What Is “Qualified small business stock”?
05/29/2026
Qualified small business stock (QSBS) is a special type of stock issued by a domestic C corporation that offers significant tax breaks to early-stage investors and employees. Under Section 1202 of the Internal Revenue Code, if you meet specific requirements and hold the stock for at least five years, you may be eligible to exclude
What Is “Profit or Loss from Business”?
05/29/2026
Profit or loss from business is the net result of your business activities after subtracting all allowable expenses from your total income. It represents the actual amount of money you earned (profit) or lost (loss) during the tax year from your self-employment or business operations. 1. Meaning of “Profit or Loss from Business” In plain
What Is a “Profit and loss statement”?
05/29/2026
What Is a Profit and Loss Statement? A profit and loss statement (P&L) is a financial document that summarizes a business’s revenues, costs, and expenses during a specific period, such as a month, quarter, or year. It is the primary tool used to determine if a business is operating at a “net profit” or a
What Is “Permanent Difference”?
05/29/2026
A permanent difference is a gap between your business’s financial records (book income) and your tax return that will never go away. It occurs when tax laws permanently exclude certain types of income or completely disallow specific expenses that you would normally record in your accounting software. 1. Meaning of “Permanent Difference” In plain English,
What Is “Payroll withholding”?
05/29/2026
Payroll withholding is the portion of an employee’s gross earnings that an employer legally subtracts from a paycheck and sends directly to the government. It acts as a “pay-as-you-go” system, ensuring that taxes are paid in small increments throughout the year rather than in one large sum at the end. 1. Meaning of “Payroll withholding”
What Is “Payroll Tax”?
05/29/2026
Payroll tax is a specific type of tax withheld from an employee’s salary or paid by an employer based on the wages or salaries paid to employees. In the U.S., these taxes primarily fund social insurance programs like Social Security and Medicare. 1. Meaning of “Payroll Tax” In plain English, payroll taxes are the “contributions”
What Is “P&L statement”?
05/29/2026
What Is a P&L Statement? A P&L statement, short for Profit and Loss statement, is a financial report that summarizes a business’s revenues, costs, and expenses during a specific period. It provides a clear look at whether a business is making money or losing it by subtracting total expenses from total income. 1. Meaning of
What Is “Owner’s Draw”?
05/29/2026
An owner’s draw is a method where a business owner takes money out of their business for personal use. Instead of receiving a formal salary with tax withholdings, the owner “draws” from the business’s profits or their own invested capital. 1. Meaning of “Owner’s Draw” In plain English, an owner’s draw is like a DIY
What Is “Noncovered security”?
05/29/2026
A noncovered security is an investment for which your brokerage firm is not legally required to report the “cost basis” (the original purchase price) to the IRS. When you sell one of these assets, your broker will report how much you sold it for, but the burden of proving what you originally paid falls entirely
What Is “Original basis”?
05/29/2026
Original basis is the starting dollar value of an asset when you first acquire it. It represents your initial financial investment and serves as the baseline for calculating whether you have a profit or a loss when you eventually sell that asset. 1. Meaning of “Original basis” In plain English, original basis is the “Day