Accounting On Us
11 Common tax acronyms
Helping you understand your tax picture
Donna H. Laubscher, CPA
About three years ago, I walked into the bullpen where our tax interns sit during tax season and one of them told me about a game they played when they would get notes from me on tax preparation. The interns would go around the room and guess what the tax acronyms – like PAL or AMT, for example – stood for because they were all new and didn’t yet know. It was at that point I realized the acronyms we take for granted in our business aren’t really known to people outside our business. So, the next time you meet with your CPA and you think they’re talking in code, here are the acronyms you need to know.
SSN + SSA
Let’s start with an acronym that doesn’t just apply to tax… SSN and its sister SSA. These stand for Social Security Number and Social Security Administration. If you are filing a tax return, you need to have a SSN (unless you have an ITIN!). If you are receiving Social Security benefits, you will receive a 1099-SSA from the SSA. By the way, ITIN is Individual Taxpayer Identification Number.
This is the acronym for Adjusted Gross Income, which is your total income less any adjustments from income. Your AGI is the bottom number on page one of your 1040 return and should match the top number on page two of your 1040 return. Yes, these numbers should be the same. AGI is a number used for calculations elsewhere in your tax return, such as deductible medical expenses.
TCJA, QBI + DPAD, oh my!
TCJA stands for Tax Cuts and Jobs Act, the abbreviation for the tax bill that was passed at the end of 2017. This is pronounced “tick-ja” – I don’t hear anyone use the gimme a T, C, J, A, as in other acronyms.
Another abbreviation coming out of TCJA – QBI, which stands for qualified business income. You may be asking, what’s that? Great question. We’re still waiting on clarification from the IRS or Congress. At this point, we have way more questions than answers on QBI.
One acronym that we probably won’t be using much anymore is DPAD – domestic production activity deduction. Even though this was part of Section 199, DPAD was taken out under the TCJA and replaced with QBI. Sorry, momentarily moved from an acronym discussion to a code section discussion. Moving out again!
IRA + RMD
If you have an individual retirement account, otherwise known as an IRA, the year you turn 70 ½, you need to take out your first RMD, which is your required minimum distribution. Why are these important to know? If you miss your RMD, you’re taxed 50% of the amount you should’ve taken.
The abbreviation PAL has been around for a while. It came from the Tax Reform Act of 1986 (TRA). It stands for passive activity loss. These are losses generated from passive activities and generally can only be used to offset passive activity income. Generally. Sometimes they can offset other types of income, such as portfolio or ordinary. But that can also be a factor of your AGI.
This abbreviation is the one that autocorrect is always trying to change to HAS. It’s to the point where I need to go in and modify my autocorrect dictionary. HSAs – health savings accounts – are becoming more and more popular with the increase in high deductible health insurance plans. We’re seeing more and more taxpayers with these accounts.
Just like the Rose Bowl is considered the granddaddy of all college football bowl games, AMT – Alternative Minimum Tax – is the granddaddy, at least in my opinion, of all tax acronyms. We’ll see if AMT retains its granddaddy status under TCJA since most of its applicability is not going to be relevant beginning in 2018. But it may. You know, depending on your AGI.
As with any industry, part of the experience gained is knowing the jargon. And, by the way, the intern that made the joke to me about guessing the acronyms? She has been a full-time team member for the past couple of years. She definitely knows the acronyms now!