Additional Child Tax Credit (ACTC): A refundable portion of the Child Tax Credit available to low- and moderate-income taxpayers.

Adjusted Gross Income (AGI): Total income after specific adjustments, used to determine tax liability.

Amended Return (Form 1040X): A form used to correct errors or omissions on a previously filed tax return.

American Opportunity Tax Credit (AOTC): A credit for eligible education expenses for the first four years of postsecondary education, partially refundable.

Audit: An examination of tax returns by the IRS to ensure accuracy and compliance.

Bank Product: Financial products, such as refund transfers and anticipation loans, offered to tax clients to facilitate payments.

Base Fee: The starting cost for tax preparation services before adding additional forms or schedules.

By-Form Pricing Model: A pricing model where fees are based on individual forms or schedules needed for a tax return.

Case Study: A detailed analysis of a tax-related situation used for educational purposes.

Child Tax Credit (CTC): A tax credit for taxpayers with dependent children under age 17, partially refundable.

Client Intake: The process of gathering necessary documents and information from a client to prepare their tax return.

Compliance: Adhering to IRS regulations and ethical standards in tax preparation.

Confidentiality: The responsibility to protect clients' private financial information.  

Credits: Dollar-for-dollar reductions in tax liability, potentially refundable or non- refundable.

Conflict of Interest: A situation where personal interests may interfere with professional judgment.

Data Retention: The practice of keeping records of tax preparation and client documents as required by the IRS.

Deduction: A reduction in taxable income, which decreases the amount of income subject to tax.

Dependent: A qualifying person, usually a child or relative, whom the taxpayer supports and claims on their tax return.

Direct Deposit: A method of electronically depositing a tax refund directly into the taxpayer’s bank account.

Due Diligence: The standard of care tax preparers must follow to ensure accuracy and compliance, particularly for refundable credits.

Earned Income Tax Credit (EITC): A refundable credit for low- to moderate-income earners based on income, filing status, and number of dependents.

Electronic Filing (e-File): Submitting tax returns to the IRS electronically rather than by paper.

Engagement Letter: A document outlining the services, fees, and terms agreed upon between the tax preparer and client.

Ethical Standards: Principles guiding tax preparers to act with honesty, integrity, and responsibility.

Exemption: A provision that reduces taxable income for qualifying taxpayers, now largely replaced by the standard deduction.

Federal Income Tax: Tax imposed by the federal government on individual and business income.

Filing Requirement: The minimum income level at which a taxpayer is required to file a return.

Filing Status: The category of taxpayer (e.g., single, married filing jointly) that affects tax rates and eligibility for credits.

Form 1040: The primary federal tax form used for reporting individual income tax.

Form 1099: A series of forms for reporting various types of income, such as freelance income or investment earnings.

Form 8867: A due diligence checklist that preparers must complete when clients claim certain credits.

Form W-2: A form provided by employers that reports wages, tips, and taxes withheld for employees.

Fraud Red Flags: Indicators of potential tax fraud, such as inconsistent income or unusual claims.

Gramm-Leach-Bliley Act: Federal law requiring financial institutions, including tax preparers, to protect clients' personal information.

Gross Income: Total income earned before any deductions or adjustments.

Head of Household: A filing status for single taxpayers who financially support a qualifying dependent, offering a higher standard deduction.

Health Savings Account (HSA): A tax-advantaged account for individuals with high deductible health plans, allowing tax-free contributions for medical expenses.

Income Threshold: The income level at which tax filing or credit eligibility requirements are triggered.

Independent Contractor: A self-employed individual who performs services and reports income on Form 1099-NEC.

Intake Form: A form used by tax preparers to collect basic information and documentation from clients.

Interest Income: Income earned from investments like savings accounts or bonds, reported on

Form 1099-INT. Itemized Deductions

(Schedule A): Deductions that taxpayers can itemize instead of taking the standard deduction, including expenses like medical costs and mortgage interest.

Joint Liability: Shared responsibility for tax obligations when filing jointly with a spouse.

Knowledge Requirement: IRS expectation that tax preparers use their expertise to ensure accurate and compliant returns.

Lifetime Learning Credit (LLC): A non-refundable credit for tuition and related expenses for eligible students pursuing postsecondary education.

Married Filing Jointly (MFJ): A filing status for married couples who combine income and deductions on one return.

Married Filing Separately (MFS): A filing status for married couples who choose to file separate returns, often resulting in higher taxes.

Medical Expense Deduction: A deduction for unreimbursed medical expenses that exceed 7.5% of adjusted gross income, available only to those who itemize.

Non-Refundable Credit: A credit that can reduce tax liability to zero but doesn’t generate a refund.

Offer in Compromise: An IRS program allowing taxpayers to settle their tax debt for less than the full amount owed, based on ability to pay.

Paid Preparer: A professional authorized to prepare and file tax returns for a fee.

Penalty: A fine imposed by the IRS for non-compliance, such as failing to file or meet due diligence.

Prepaid Debit Card: A card option for receiving tax refunds, particularly for clients without bank accounts.

Pricing Model: A structure used to set fees for tax preparation, such as by-form, flat fee, or hourly rate.

Qualifying Child: A dependent who meets IRS criteria for age, relationship, and residency to be claimed on a taxpayer’s return.

Qualifying Widow(er): A filing status for recent widows or widowers with dependent children, offering the same benefits as married filing jointly for up to two years.

Refund Anticipation Loan (RAL): A short-term loan based on a taxpayer’s expected refund, available quickly after filing.

Refund Transfer (RT): A product allowing clients to pay tax prep fees out of their refund through a temporary account.

Return: The completed tax form(s) filed with the IRS to report income and claim deductions or credits.

Saver’s Credit: A credit for low- and moderate-income taxpayers who contribute to a retirement plan.

Schedule C: A form for reporting income and expenses of a sole proprietorship or self-employed individual.

Schedule E: A form for reporting income from rental property, royalties, partnerships, and S corporations.

Self-Employment Tax: The tax that self-employed individuals pay, covering Social Security and Medicare contributions.

Single: A filing status for unmarried taxpayers with no dependents.

Social Security Benefits (SSA-1099): Income from Social Security, potentially taxable depending on the taxpayer’s total income.

Standard Deduction: A fixed deduction amount that reduces taxable income without itemizing.

Tax Bracket: A range of income subject to a specific tax rate.

Tax Credit: A dollar-for-dollar reduction in tax owed, which may be refundable or non-refundable.

Tax Deduction: An expense that reduces taxable income, lowering the overall tax liability.

Taxable Income: Income subject to tax after adjustments, deductions, and exemptions.

Third-Party Designee: A person authorized by the taxpayer to discuss the return with the IRS.

True-Up: Adjusting fees or figures to reflect the actual final amounts on a return.

Underpayment Penalty: A penalty imposed for not paying enough tax throughout the year, often through estimated payments.

Value-Based Pricing: A pricing model based on the value provided to the client, rather than time or form.

Withholding: Income tax withheld from wages and sent directly to the IRS by the employer.

W-4: A form employees use to indicate how much tax to withhold from their wages.

W-2G: A form for reporting gambling winnings, withholding, and additional taxes.

Year-End Statement: Documents provided by employers or financial institutions that summarize a taxpayer’s income and withholdings