Glossary

Short, plain-language definitions of tax terms you will see in our guides.

income

AGI vs MAGI

AGI is adjusted gross income; MAGI is AGI with certain add-backs.

Effective Tax Rate

Total tax paid divided by total income, shown as a percentage.

Marginal Tax Rate

The tax rate applied to your next dollar of income.

Medicare Surtax

An additional Medicare tax on high-income wages and investment income.

deductions

Donor-Advised Fund (DAF)

A charitable account that lets you take a deduction now and grant later.

Itemized Deduction

A list of eligible expenses that can reduce taxable income instead of the standard deduction.

Standard Deduction

A fixed dollar amount that reduces taxable income without itemizing.

retirement

Pro-Rata Rule

IRS rule that makes Roth conversions proportional across pre-tax and after-tax IRA balances.

Roth Conversion

Moving money from a pre-tax account into a Roth account, creating taxable income now.

limits

general

Payroll Tax (FICA)

Taxes that fund Social Security and Medicare, typically withheld from wages.

Tax Loss Harvesting

Selling investments at a loss to offset capital gains and reduce taxes.

Taxable vs Tax-Advantaged Account

Taxable accounts owe taxes yearly; tax-advantaged accounts defer or eliminate taxes.