical purposes at ordinary income rates (acts like a Traditional IRA).
A list of specific deductions (mortgage interest, state and local taxes, charitable contributions, medical expenses, etc.) that you can take instead of the standard deduction. You itemize if your total exceeds the standard deduction.
A strategy that lets you contribute up to ~$46,500 in after-tax dollars to a 401(k) and convert them to Roth, on top of the regular $23,500 employee limit. Requires your 401(k) plan to allow both after-tax contributions AND in-plan Roth conversions (or in-service distributions). About 30-40% of large-employer plans support it.
An extra 3.8% tax on investment income (dividends, capital gains, rental income, interest) for households with AGI above $200,000 single / $250,000 married. Started in 2013 to fund the ACA. Tax-loss harvesting and municipal bonds become more valuable above this threshold.
IRS rules limiting how rental property losses can offset other income. By default, rental losses are 'passive' and can only offset passive income. Two main exceptions: (1) the $25,000 special allowance for active participation, fully phased out between $100k and $150k AGI; (2) Real Estate Professional Status (REPS) — 750+ hours/year, more than 50% of total work hours.
The tax rule that says when you convert any Traditional IRA money to Roth, the conversion is treated proportionally across ALL your Traditional IRA balances combined. This trips up Backdoor Roth — if you have a SEP-IRA or rollover IRA balance, the backdoor conversion becomes mostly taxable. Solution: roll Traditional IRA balances into a 401(k) before doing the backdoor conversion.
A 20% deduction on pass-through business income (Schedule C, partnership K-1, S-corp distributions). Subject to a phaseout starting at $241,950 single / $483,900 married for specified service businesses (consulting, law, medicine, finance). Below the threshold, the full 20% is available. The deduction reduces taxable income but not AGI.
The IRS requires S-Corp owners to pay themselves 'reasonable compensation' for the work they actually perform. Too low is the most common S-Corp audit trigger. A common (non-binding) heuristic: 40-60% of net business income, depending on what you'd pay an outside hire. Use industry comp data (RC Reports, Salary.com) for documentation.
An IRS designation that makes rental losses non-passive, removing the $25k allowance phaseout. Requires 750+ hours per year in real property trades AND more than 50% of your total personal-services hours. Heavily audited — keep contemporaneous time logs. Spouses can pool: only one needs to qualify on a joint return.
Mandatory withdrawals from Traditional retirement accounts (401(k), Traditional IRA) starting at age 73 (was 72; raised by SECURE Act 2.0). Calculated as account balance ÷ IRS life-expectancy factor. Roth IRAs have no RMDs during the original owner's lifetime; Roth 401(k)s no longer have RMDs as of 2024.
The 2017 TCJA capped the deduction for state income tax + local tax + property tax at $10,000 per return ($5,000 if married filing separately). Major impact on high earners in California, New York, New Jersey, and Illinois who pay $20,000-$50,000+ in actual SALT but can only deduct $10,000.
A nonrefundable credit of up to $1,000 ($2,000 married filing jointly) for retirement contributions if AGI is under specific thresholds (~$39,500 single / ~$79,000 married for 2025). Often missed by filers who don't realize their retirement contributions also generate this credit.
Lets businesses deduct the full cost of qualifying equipment (computers, vehicles >6,000 lbs, machinery) in the year purchased rather than depreciating over years. 2025 limit: $1.22 million. Phases out dollar-for-dollar above $3.05 million in equipment purchases.
The 15.3% combined Social Security (12.4% on first $176,100) + Medicare (2.9% on all earnings) tax for self-employed individuals. Calculated on 92.35% of net SE earnings. Half is deductible above-the-line. The S-Corp election partially escapes this tax by splitting income into salary (taxed) and distributions (not taxed).
A self-employed retirement plan with employer-only contributions up to ~20% of net SE income (technically 25% of compensation, which works out to ~20% after the half-SE-tax adjustment). 2025 max contribution: $70,000. Simpler to set up than Solo 401(k); contributions allowed until tax filing deadline + extensions.
A 401(k) plan for self-employed individuals with no non-spouse employees. Allows both employee ($23,500 in 2025) and employer (~25% of compensation) contributions, up to a combined $70,000. Most modern providers (Vanguard, Fidelity, Schwab, eTrade, Carry) offer Roth on the employee portion.
A flat deduction available without itemizing. 2025 amounts: $15,000 single / $30,000 married filing jointly / $22,500 head of household. After the 2017 TCJA roughly doubled standard deduction amounts, only ~10% of filers itemize.
If your rental's average guest stay is 7 days or less (or 30 days with substantial services), it's not treated as a passive rental — losses can offset W-2 or business income WITHOUT needing REPS. Material participation (100+ hours and more than anyone else, or 500+ hours) is required to claim the losses.
Selling investments at a loss to offset capital gains, plus up to $3,000 of ordinary income annually. Excess losses carry forward indefinitely. Watch the wash-sale rule: you can't repurchase a 'substantially identical' security within 30 days before or after the sale. Most robo-advisors automate this.
Your AGI minus the standard deduction or itemized deductions, minus the QBI deduction. This is the number federal tax brackets apply to. Different from AGI: many phaseout thresholds use AGI, but the actual tax you owe is based on taxable income.
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