Adjusted gross income.
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Gross income (defined later) minus adjustments to income (defined next).
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Adjustments to income.
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Deductions that are subtracted from gross income in figuring adjusted gross income. They include deductions for moving expenses,
alimony paid, a
penalty on early withdrawal of savings, and contributions to an individual retirement arrangement (IRA). Adjustments to income
can be taken even if
itemized deductions (defined later) are not claimed.
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Alternative minimum tax.
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A tax designed to collect at least a minimum amount of tax from taxpayers who benefit from the tax laws that give special
treatment to certain
kinds of income and allow deductions and credits for certain kinds of expenses.
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Capital gain distribution.
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An allocated amount paid to, or treated as paid to, a shareholder by a mutual fund, regulated investment company, or real
estate investment trust
from its net realized long-term capital gains. This amount is in addition to any ordinary dividend paid to the shareholder.
You will receive a
statement from the payer if this applies to you.
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Dependent.
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A person, other than the taxpayer or the taxpayer's spouse, for whom an exemption (defined later) can be claimed. To be your
dependent, a person
must be your qualifying child or qualifying relative (both defined later). For more information, see Exemptions for Dependents in
Publication 501.
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Earned income.
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Salaries, wages, tips, professional fees, and other amounts received as pay for work actually done.
For purposes of determining a dependent's standard deduction, earned income also includes any part of a scholarship or fellowship
grant that the
dependent must include in his or her gross income.
For purposes of completing Form 8615, earned income also includes a taxable distribution from a qualified disability trust.
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Exemption.
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An amount ($3,400 for 2007) that can be subtracted from income in figuring how much income will be taxed. Exemptions generally
are allowed for the
taxpayer, the taxpayer's spouse, and dependents.
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Gross income.
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All income from all sources (other than tax-exempt income) that must be included on your tax return.
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Investment income.
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See Unearned income, later, and Investment income defined, earlier, under Step 1. Figuring the Child's Net Investment
Income (Form 8615, Part I).
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Itemized deductions.
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Deductions allowed on Schedule A (Form 1040) for medical and dental expenses, taxes, home mortgage interest and investment
interest, charitable
contributions, casualty and theft losses, and miscellaneous deductions. They are subtracted from adjusted gross income in
figuring taxable income.
Itemized deductions cannot be claimed if the standard deduction is chosen.
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Net capital gain.
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The excess of net long-term capital gain over any net short-term capital loss. For 2007, this is the smaller of the gain on
line 15 or the gain on
line 16 of Schedule D (Form 1040). If Schedule D is not required, net capital gain is the amount of capital gain distributions
on Form 1040, line 13;
Form 1040A, line 10; or Form 1040NR, line 14.
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Net investment income.
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The total of all investment income (other than tax-exempt income) reduced by the sum of the following: adjustments to income
related to the
investment income, plus the larger of:
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$850 plus the portion of the child's itemized deductions on Schedule A (Form 1040), line 29 (or Schedule A (Form 1040NR),
line 17), that are
directly connected with producing the investment income, or
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$1,700.
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Qualified dividends.
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Dividends eligible for the lower tax rates that apply to a net capital gain. They are reported to you in box 1b of Form 1099-DIV.
You report them
on Form 1040 or Form 1040A, line 9b, or Form 1040NR, line 10b. For more information, see Publication 550.
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Qualifying child.
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To be your dependent (defined earlier), a person must be either your qualifying child or your qualifying relative (defined
next). Generally, a
person is your qualifying child if that person:
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Is your child, stepchild, foster child, brother, sister, stepbrother, stepsister, or a descendant of any of them,
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Lived with you for more than half of the year,
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Did not provide more than half of his or her own support for the year, and
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Was under age 19 at the end of the year (or was under age 24 at the end of the year and a student, or was any age and permanently
and
totally disabled).
For details, see Exemptions for Dependents in Publication 501.
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Qualifying relative.
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To be your dependent (defined earlier), a person must be either your qualifying child (defined earlier) or your qualifying
relative. Generally, a
person is your qualifying relative if that person:
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Lives with or is related to you,
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Does not have $3,400 or more of gross (total) income,
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Is supported (generally more than 50%) by you, and
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Is neither your qualifying child nor the qualifying child of anyone else.
For details, see Exemptions for Dependents in Publication 501.
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Standard deduction.
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An amount (based on filing status, age, and blindness) that can be subtracted from adjusted gross income in figuring taxable
income. The standard
deduction is not used if itemized deductions are claimed.
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Tax year.
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The time period covered by a tax return. Usually this is January 1 to December 31, a calendar year, but taxpayers can elect
a fiscal tax year with
different beginning and ending dates.
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Taxable income.
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Gross income minus any adjustments to income, any allowable exemptions, and either itemized deductions or the standard deduction.
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Unearned income.
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Income other than earned income. This is investment-type income and includes interest, dividends, and capital gains. Distributions
of interest,
dividends, capital gains, and other unearned income from a trust are also unearned income to a beneficiary of the trust. However,
for purposes of
completing Form 8615, a taxable distribution from a qualified disability trust is considered earned income.
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Unrecaptured section 1250 gain.
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Generally, any part of your net capital gain from selling section 1250 property (real property) that is due to depreciation.
For details, see
Publication 550.
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28% rate gain.
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Gain from the sale of collectibles and, generally, the taxable part of your gain from the sale of qualified small business
stock held more than 5
years. For details, see the instructions for Schedule D (Form 1040).
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