Tax Glossary
US tax terms explained

Form from your employer showing annual wages and taxes withheld. Required for filing your personal tax return.

Form for freelance income of $600+. NEC = Non-Employee Compensation. You receive it if you work as an independent contractor.

Form from payment platforms (PayPal, Venmo, Stripe) for payments of $600+ per year. New threshold starting in 2024.

The main US individual income tax return form. Filed annually by April 15.

Attachment to Form 1040 for reporting income and expenses from self-employment (freelance, small business).

Attachment to Form 1040 for calculating capital gains tax from the sale of stocks, real estate, and other assets.

Form for detailed capital gains and losses reporting per transaction. Used together with Schedule D.

Foreign Bank Account Report (FinCEN 114). Required when the combined balance of foreign accounts exceeds $10,000 for even one day in the year.

Foreign Account Tax Compliance Act. Foreign banks must report US residents' accounts to the IRS. Reporting threshold — $50,000+.

Statement of Foreign Financial Assets. Filed with Form 1040 when foreign assets exceed $50,000 (or $100,000 for joint returns).

Social Security Number — the primary tax identifier in the US. Issued to citizens, residents, and certain visa holders.

Individual Taxpayer Identification Number. Alternative to SSN for those not eligible for one. Starts with the digit 9.

Employer Identification Number — the company's tax number. Required for LLC, Corp, opening a bank account, and hiring employees.

Standard deduction from taxable income. In 2025: $15,000 (single) / $30,000 (married filing jointly).

Itemized deductions: mortgage interest, state taxes (SALT up to $10K), charitable contributions, and medical expenses. Beneficial when total exceeds the standard deduction.

Tax credit — a direct reduction of the tax amount (not income). Child Tax Credit, EITC, American Opportunity Credit are examples of valuable credits.

SE Tax — 15.3% of self-employed net income (12.4% Social Security + 2.9% Medicare). Half can be deducted from income.

Quarterly estimated tax payments for self-employed individuals and those without withholding. Deadlines: Apr 15, Jun 16, Sep 15, Jan 15.

Capital gains from selling stocks, real estate, crypto. Long-term (asset held >1 year): 0%, 15%, or 20%. Short-term: taxed as ordinary income.

Limited Liability Company — a flexible business structure. Protects personal assets, no board of directors required. Pass-through taxation by default.

S-Corporation — allows splitting income into salary and dividends. Dividends are not subject to SE tax. Beneficial at income of $80K+.

SEP-IRA — retirement account for the self-employed. Contributions up to 25% of income (max $70K in 2025). Fully deductible from taxable income.

Individual 401(k) for self-employed without employees. Contribution limit in 2025: up to $70,000. Roth contributions available.

Roth IRA — contributions from after-tax income, but growth and withdrawals in retirement are tax-free. 2025 limit: $7,000/year.

Annual tax filing deadline — typically April 15. If the date falls on a weekend, it moves to the next business day.

Extension of the filing deadline to October 15 (Form 4868). Important: extends the filing deadline, but NOT the payment deadline.

IRS penalty removal. First-time penalty abatement is available if you have no violation history in the last 3 years. A request is submitted to the IRS.

Offer in Compromise (OIC) — IRS program to settle a tax debt for less than the full amount owed. Approved for those with financial hardship.

IRS audit — a request for supporting documents. Most audits are conducted by mail. Having a tax professional significantly improves your chances of success.