Denis Doulgeropoulos
Your Financial Professional & Insurance Agent
Glossary
A
Adjusted Gross Income (AGI)
Adjusted Gross Income (AGI) plays a key role in calculating your income tax. It represents your total gross income after subtracting eligible adjustments. These adjustments may include retirement contributions, student loan interest, and other approved deductions. As a result, AGI helps determine your taxable income and overall tax liability. Furthermore, it affects your eligibility for various tax credits and deductions.
After-Tax Return
After-tax return represents the profit you keep from an investment after paying taxes. It shows the actual earnings available to you. Therefore, it provides a more accurate view of investment performance. In addition, investors use this measure to compare different investment options. Consequently, it helps them make smarter and more informed financial decisions.
Audit
An audit is a thorough review of a company’s financial records and accounts. An independent professional performs this review to ensure accuracy. Moreover, the audit confirms compliance with accounting standards and legal requirements. As a result, audits help identify errors and prevent fraud. Ultimately, they improve financial transparency and strengthen trust in financial reporting.
B
Book
ValueThe net value of a company’s assets, less its liabilities and the liquidation price of its preferred issues. The net asset value divided by the number of shares of common stock outstanding equals the book value per share, which may be higher or lower than the stock’s market value.C
Capital Gain or Loss
A capital gain or loss is the difference between the selling price and the purchase price of a capital asset. When the selling price exceeds the purchase price, you earn a capital gain. However, when the selling price is lower, you incur a capital loss. Therefore, understanding capital gains and losses helps investors evaluate profitability and manage tax obligations effectively.
Certified Public Accountant (CPA)
A Certified Public Accountant (CPA) is a professional who receives a license from a state board of accountancy. To obtain this certification, the individual must pass the Uniform CPA Examination and meet specific education and experience requirements. Furthermore, CPAs provide essential services such as tax planning, auditing, and financial consulting. As a result, they help individuals and businesses maintain financial accuracy and compliance.
Community Property
Community property refers to assets acquired by spouses during a marriage under certain state laws. Generally, both partners equally own these assets and any related debts. However, property received through inheritance, gifts, or a will remains separate. Currently, nine states follow community property laws: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. Additionally, Alaska offers this system as an optional choice for couples.
Compound Interest
Compound interest is interest calculated on both the original principal and the accumulated interest. Consequently, your investment grows faster over time compared to simple interest. It may be calculated continuously, daily, monthly, quarterly, semiannually, or annually. Therefore, compound interest plays a critical role in long-term savings and investment growth.
D
Deduction
A deduction is an amount that can be subtracted from your gross income, gross estate, or gift value. This reduction lowers the total amount subject to tax. As a result, deductions help decrease your overall tax liability. Common examples include mortgage interest, charitable contributions, and certain business expenses.
Defined Benefit Plan
A defined benefit plan is a retirement plan that provides a guaranteed income after retirement. The employer makes contributions to fund this promised benefit. The retirement income is usually paid in regular installments. Additionally, contribution limits are set and adjusted for inflation. This type of plan offers predictable and stable retirement income.
Defined Contribution Plan
A defined contribution plan is a retirement plan based on contributions made by the employer, employee, or both. These contributions are often a fixed percentage of the employee’s salary or company profits. However, the final retirement benefit is not guaranteed. Instead, it depends on the investment performance of the account. Examples include 401(k) and similar retirement savings plans.
Dividend
A dividend is a portion of a company’s earnings distributed to its shareholders. It is usually paid in cash, but it can also be paid in additional shares. Preferred stock typically pays fixed dividends. In contrast, common stock dividends may increase or decrease depending on the company’s financial performance. Dividends provide investors with regular income from their investments.
E
Employer-Sponsored Retirement Plan
An employer-sponsored retirement plan is a tax-advantaged savings plan offered by an employer to help employees prepare for retirement. Both the employer and employee may contribute to the plan, depending on the plan type. Common examples include 401(k) plans, 403(b) plans, simplified employee pension (SEP) plans, and profit-sharing plans. These plans help employees build long-term retirement savings while receiving tax benefits.
Enrolled Agent (EA)
An enrolled agent (EA) is a tax professional authorized to represent taxpayers before the Internal Revenue Service (IRS). To become an EA, a person must pass a comprehensive IRS examination or qualify through relevant IRS work experience. Enrolled agents can represent any taxpayer, handle various tax matters, and appear before all IRS offices. They are highly qualified in tax preparation, planning, and resolution.
Estate Tax
Estate tax is a tax imposed on the transfer of a person’s assets after their death. Federal and sometimes state governments calculate this tax based on the total value of the estate. Certain exemptions and limits may apply, reducing the taxable amount. Estate tax is typically paid before the remaining assets are distributed to beneficiaries.
F
Federal Income Tax Bracket
A federal income tax bracket refers to a specific range of taxable income that is taxed at a fixed rate. The U.S. follows a progressive tax system, so higher income levels are taxed at higher rates. Common federal tax rates include 10%, 12%, 22%, 24%, 32%, 35%, and 37%. Furthermore, the government divides your income into portions, and it taxes each portion at the applicable rate. As a result, understanding your tax bracket helps you estimate tax liability and make better financial decisions.
401(k) Plan
A 401(k) plan is a retirement savings plan offered by employers that allows employees to contribute a portion of their salary before taxes. Consequently, these contributions lower current taxable income and provide immediate tax advantages. Additionally, contributions and investment earnings grow tax-deferred over time. Withdrawals are taxed as ordinary income, and early withdrawals before age 59½ may trigger a 10% federal tax penalty. Furthermore, many employers match employee contributions, which accelerates retirement savings and improves long-term financial security.
403(b) Plan
A 403(b) plan is a retirement savings plan created for employees of nonprofit organizations, public schools, and certain tax-exempt institutions. Employees contribute part of their salary on a tax-deferred basis, which reduces taxable income. In addition, contributions and investment earnings grow tax-deferred until withdrawal. Withdrawals are taxed as ordinary income, and early withdrawals before age 59½ may result in a 10% federal tax penalty. Therefore, a 403(b) plan helps eligible employees build stable and reliable retirement savings over time.
G
Gift Taxes
A federal tax levied on the transfer of property as a gift. This tax is paid by the donor. For 2019 and 2020, the first $15,000 a year from a donor to each recipient is excluded from tax. Most states also impose a gift tax. The gift tax exclusion is indexed for inflation.I
Individual Retirement Account (IRA)
Contributions to a traditional IRA are deductible from earned income in the calculation of federal and state income taxes if the taxpayer meets certain requirements. The earnings accumulate tax deferred until withdrawn, and then the entire withdrawal is taxed as ordinary income. Individuals not eligible to make deductible contributions may make nondeductible contributions, the earnings on which would be tax deferred.J
Jointly Held Property
Property owned by two or more persons under joint tenancy, tenancy in common, or, in some states, community property.L
Lump-Sum Distribution
The disbursement of the entire value of an employer-sponsored retirement plan, pension plan, annuity, or similar account to the account owner or beneficiary. Lump-sum distributions may be rolled over into another tax-deferred account.M
Marginal Tax Rate
The amount of tax paid on an additional dollar of income. As income rises, so does the tax rate.Marital Deduction
A provision of the tax codes that allows all assets of a deceased spouse to pass to the surviving spouse free of estate taxes. This provision is also referred to as the “unlimited marital deduction.” The marital deduction may not apply in the case of noncitizens.N
Net Asset Value
The per-share value of a mutual fund’s current holdings. The net asset value is calculated by dividing the net market value of the fund’s assets by the number of outstanding shares.P
Principal
In a security, the principal is the amount of money that is invested, excluding earnings. In a debt instrument such as a bond, it is the face amount.Profit-Sharing Plan
An agreement under which employees share in the profits of their employer. The company makes annual contributions to the employees’ accounts. These funds usually accumulate tax deferred until the employee retires or leaves the company.Q
Qualified Retirement Plan
A pension, profit-sharing, or qualified savings plan that is established by an employer for the benefit of the employees. These plans must be established in conformity with IRS rules. Contributions accumulate tax deferred until withdrawn and are deductible to the employer as a current business expense.R
Rollover
A method by which an individual can transfer the assets from one retirement program to another without the recognition of income for tax purposes. The requirements for a rollover depend on the type of program from which the distribution is made and the type of program receiving the distribution.Roth IRA
A nondeductible IRA that allows tax-free withdrawals when certain conditions are met. Income and contribution limits apply.S
Self-Employed Retirement Plans
Self-employed retirement plans help business owners and independent professionals save for retirement. Previously, people used terms like “Keogh plan” or “H.R. 10 plan.” However, today these plans are identified by their specific type, such as SEP IRA, SIMPLE 401(k), or self-employed 401(k). These plans allow tax-advantaged contributions, which can help reduce current taxable income. Furthermore, contribution limits are adjusted annually to reflect inflation, helping individuals maintain strong retirement savings over time.
Simplified Employee Pension Plan (SEP)
A Simplified Employee Pension (SEP) plan allows employers to contribute directly to employees’ Individual Retirement Accounts (IRAs). This plan offers flexibility because employers can decide how much to contribute each year, up to IRS limits. Additionally, all contributions are immediately vested, which means employees fully own the funds right away. Consequently, SEP plans provide a simple and effective way for employers and self-employed individuals to build retirement savings.
Spousal IRA
A Spousal IRA helps couples save for retirement when one spouse has little or no earned income. This plan allows the working spouse to contribute to an IRA on behalf of the non-working spouse. Furthermore, the combined contribution must not exceed the annual IRS limit or 100% of earned income, whichever is lower. Additionally, each spouse’s contribution must remain within the individual annual limit. As a result, a Spousal IRA helps couples increase their total retirement savings and strengthen their long-term financial security.
T
Taxation Credit
Tax credits, the most appealing type of tax deductions, are subtracted directly, dollar for dollar, from your income tax bill.
Tax Deferred
Interest, dividends, or capital gains that grow untaxed in certain accounts or plans until they are withdrawn.
Tax-Exempt Bonds
Under certain conditions, the interest from bonds issued by states, cities, and certain other government agencies is exempt from federal income taxes. In many states, the interest from tax-exempt bonds will also be exempt from state and local income taxes. If you sell a tax-exempt bond at a profit, you could incur capital gains taxes. Some tax-exempt bond interest could be subject to the federal alternative minimum tax. The principal value of bonds fluctuates with market conditions. Bonds sold prior to maturity may be worth more or less than their original cost.
Taxable Income
The amount of income used to compute tax liability. It is determined by subtracting adjustments, itemized deductions or the standard deduction, and personal exemptions from gross income.