Questions: Term Answer Description Adjustments Adjusted gross income Deductions Standard deduction Itemized deduction Exemption Itemized deduction example Capital gains tax categories Steps to AGI Steps to taxable income A. This is mortgage interest expense. B. This figure is based on tax bracket, 5% to 15% tax rate if held over 12 months. C. Examples of this term include charitable deductions, state and local taxes, and moving expenses. D. This can be claimed if taxpayer provides more than half their support. E. This term includes all income less certain allowable adjustments. F. Reduce AGI by the standard deduction and allowable exemptions. G. This can be either standard or itemized. H. Deductions such as employee, personal retirement, higher education, and support expenses are included in this category. I. This is adjusted annually for changes in cost of living. J. This is used to calculate limits for certain itemized deductions.

Let's match each term with its corresponding description:

1. Adjusted gross income (AGI):

   • E. This term includes all income less certain allowable adjustments.
     • Explanation: AGI is your gross income after subtracting specific deductions, known as adjustments. These adjustments can include contributions to retirement accounts, student loan interest, and tuition fees.

2. Deductions:

   • G. This can be either standard or itemized.
     • Explanation: Deductions reduce your taxable income and can be taken as a standard deduction or itemized deductions, depending on which is more beneficial for the taxpayer.

3. Standard deduction:

   • I. This is adjusted annually for changes in cost of living.
     • Explanation: The standard deduction is a fixed dollar amount that reduces the income you're taxed on. It is adjusted each year to account for inflation.

4. Itemized deduction:

   • C. Examples of this term include charitable deductions, state and local taxes, and moving expenses.
     • Explanation: Itemized deductions are specific expenses allowed by the IRS that can be deducted from your AGI. Examples include mortgage interest, charitable contributions, and medical expenses.

5. Exemption:

   • D. This can be claimed if taxpayer provides more than half their support.
     • Explanation: Exemptions were amounts you could deduct for yourself and dependents, reducing your taxable income. Note that personal exemptions were eliminated starting in 2018 under the Tax Cuts and Jobs Act.

6. Itemized deduction example:

   • A. This is mortgage interest expense.
     • Explanation: Mortgage interest is a common itemized deduction that homeowners can claim on their tax returns.

7. Capital gains tax categories:

   • B. This figure is based on tax bracket, $5 \%$ to $15 \%$ tax rate if held over 12 months.
     • Explanation: Long-term capital gains (assets held for more than a year) are taxed at lower rates than short-term gains, which are taxed as ordinary income. The rates can range from 0% to 20%, depending on your tax bracket.

8. Steps to AGI:

   • H. Deductions such as employee, personal retirement, higher education, and support expenses are included in this category.
     • Explanation: To calculate AGI, you start with your total income and subtract allowable adjustments, which can include retirement contributions, student loan interest, and tuition fees.

9. Steps to taxable income:

   • F. Reduce AGI by the standard deduction and allowable exemptions.
     • Explanation: To determine taxable income, you subtract the standard deduction (or itemized deductions) and any exemptions from your AGI.

10. Adjustments:

    • J. This is used to calculate limits for certain itemized deductions.
      • Explanation: Adjustments to income are subtracted from gross income to arrive at AGI, which is then used to determine eligibility and limits for various tax benefits and deductions.

By matching each term with its correct description, we can better understand the components and calculations involved in determining taxable income.