The word “tax” is so magical that it has the power to shift one's mood – but in an unpleasant way. Let's be honest once and for all. Doing your own taxes clearly isn't the most exciting parts of becoming an adult. Aside from the harsh reality that you have to share a part of your income to the government until you retire, the process of filing them is a bit tedious and confusing for most people. However, the good in paying them always outweigh the bad.

Taxes become more complex as your financial status gets more complicated. So while you’re young and your taxes are simple, it’s a must to familiarize yourself with the basic tax jargons. If you’re a youngster (like me) who failed to listen to tax-related lectures, this simple guide that covers the bare essentials of taxes is for you.

Basic tax lingo for beginners

Withholding Tax and Withholding Allowances

You know the drill – a percentage of your pay is deducted for taxes and directly sent to the government before your hands could even clasp it. The amount your employer withholds is called the withholding tax, which is considered a partial payment of your income tax.

However, you can control the amount being withheld from your paycheck. By filling up a form, you'll determine the withholding allowances you can claim for yourself and for your dependents. The more withholding allowances you claim, the less tax withheld from your paycheck. With this, it's a must to revise your withholding allowances as your life changes - like when you get married, have children, and get a new mortgage.

Adjusted Gross Income

As its name implies, Adjusted Gross Income (AGI) is your income after taking out specific deductions like your retirement contributions and student loan interest payments from your gross pay.

Taxable Income

Taxable income is generally described as gross or adjusted gross income minus any exemptions and itemized deductions you're eligible for. It is the amount of income used to compute your income tax due.

Tax Bracket

The term refers to a range of incomes that are subject to a specific income tax rate. Generally, individuals with lower incomes fall into tax brackets with low-income tax rates while individuals with higher incomes fall into ones with higher rates. The basic principle is the amount you pay in income tax increases as you earn more.

The tax brackets help create progressive income tax schedules for single filers, married filers, and head of the household filers.

Tax Break

Tax breaks mean savings on a taxpayer's liability. The government grants three forms of tax breaks to certain taxpayers namely, tax exemptions, tax deductions, and tax credits. All these reduce your taxable income in various ways. You just have to pass a specific income level.

Tax Exemption

The term refers to a monetary exemption that eliminates taxable income. The exempt status can provide reduced rates, tax on only a portion or items, or complete relief from taxes. They come in two types:

• Personal Exemption - You can claim a personal exemption for yourself if you're a single filer with children to support and if your parents don't claim you as a dependent on their tax forms.
• Dependent Exemption - You can claim a dependent exemption for each person you support financially, like your children and/or other family members.

Tax Deduction

Tax deductions refer to certain expenses you've had during the tax year that you can subtract from your taxable income. There are two ways to reap tax deductions.

• Standard Deduction - It refers to the fixed amount you can deduct from your taxable income as recognized by the state.
• Itemized Deduction - Instead of taking the fixed, easy route, you list down the items eligible for deductions, add up the expense spent on such items, and deduct that sum from your taxable income. Some qualified expenses include state, local income, and property taxes, home mortgage interest, and out of pocket medical and work-related expenses.

Tax Credits

Tax credits, like tax exemptions and deductions, significantly decrease your taxable income. But unlike the two, tax credits are withheld directly from the tax liability. Tax credits reduce the actual amount of tax owed dollar for dollar. Such credits are granted to particular individuals or businesses.

Tax Refund

Preparing to file your taxes may by physically and mentally draining but there's something good you can reap from it. A tax refund is one of those things. Money is withheld from your paycheck monthly and there's a chance you've been paying the government more than what you really owe. When this happens, you are entitled to get a refund and claim what is rightfully yours all along.

Tax Depreciation

Tax depreciation is just a fancy term for an income tax deduction which enables you as a taxpayer to recover the cost of a certain tangible property or asset. It serves as your annual allowance for the wear and tear, and deterioration of a property over its effective life. It is used to reduce the amount of taxable income reported by a company or business.

To list such expense on your tax return, you need a tax depreciation schedule, or a document that shows the amount of value left in an investment property over the passage of time. The document also outlines the deductions available for maximizing cash return.

Author Bio:

Sophie Harris is a resident writer for Depreciator, an Australian-based business specializing in Tax Depreciation Schedules. Being an enthusiast of pursuing financial security herself, she writes and shares self-help articles focused on personal finance, tax planning, and property investing.