This chapter is intended as a quick start guide to help you to understand the tax system and process before you commit to reading 137 pages in Publication 17 (Tax guide for individuals provided from the Internal Revenue Service (IRS): https://www.irs.gov/). The IRS website helps individuals to file their Federal Income Tax year after year, but you first need to familiarize yourself with the tax language and terminology.

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Here are the key tax terms that every individual needs to know and understand.

Income - Wages, Salaries, Tips

- Income includes all sources of income earned and unearned
- Examples of unearned income
  - Taxable interest
  - Dividends
  - Alimony
  - Retirement plan distribution
  - Rental real estate
  - Farm income
  - Social security, etc.

Adjusted Gross Income

- AGI is the number you get after you subtract adjustments from your income if any

Taxable Income

- Your tax bill is calculated based on your taxable income
- You derive your taxable income by subtracting:
  - The greater of the standard deduction for the filing status or allowed itemized deductions and qualified business income deduction from adjusted gross income (AGI)

Federal Tax Withheld

- This is the amount of taxes you had withheld from your income throughout the taxable year
  - Your liability or refund at the end of the year is directly related to this tax withholding

Tax Credits

- Tax credits are credits such as child tax credit, and credit for other dependents
- They are applied to your tax bill after you calculate your tax liability

Practice

Now that you know the terminology related to filing your taxes. Look over your previous years' returns and documentation to identify this information. Think of paying it forward and discuss the changes prior and after tax year 2018 with a friend or a family member

Congratulations! You can move on to Chapter 2. Federal tax rate schedules for individuals

To review the full module on Federal Tax for the US individuals, click here.