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Ability to Pay
The concept that taxpayers should have a tax liability consistent with their income level.
Above-the-Line Deduction
Also called an adjustment to income. A type of deduction that you may take without having to itemize.
Abusive Tax Scheme
An illegal series of transactions designed to hide taxable income from the IRS.
Adjusted Basis
The original value of a piece of property plus the value of improvements and minus depreciation. The adjusted basis is used to figure your gain or loss on a sale.
Adjusted Gross Income (AGI)
Your gross income reduced by adjustments to income, before exemptions and deductions are applied.
Adjustment to Income
Also called an above-the-line deduction. A type of deduction that you may take without having to itemize.
Alimony
Regular payments made to an ex-spouse or to a legally separated spouse. Alimony is considered income for the payee and is tax deductible for the payer.
Allowances
A number on your Form W-4 used by your employer to calculate how much income tax to withhold from your pay. The greater the number of allowances, the less income tax will be withheld.
Alternative Minimum Tax (AMT)
A special tax system which was originally intended to prevent wealthy taxpayers from taking advantage of so many tax breaks that they end up paying little or no taxes. The AMT affects more and more middle class taxpayers every year.
Amendment / Amended Return
A corrected tax return (using Form 1040X) filed to revise a previous year's tax return.
Amount Due
Your total tax bill. The amount of money you owe in taxes.
Annuity
An annual payment, such as from a retirement plan.
Appeal
To request the review of an IRS decision or adjustment.
Archer Medical Savings Account (MSA)
A tax deductible savings account containing funds for medical expenses not covered by insurance. Interest and qualified withdrawals are generally nontaxable.
Audit
An IRS review, or examination, of a tax return. Many audits are random, but returns may also be deliberately chosen for audit based on a number of red flags.