For people who are finding it hard to understand and get to grips every tax season, getting to know the more important tax terms may help them. Tax season may have one encounter a number of tax terms that he or she might need to understand. Here are just some of them.

Tax Credits

In simple terms, tax credits are much like discounts that you get from a store. The tax credits help you lessen the amount that you have to pay to the IRS.

They are more valuable than deductions since they directly cut into the tax amount that you own instead of just reducing your taxable income.

Adjusted Gross Income

The adjusted gross income or AGI is the resulting income that an individual receives in a year such as wages, dividends and gains on investments minus the IRA contributions and other business expenses.

The adjusted gross income is the initial amount usually looked for after which the tax bill is then calculated after deductions, exemptions and other things.

Deductions

Deductions are certain expenses that are subtracted to the adjustable gross income in order to arrive at a taxable income. The deductions are expenses that, according to the IRA may not be included in the tax bill computation.

There is a standard deduction amount that the IRS has provided for tax filers and there are also itemized deductions which taxpayers may claim if they are qualified.

Taxable Income

Taxable income is the overall income of an individual after the adjustments, deductions and exemptions have been subtracted from the AGI. This is what taxpayers would use to determine how much they owe the government in terms of taxes.

Exemptions

This is simply the amount that the IRS allows individuals to subtract from their income to consider all the people who might be dependent on your income.

There is an exemption included for families, spouses and children. This is then subtracted from the adjustable gross income in order to get a lower taxable income from which to figure the tax bill.