AGI is an individual’s taxable income after all specific deductions, but not standard or itemized deductions. It is an important number used by the IRS to determine how much you owe in taxes. It is calculated by taking your gross income for the year and subtracting any deductions that you are eligible to claim. Therefore, your AGI will always be less than or equal to your gross income.

A capital gain is an increase in a capital asset’s value and is considered to be realized when the asset is sold. A capital gain may be short term (one year or less) or long term (more than one year) and must be claimed on income taxes. Unrealized gains and losses, sometimes referred to as paper gains and losses, reflect an increase or decrease in an investment’s value but are not considered a taxable capital gain. A capital loss is incurred when there is a decrease in the capital asset value compared to an asset’s purchase price.

The charitable contributions deduction allows taxpayers to deduct all of their contributions of cash and property to qualifying charitable contributions within certain limitations.

The charitable contributions deduction allows taxpayers who make substantial charitable gifts to take sizeable tax deductions for the year in which their donations are made. The rules for deducting these gifts can be complicated in certain instances, so it is wise to consult a tax advisor.

A donor-advised fund is a dedicated account for charitable giving typically administered by a public charity such as Community Foundation. When you contribute to your donor-advised fund, you are eligible for an immediate tax deduction. You can then recommend charitable grants (gifts) over time to any IRS-qualified public charity while investing the funds for tax-free growth. Donor-advised funds provide many benefits for organizing and planning giving, but they also offer advantages in terms of income, capital gains and estate taxes.

A qualified charitable distribution (QCD) is a direct transfer of funds from your IRA custodian, payable to a qualified charity. QCDs can be counted toward satisfying your required minimum distributions (RMDs) for the year, as long as certain rules are met.

A required minimum distribution (RMD) is the amount of money that must be withdrawn from an employer-sponsored retirement plan, traditional IRA, or other individual retirement account by owners and qualified retirement plan participants of retirement age.

** In 2020, the age for withdrawing from retirement accounts changed. You must begin withdrawing from a retirement account by April 1 following the year account holders reach age 72 (prior to 2020, the RMD age had been 70½ years old). The retiree must then withdraw the RMD amount each subsequent year based on the current RMD calculation.

A trust is a legal arrangement whereby control over property and/or assets is transferred to a person or organization (the trustee) for the benefit of someone else (the beneficiary).

When you create a trust, you transfer money or other assets to the trust and give up ownership of those assets. By doing so, you accomplish a specific financial goal such as protecting assets from estate taxes, simplifying transfer of property or making provisions for minor or dependent children.

A will is a legal document used to transfer assets you have accumulated during your lifetime to people and institutions you want to have them after your death. Your will should name an executor who will carry out your wishes. You can leave your assets directly to your heirs or you can establish trusts to receive the assets and distribute them at some point in the future.

The danger of dying without a will is that a court in the state where you live will decide what happens to your assets, and the decision may not be what you would have chosen.

An individual retirement account (IRA) is a tax-advantaged account used by individuals to save and invest for retirement. An IRA can be set up at a financial institution and allows an individual to save for retirement with tax-free growth or on a tax-deferred basis.

A pension plan is a retirement plan that requires an employer to make contributions to a pool of funds set aside for a worker’s future benefit. The pool of funds is invested on the employee’s behalf, and the earnings on the investments generate income to the worker upon retirement.

In addition to an employer’s required contributions, some pension plans have a voluntary investment component. A pension plan may allow a worker to contribute part of their current income from wages into an investment plan to help fund retirement. The employer may also match a portion of the worker’s annual contributions, up to a specific percentage or dollar amount.

Roth IRA contributions are not tax-deductible, but qualified distributions are tax-free. You contribute to a Roth IRA using after-tax dollars, but you do not face any taxes on investment gains. When you retire, you can withdraw from the account without incurring any income taxes on your withdrawals. Roth IRAs also do not have RMDs. If you don’t need the money, you don’t have to take it out of your account. You can still contribute to a Roth IRA as long as you have eligible earned income, no matter how old you are.

A simplified employee pension (SEP) is an individual retirement account (IRA) that an employer or a self-employed person can establish. SEP IRAs are treated like traditional IRAs for tax purposes and allow the same investment options. The same transfer and rollover rules that apply to traditional IRAs also apply to SEP IRAs. Because the funding vehicle for a SEP plan is a traditional IRA, SEP contributions, once deposited, become traditional IRA assets and are subject to many of the traditional IRA rules.