Glossary · 25 terms
Taxation
All taxation terms in the EquitiesAmerica.com glossary — plain-English definitions for American investors.
1099-B(Form 1099-B)
An IRS information return that brokers and barter exchanges issue to report proceeds from securities sales, including the cost basis and holding period for covered securities, used by investors to prepare Form 8949 and Schedule D.
1099-DIV(Form 1099-DIV)
An IRS information return issued by brokers and mutual fund companies to report dividends, capital gain distributions, and other investment income paid to investors during the tax year.
Adjusted Gross Income(AGI)
A taxpayer's total gross income minus specific above-the-line deductions allowed by the IRS, serving as the key income figure on Form 1040 and the basis for calculating eligibility for many credits, deductions, and tax provisions.
Alternative Minimum Tax(AMT)
A parallel federal income tax system under IRC Sections 55-59 designed to ensure that high-income taxpayers who benefit from significant deductions and exclusions still pay a minimum level of income tax.
Capital Gains Tax(CGT)
A tax levied on the profit realized from the sale of a capital asset, such as stocks, bonds, or real estate, when the proceeds exceed the original purchase price.
Cost Basis(tax basis)
The original value of an asset for tax purposes, typically the purchase price plus commissions and fees, used to calculate capital gains or losses when the asset is sold.
Effective Tax Rate
The average rate at which a taxpayer's total income is taxed, calculated by dividing total tax liability by total taxable income, reflecting the blended impact of all applicable tax brackets.
Estimated Tax Payments(quarterly estimated taxes)
Quarterly prepayments of income tax made directly to the IRS by taxpayers whose income is not fully covered by withholding, including investors with significant capital gains, dividends, or other investment income.
FIFO(first in first out)
An IRS-recognized cost basis accounting method that assumes the shares purchased first are sold first when only some shares of a holding are disposed of, determining which lots' basis and holding periods apply to the sale.
Form 8949(8949)
An IRS tax form used to report sales and dispositions of capital assets, providing a line-by-line record of each transaction that feeds into Schedule D for the calculation of total capital gains and losses.
Gift Tax Basis(carryover basis)
When a capital asset is received as a gift, the recipient generally inherits the donor's original cost basis (carryover basis), meaning any pre-existing unrealized gain transfers to the recipient for future capital gains tax purposes.
Long-Term Capital Gains(LTCG)
Profits from the sale of a capital asset held for more than one year, eligible for preferential federal tax rates of 0%, 15%, or 20% depending on the taxpayer's income.
Marginal Tax Rate
The rate of tax applied to the last dollar of a taxpayer's taxable income — the highest tax bracket that the taxpayer's income reaches in the current progressive tax system.
Modified Adjusted Gross Income(MAGI)
Adjusted gross income recalculated by adding back certain deductions and excluded income items, used by the IRS to determine eligibility for specific tax benefits such as Roth IRA contributions, the Net Investment Income Tax, and ACA premium tax credits.
Net Investment Income Tax(NIIT)
A 3.8% surtax imposed by the Affordable Care Act on net investment income for taxpayers whose modified adjusted gross income exceeds $200,000 (single) or $250,000 (married filing jointly).
Ordinary Dividend
A dividend that does not meet the IRS holding period or source requirements to be treated as a qualified dividend, and is therefore taxed at the investor's ordinary income tax rate.
Qualified Dividend
A dividend that meets IRS requirements to be taxed at the lower long-term capital gains rates of 0%, 15%, or 20%, rather than as ordinary income.
Schedule D(Schedule D Form 1040)
An IRS tax schedule attached to Form 1040 that summarizes an investor's total capital gains and losses for the year, combining short-term and long-term results to determine the net taxable capital gain or deductible capital loss.
Short-Term Capital Gains(STCG)
Profits from the sale of a capital asset held for one year or less, taxed at the investor's ordinary income tax rate rather than the preferential long-term capital gains rates.
Specific Identification(specific lot identification)
A cost basis accounting method that allows investors to choose exactly which tax lots are being sold when disposing of a partial position, enabling precise control over the realized gain, loss, and holding period of each transaction.
Step-Up in Basis(stepped-up basis)
A tax provision under IRC Section 1014 that resets the cost basis of an inherited asset to its fair market value on the date of the decedent's death, eliminating any capital gains tax on appreciation that occurred during the deceased's lifetime.
Tax Bracket
A range of taxable income to which a specific marginal tax rate applies under the U.S. federal progressive income tax system, with higher brackets applying to successively higher portions of income.
Tax-Deferred(tax-deferred growth)
A classification for investment growth or income that is not subject to current-year taxation but will be taxed as ordinary income when withdrawn or realized in the future, commonly associated with traditional IRAs, 401(k) plans, and annuities.
Tax-Loss Harvesting
An investment strategy that involves deliberately selling securities at a loss to offset capital gains elsewhere in a portfolio, thereby reducing the investor's current tax liability.
Wash Sale Rule(wash sale)
An IRS rule under Section 1091 that disallows a claimed capital loss if the investor purchases a substantially identical security within 30 days before or after the sale that generated the loss.