Author Archives: Edward J. Shaughnessy

Averaging

Averaging

Description and Definition of Averaging

If you receive a lump-sum distribution from a pension plan you can elect either five year or ten year averaging on Form 4972 if you were born before 1936 or are 591/2 or over provided you participated in the plan for at least five years.

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Tax Credits

Tax Credits

Description and Definition of Tax Credits

Money that tax payers can deduct directly from their taxes. Your taxes are reduced by the amount of your credit. You can get tax credits for purposes such as child care expenses and the earned income credit for low-income taxpayers.

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Non-taxable Distribution

Non-taxable Distribution

Description and Definition of Non-taxable Distribution

A dividend received from a company as a return of the shareholders investment in the stock. Non-taxable distributions are tax free but you must reduce your basis in the stock by the amount of the distribution. Your gain or loss will be calculated using the adjusted basis when you sell the stock.

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Payroll Tax

Payroll Tax

Description and Definition of Payroll Tax

A tax based on wages, tips, and salaries paid. Your employer deducts a certain amount from your paycheck and pays the rest of these taxes. This tax money funds many finance specific programs. Federal, state, and local governments collect payroll taxes for expenses such as Social Security, Medicare, unemployment compensation, and worker's compensation insurance.

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W-2

W-2

Description and Definition of W-2

By January 31st of each year your employer sends you and the IRS this form to report your annual wages, federal taxes withheld, and other information. This form will also reflect state taxes withheld, social security wages and withholdings, Medicare wages and withholdings, and tips withheld.

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Adoption Taxpayer Identification Number

Adoption Taxpayer Identification Number

Description and Definition of Adoption Taxpayer Identification Number (ATIN)

An Adoption Taxpayer Identification Number is applied for and used for a taxpayer's child if the child's adoption is pending. If an authorized adoption agency places a child in your home, you may be able to claim the child as your dependent and also claim the child and dependent care credit.

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