Tax season, one of the most challenging and confusing times of year for cannabis businesses, is quickly approaching. If filing your taxes feels like reading a foreign language, we’ve got you covered! Check out some of the most common tax terms explained below:
What is the Internal Revenue Service?
The Internal Revenue Service is a bureau of the Department of Treasury. Tasked with the enforcement of income tax laws, the IRS oversees the collection of federal income taxes in the United States. It is also the responsibility of the IRS to determine pension-plan qualification.
What is the Return Preparer Office?
The Return Preparer Office exists to improve the compliance and accuracy of tax returns prepared by tax preparers. Essentially, the RPO is a community of tax professionals working with the IRS to make filing returns easy. You can search from a list of approved tax professionals here.
What is the Treasury Inspector General for Tax Administration?
The Treasury Inspector General for Tax Administration was established under the Internal Revenue Service Restructuring and Reform Act of 1998. It’s purpose is to provide independent oversight of IRS activities. TIGTA protects the Department of Treasury’s ability to collect revenue owed to the Federal Government.
What is a Circular 230 Practitioner?
The Circular 230 Practitioner status is a credential verification for tax professionals. Circ. 230 Practitioners are the only group of advisors permitted to sign filing extensions. In addition, these tax professionals are the only group able to represent a taxpayer before the IRS and state agencies for the Examination, Appeals and Collection functions.
What is a Certified Public Accountant?
A Certified Public Accountant is the title of qualified accountants, licensed to provide accounting services to the public.
What is an Enrolled Agent?
An Enrolled Agent has earned the privilege of representing taxpayers before the IRS. This status is obtained by either passing a three-part comprehensive IRS test or experience as a former IRS employee.
What is Adjusted Gross Income?
Adjusted gross income is the total income received over the course of the year (including wages, interest, dividends and capital gains). This does not include contributions to a qualified IRA, some business expenses, moving costs and alimony payments. Adjusted gross income is the first step in calculating your final federal income tax bill.
What are tax credits?
Tax credits are used to reduce the amount that you owe at the end of the year. Tax credits are more valuable than deductions because they directly reduce the amount owed, rather than reducing the amount of taxed income. For example, a $500 credit will turn a $2,000 tax bill into only $1,500. Some taxpayers are able to accumulate multiple tax credits to receive a refund.
What is a tax deduction?
Tax deductions are expenses the Internal Revenue Service allows you to subtract from your adjusted gross income to arrive at your taxable income. The IRS offers all filers a standard deduction amount, but taxpayers may choose to itemize their expenses. When itemizing, taxpayers can deduct things such as student loan interest, moving expenses, deductible IRA contributions and alimony payments.
What is a tax exemption?
A tax exemption is an amount of money you’re allowed to subtract from your taxable income. The more exemptions you’re able to take, the more you can lower your tax bill. Taxpayers can claim themselves, their spouse, children and any other dependents.
What is taxable income?
Taxable income is your final income once all of the deductions and credits are applied. This number is the figure used to calculate your final tax bill.
What is withholding?
Withholding is the amount of tax that is deducted from your regular paycheck. To ensure that you are able to pay your tax bill at the end of each year, the IRS requires employers to withhold a portion of your check. This money is placed on deposit with the IRS and once you complete your taxes, is applied to your tax bill often leaving a refundable amount.