US Tax & Accounting Glossary
Browse over 2,000 tax, accounting, and business terms.
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Glossary of US tax and accounting terms starting with a number.
10% additional tax
A ten percent penalty or surcharge applied to early retirement withdrawals or specific tax obligations.
1099 contractor
An independent worker or freelancer responsible for paying their own income and self-employment taxes.
1099 income
Self-employment or freelance earnings reported on a Form 1099, generally lacking automatic tax withholding.
401(k) plan
An employer-sponsored retirement savings account allowing employees to make tax-advantaged contributions directly from their paychecks.
403(b) plan
A tax-advantaged retirement savings account offered specifically to employees of public schools and certain non-profit organizations.
457(b) plan
A tax-advantaged retirement savings account offered to state and local government employees and certain non-profit workers.
501(c)(3) organization
A tax-exempt non-profit entity dedicated to religious, charitable, scientific, or educational purposes, whose donations are tax-deductible.
529 plan
A state-sponsored, tax-advantaged savings account designed to fund qualified educational expenses from kindergarten through graduate school.
60-day rollover rule
The IRS deadline requiring indirect retirement plan distributions to be deposited into another tax-advantaged account within 60 days to avoid taxes and penalties.
A
Glossary of US tax and accounting terms starting with the letter A.
Above-the-line deduction
An expense that reduces a taxpayer’s gross income to calculate adjusted gross income, available even if they take the standard deduction.
Accelerated depreciation
An accounting method allowing businesses to write off an asset’s cost faster in its early years, reducing near-term taxable income.
Accounting method
The set of rules a business follows to determine when to report its income and expenses for tax purposes.
Accounting period
The specific time frame—such as a calendar or fiscal year—over which a taxpayer or business tracks and reports financial activity.
Accrual method
An accounting practice where income and expenses are recorded when earned or incurred, regardless of when cash changes hands.
Accumulated adjustments account
A tracking account used by S corporations to determine the tax-free status of cash or property distributions made to shareholders.
Accumulated earnings and profits
A corporation’s total historical net profits after tax and dividend payments, used to determine if future distributions are taxed as dividends.
Accumulated earnings tax
A penalty tax imposed on corporations that retain excessive profits instead of distributing them as taxable dividends to shareholders.
Accumulation distribution
A distribution from a complex trust that exceeds its distributable net income for the current tax year, potentially triggering a specialized “throwback tax.”
Accuracy-related penalty
An IRS penalty added to a tax bill for underpaying taxes due to negligence, substantial understatement, or disregarding tax rules.
ACTC
The Additional Child Tax Credit, a refundable portion of the Child Tax Credit available to qualifying low-income families.
Active participation
A tax standard achieved when a taxpayer makes significant management decisions regarding a rental property, allowing up to $25,000 in passive losses.
Actual expense method
A tax deduction method where drivers track and deduct real vehicle costs—like gas, repairs, and insurance—instead of using standard mileage rates.
Actual home office expense method
A tax deduction calculating actual workspace costs (rent, utilities) proportionally based on office square footage.
Additional Child Tax Credit
A refundable tax credit giving low-income families cash back if their Child Tax Credit exceeds taxes owed.
Additional Medicare Tax
An extra 0.9% tax on individual earnings over $200,000 or married joint earnings over $250,000.
Adjusted basis
An asset’s original cost plus improvements, minus depreciation, used to calculate taxable capital gains.
Adjusted gross income
Your total gross income minus specific tax deductions, used to determine your taxable income.
Adjustment to income
Deductions subtracted from gross income to determine your adjusted gross income, often called “above-the-line” deductions.
Administrative waiver
An IRS decision to relieve a taxpayer from penalties or rules due to specific circumstances.
Adoption Credit
A tax credit that helps offset qualified expenses for taxpayers legally adopting an eligible child.
Advance Premium Tax Credit
A subsidy paid directly to your health insurer monthly to lower your insurance premium.
Advance rent
Any rental payment received before the period it covers, taxable in the year received.
Affordable coverage
Health insurance where the employee’s premium share doesn’t exceed 9.96% of their household income.
AGI
Adjusted Gross Income: your total income minus specific deductions, used to calculate your taxes.
Agricultural employee
A worker performing farm labor, harvesting, or livestock care, subject to specific tax rules.
Air transportation tax
An excise tax charged on domestic and international commercial flights, usually included in ticket prices.
Airbnb tax
A local lodging, occupancy, or income tax applied to short-term rental property bookings.
Alcohol tax
An excise tax levied on the manufacture, sale, or consumption of beer, wine, and spirits.
Alimony deduction
Tax deductions for spousal support payments, applicable only to divorce agreements finalized before 2019.
Alimony income
Taxable spousal support payments received, applicable only to divorce agreements finalized prior to 2019.
Allocated tips
Tips assigned by an employer to employees when reported tips fall below 8% of restaurant receipts.
Alternate valuation date
An option to value an estate’s assets six months after death rather than the death date.
Alternative Fuel Vehicle Refueling Property Credit
A tax credit for installing vehicle charging or alternative fuel equipment in qualifying locations.
Alternative minimum tax adjustment
An increase or decrease to taxable income used to recalculate taxes under the AMT system.
Amended tax return
A corrected tax return filed on Form 1040-X to fix errors from a previously submitted year.
American Opportunity Tax Credit
A tax credit of up to $2,500 per year for eligible undergraduate student college expenses.
Amortization
The practice of spreading the cost of an intangible asset out over its useful life.
Amount realized
The total money plus the fair market value of any property received from selling an asset.
Annual Gift Tax Exclusion
The amount you can give someone annually without tax consequences ($19,000 per recipient).
Annuity Income
Regular, recurring payments received from an insurance contract or retirement investment, partially or fully taxable.
AOTC
American Opportunity Tax Credit: an undergraduate education credit providing up to $2,500 annually per student.
Applicable taxpayer
An individual or business meeting specific criteria required by law to qualify for a tax provision.
Archer MSA
A medical savings account for self-employed individuals and small businesses to pay for healthcare expenses.
Arm’s length standard
A tax principle requiring related-party transactions to yield prices identical to independent market dealings.
Assessment
The official recording of a tax liability by the IRS on a taxpayer’s account.
Assessment statute expiration date
The legal deadline, usually three years, by which the IRS must officially assess additional taxes.
Assets
The legal deadline, usually three years, by which the IRS must officially assess additional taxes.
Assignment of income doctrine
A tax rule stating that income must be taxed to the person who earned it.
At-risk rules
Tax rules limiting a taxpayer’s deductible business losses to the amount they could personally lose.
Audit
An official IRS examination of a taxpayer’s financial records to verify accurate tax reporting.
Audit reconsideration
An IRS process allowing you to contest an audit assessment by submitting new documentation.
B
Glossary of US tax and accounting terms starting with the letter B.
Back pay
Past wages owed to an employee due to wrongful termination, underpayment, or retroactive salary increases.
Backdoor Roth IRA
A tax strategy converting traditional IRA contributions into a Roth IRA to bypass income limits.
Backup withholding
A tax requirement where payers withhold 24% of income to ensure the IRS receives taxes owed.
Balance due
The remaining amount of tax, penalties, and interest you owe the IRS after subtracting payments.
Balance sheet
A financial statement summarizing a company’s assets, liabilities, and shareholders’ equity at a specific point.
Bank levy
A legal seizure by the IRS to take funds directly from your bank account.
Bank statement
A monthly financial document summarizing all transactions, deposits, and withdrawals within a bank account.
Bargain element
The difference between a stock’s fair market value and its lower option exercise price.
Barter income
The fair market value of goods or services received in exchange for other goods or services.
Base erosion and anti-abuse tax
A minimum tax designed to prevent multinational corporations from shifting profits out of the United States.
Basic exclusion amount
The base lifetime dollar amount exempt from federal estate and gift taxes before triggering liability.
Basis in IRA
The total amount of after-tax contributions made to your traditional IRA over the years.
BBA partnership audit regime
A centralized IRS audit system assessing and collecting tax directly at the partnership level.
Beginning inventory
The book value of a company’s unsold stock at the start of an accounting period.
Below-the-line deduction
A tax deduction subtracted from adjusted gross income to determine your final taxable income.
Beneficiary IRA
An inherited retirement account transferred to a named individual after the original owner’s death.
Bitcoin tax
The IRS treats Bitcoin as property, applying capital gains tax when sold or traded.
Bona fide residence test
An IRS criteria verifying a foreign country residency for the foreign earned income exclusion.
Bond premium
The amount by which a bond’s purchase price exceeds its stated face value.
Bonus depreciation
An accelerated tax deduction allowing businesses to immediately expense a percentage of eligible asset costs.
Bonuses
Additional compensation awarded to employees above their normal base salary, which is fully taxable income.
Book capital account
An equity account tracking a partner’s capital contributions, distributions, and share of financial accounting income.
Book income
The net profit a company reports on its financial statements, distinct from its taxable income.
Book-tax difference
The discrepancy between financial statement net income and taxable income caused by differing accounting rules.
Books and records
The financial documents and ledgers a taxpayer must maintain to support income, deductions, and credits.
Breeding livestock
Animals kept by agricultural operations specifically for reproduction, qualifying for distinct capital gains tax treatment.
Brokerage statement
A financial document detailing the investment holdings, transactions, and performance within a brokerage account.
Built-in gain
The excess of an asset’s fair market value over its tax basis at corporation conversion.
Built-in gains tax
A corporate-level tax on gains realized by an S corporation on assets held during C corporation status.
Built-in loss
The excess of an asset’s adjusted tax basis over its fair market value at acquisition.
Business entity
An organization formed to conduct trade, structured legally to manage liability, operations, and taxation.
Business expense
The cost of carrying on a trade or business, which must be ordinary and necessary.
Business expense deduction
A tax deduction allowing companies to write off ordinary and necessary costs of running their business.
Business income
Net profit earned from a trade or business, calculated as gross revenues minus deductible expenses.
Business privilege tax
A tax levied by local jurisdictions for the privilege of conducting business within that municipality.
Business structure
The legal organization of a business, determining its operational framework, liability exposure, and tax treatment.
Business use of car
Using your personal vehicle for work-related tasks to claim tax deductions or company reimbursements.
Business use of home
Deducting a portion of household expenses on taxes for using a dedicated home workspace.
Business-use percentage
The proportion of an asset’s total use dedicated strictly to work or business tasks.
C
Glossary of US tax and accounting terms starting with the letter C.
C corporation
A legally separate business structure offering limited liability, where profits are taxed at corporate rates.
Calendar year
The twelve-month period starting January 1 and ending December 31, used for tax reporting.
Calendar year taxpayer
An individual or business that files tax returns based on the January-to-December calendar year.
Cancellation of debt income
Taxable income created when a lender forgives or cancels a debt you owe them.
Cancellation of debt on home
Forgiven mortgage debt on a principal home, which may qualify for special tax exclusion.
CAP appeal
An expedited IRS process to resolve specific collection actions, like liens or levies, before enforcement.
Capital account
An equity account tracking a partner’s or owner’s financial investment and earnings in a business.
Capital asset
Property owned for personal or investment use, such as stocks, bonds, or real estate.
Capital contribution
Cash, property, or assets given to a business by an owner to increase equity.
Capital expense
Money spent to buy or improve long-term business assets, which is depreciated over time.
Capital gain
The profit earned from selling a capital asset for more than its original purchase price.
Capital gain distribution
A mutual fund’s payment to shareholders from profits earned by selling its own investment assets.
Capital gains
Profits realized from selling investments or capital assets for more than their original purchase cost.
Capital Loss
The financial loss incurred when a capital asset is sold for less than its cost.
Capital loss carryover
Unused capital losses from previous years used to offset taxable gains or income today.
Capital Loss Deduction
A tax deduction allowing individuals to offset capital losses against gains and ordinary income.
Capitalization
An accounting method where asset costs are recorded on the balance sheet rather than expensed immediately.
Carryover basis
An asset’s original tax basis that transfers from a donor to a recipient during a gift.
Cash method
An accounting practice where income is recorded when received and expenses when actually paid.
Casualty loss deduction
A tax deduction for property damage or loss caused by sudden, unexpected, or unusual events.
Catch-up contribution
An extra retirement contribution allowed for individuals aged 50 or older to boost their savings.
Chapter 3 withholding
Tax withholding required on US source income paid to foreign individuals or entity recipients.
Chapter 4 withholding
A 30% FATCA tax withheld on U.S. source payments to non-compliant foreign entities.
Charitable contribution by business
A business donation of cash or assets to a qualified charity to claim a tax deduction.
Charitable contribution deduction
A tax deduction allowing individuals to reduce taxable income by donating to qualified charitable organizations.
Charitable contribution substantiation
The donor documentation, like receipts or letters, required by the IRS to prove a charitable donation.
Charitable deduction
A tax deduction that reduces taxable income when donating to qualified non-profit organizations.
Chart of accounts
An organized list of all financial accounts used by a business to record transactions.
Check-the-box election
An IRS tax election letting eligible business entities choose how they will be taxed.
Chief Counsel Advice
Written guidance issued by the IRS Office of Chief Counsel to field attorneys and revenue agents.
Child and Dependent Care Credit
A tax credit helping families offset the cost of caring for a child or dependent while working.
Child support
Court-ordered financial payments made by a noncustodial parent to support their minor children’s expenses.
Child Tax Credit
A federal tax credit providing financial relief to eligible parents with qualifying dependent children.
Church employee income
Wages received by non-ministerial staff of a church, which are subject to specific self-employment tax rules.
Circular 230
An IRS publication governing the regulations and ethical standards for practitioners representing taxpayers before the agency.
Citizen or resident test
An IRS rule requiring a dependent to be a U.S. citizen, resident, national, or Canadian/Mexican resident.
Civil fraud penalty
A 75% IRS penalty added to tax underpayments intentionally driven by taxpayer fraud or evasion.
Claim for refund
A formal taxpayer request to the IRS to recover overpaid taxes, usually filed via an amended return.
Claim of right doctrine
An IRS rule requiring income to be reported when received without restriction, even if contested.
Clean fuel production credit
A federal tax credit for domestic producers of low-emission transportation fuels and sustainable aviation fuels.
Clean Vehicle Credit
A federal tax credit for individuals and businesses purchasing qualifying new or used electric vehicles.
Clergy housing allowance
An IRS tax exclusion letting ministers exclude housing costs from their gross taxable income.
Closer connection exception
An IRS exception allowing noncitizens to avoid U.S. tax residency by proving stronger ties to another country.
CNC status
An IRS designation temporarily halting tax collection actions because paying would cause severe financial hardship.
COD income
Taxable income generated when a lender forgives, cancels, or discharges a portion of your debt.
Collectibles gain
A long-term capital gain on selling eligible items, subject to a maximum 28% tax rate.
Collection
The IRS process of aggressively gathering unpaid taxes through notices, liens, levies, or installment agreements.
Collection Appeals Program
An IRS process letting taxpayers quickly appeal specific collection actions, like liens, levies, or seizures.
Collection statute expiration date
The 10-year legal time limit for the IRS to collect a taxpayer’s unpaid tax debt.
Combined reporting
A corporate tax filing method combining incomes of affiliated businesses to calculate unitary state tax.
Commissions
Compensation paid to employees or independent contractors based on a percentage of sales or performance.
Commodity credit loan
An IRS option allowing farmers to treat USDA crop loans as taxable income when received.
Common-law employee
An IRS classification where a business controls what work is done and how it is performed.
Community income
Income earned by a spouse or property acquired during marriage in a community property state.
Complex trust
A trust that must accumulate income, distribute principal, or make charitable contributions during the year.
Composite return
A single state tax return filed by a pass-through entity on behalf of nonresident owners.
Consolidated tax return
A single federal tax return filed by an affiliated group of corporations to combine profits and losses.
Constructive receipt
An IRS doctrine taxing income when it is made available to you, even if not possessed.
Constructive receipt doctrine
An IRS rule taxing income the moment it becomes available to you without restrictions.
Contractor income
Self-employment earnings paid to independent workers, reported on Form 1099-NEC rather than a W-2.
Contractor tax form
Form 1099-NEC, used by businesses to report nonemployee compensation paid to independent contractors.
Contribution limit
The maximum legal amount you can deposit into a tax-advantaged account like an IRA or 401(k).
Controlled foreign corporation
A foreign corporation where US shareholders own more than 50% of the total voting power or value.
Convention
An IRS depreciation rule determining when a property’s recovery period begins and ends during the tax year.
Corporate distribution
A corporation’s transfer of cash, stock, or property to its shareholders, often taxed as a dividend.
Corporate estimated tax
Quarterly advance tax payments required for corporations expecting a yearly tax liability of $500 or more.
Corporate income tax
A federal or state tax levied on the net profits earned by a corporation.
Corporate net operating loss
A corporation’s tax deductions exceed its taxable income, creating a loss that offsets future corporate profits.
Corporation
A legal business structure separate from its owners, offering limited liability and taxed under corporate laws.
Correspondence audit
An IRS tax audit conducted entirely through the mail to resolve simple errors or request documentation.
Cost basis in crypto
The original purchase price plus transaction fees used to calculate taxable crypto gains or losses.
Cost of goods sold
The direct costs of producing goods sold by a company, including material and labor costs.
Country-by-Country Reporting
An IRS form requiring large multinational enterprises to report global income, taxes paid, and economic activity.
Court of Federal Claims
A federal court where taxpayers can sue the government for tax refunds after paying the disputed amount.
Coverdell ESA
A tax-advantaged savings account used to pay for qualified elementary, secondary, or higher education expenses.
Covered expatriate
An individual relinquishing US citizenship who meets specific net worth, tax liability, or certification thresholds.
Covered security
An investment asset for which brokers are legally required to report the cost basis to the IRS.
CP2000 notice
An IRS notice sent when reported income doesn’t match information received from third-party employers or banks.
CPA
A licensed accounting professional who has passed the CPA exam and met state-specific financial experience requirements.
Credit for employer differential wage payments
A tax credit for businesses that voluntarily pay active-duty military employees their regular civilian wage difference.
Credit for Other Dependents
A nonrefundable $500 tax credit for qualifying relatives who do not qualify for the Child Tax Credit.
Credit for Prior Year Minimum Tax
A tax credit allowing taxpayers to recover alternative minimum tax paid in a prior year.
Credit for taxes paid to another state
A nonrefundable credit reducing home-state income tax for individuals taxed on income earned in another state.
Credit for the Elderly or Disabled
A tax credit for low-income individuals who are aged 65 or older, or permanently disabled.
Crop insurance proceeds
Tax payouts received by farmers for crop damage, generally reported as taxable income in the year received.
Crypto capital gain
The taxable profit made when selling or exchanging cryptocurrency for more than its original cost basis.
Crypto capital loss
The financial loss incurred when cryptocurrency is sold or exchanged for less than its original cost basis.
Crypto donation
Gifting cryptocurrency directly to a qualified charity, providing a tax deduction without triggering capital gains.
Crypto exchange
A digital marketplace where users trade cryptocurrencies for other digital assets or traditional fiat currencies.
Crypto gift
Transferring cryptocurrency to someone without compensation, potentially subject to gift tax limits but not capital gains.
Crypto mining income
Taxable business or ordinary income received from successfully verifying transactions and mining new cryptocurrency tokens.
Crypto sale
Selling cryptocurrency for fiat currency, triggering a taxable capital gain or loss based on cost basis.
Crypto staking income
Earnings received from locking up digital assets to validate blockchain transactions, taxed as ordinary income.
Crypto transaction
The movement of cryptocurrency on a blockchain, such as a sale, exchange, or purchase, triggering tax events.
Crypto wash sale
Selling cryptocurrency at a loss and buying it back quickly, though current IRS rules do not restrict it.
Cryptocurrency
A decentralized digital currency secured by cryptography and recorded on a distributed ledger called a blockchain.
Cryptocurrency income
Earnings from mining, staking, airdrops, or wages paid in crypto, taxed as ordinary income.
CTC
A tax credit providing up to $2,000 per qualifying child under age 17 to eligible parents.
Current distribution
A partnership or corporation payout to an owner that does not terminate their entire business interest.
Currently not collectible
A temporary IRS status meaning you can’t pay tax debt without financial hardship.
D
Glossary of US tax and accounting terms starting with the letter D.
DBA
A Database Administrator (DBA) manages, secures, and ensures the optimal performance of an organization’s data systems.
De minimis safe harbor
An IRS rule allowing businesses to immediately expense low-cost assets instead of capitalizing them.
Debt basis
An S-corporation shareholder’s personal loan to their business, allowing them to deduct additional losses.
Deceased spousal unused exclusion
An estate tax rule letting a surviving spouse inherit and use their deceased partner’s leftover tax exemption.
Decentralized finance
A blockchain-based financial system that removes intermediaries like banks, allowing direct peer-to-peer transactions.
Deductible business expense
An ordinary and necessary cost incurred to run a business, used to lower taxable income.
Deduction
An expense or statutory amount subtracted from gross income to lower total taxable income.
Deduction for half of self-employment tax
A tax deduction allowing self-employed individuals to subtract half of their self-employment tax from gross income.
Deduction for one-half of self-employment tax
An above-the-line tax deduction that lets self-employed individuals lower their adjusted gross income by half.
Defined benefit plan
An employer-sponsored retirement plan guaranteeing a specific monthly payout based on salary and employment history.
Defined contribution plan
A retirement plan where employees contribute a specific amount, but final payouts depend on investment performance.
Dental expense deduction
An itemized deduction allowing individuals to write off qualified out-of-pocket medical and dental expenses exceeding a specific income percentage.
Dependent
A qualifying individual, like a child or relative, who relies on a taxpayer for financial support.
Dependent care assistance exclusion
An IRS provision letting employees exclude employer-provided childcare benefits or FSA contributions from taxable income.
Dependent care FSA
A pre-tax account used to pay for eligible childcare or adult dependent care expenses.
Depletion
An accounting method used to allocate the cost of extracting natural resources over time.
Depreciable basis
The total acquisition cost of a business asset used to calculate its annual depreciation deductions.
Depreciation
An accounting method that spreads the cost of a tangible asset over its useful life.
Depreciation of rental property
An IRS tax deduction allowing real estate investors to write off a building’s cost over 27.5 years.
Depreciation recapture
A tax provision forcing sellers to pay income tax on previously claimed asset depreciation deductions.
Destination-based sales tax
A sales tax calculated and charged based on the buyer’s location rather than the seller’s.
Digital asset
Any digital file, record, or cryptocurrency that holds monetary value or ownership rights.
Digital asset income
Earnings gained from selling, trading, mining, or staking cryptocurrencies, NFTs, and other virtual currencies.
Digital asset question
The IRS tax return check-box asking taxpayers if they received, sold, or traded cryptocurrency.
Direct deposit
The electronic transfer of a payment directly from the payer’s account into the recipient’s bank account.
Direct Pay
An IRS service allowing individuals to securely transfer tax payments directly from their checking or savings accounts.
Direct rollover
The electronic transfer of retirement funds directly from one plan or custodian to another.
Disabled access credit
A tax credit helping eligible small businesses offset costs incurred to provide accommodations for disabled individuals.
Disqualifying disposition
The sale of incentive stock options before meeting the mandatory IRS holding period requirements.
Disregarded entity
A business entity that is ignored for tax purposes, passing its income directly to the owner.
Distributable net income
The maximum amount of an estate or trust’s earnings that can be taxed to beneficiaries.
Distribution
The payout of cash, stock, or retirement funds from a business, trust, or investment account.
District court tax case
A federal lawsuit filed by a taxpayer seeking a refund after paying a disputed tax.
Dividend
A distribution of a company’s corporate profits paid out directly to its eligible shareholders.
Dividend income
Money paid to shareholders from corporate profits, reported as taxable income on tax returns.
Domicile
The permanent, primary home where a person legally resides and intends to return to always.
Donor acknowledgment
A written statement from a charity confirming a donation, required for claiming tax deductions.
Donor-advised fund
A charitable giving vehicle where donors make tax-deductible contributions and recommend grants over time.
Double taxation
The taxation of the same earnings or corporate profits twice, typically at corporate and individual levels.
Dual-status alien
An individual who is both a nonresident and resident alien of the United States within the same tax year.
Due date
The legal deadline by which a tax return must be filed or a payment made.
E
Glossary of US tax and accounting terms starting with the letter E.
E-file
The process of submitting tax returns electronically to the IRS or state tax authorities.
Early distribution
The withdrawal of retirement funds before age 59 and a half, often incurring a penalty.
Early withdrawal penalty
An IRS fee, usually 10 percent, for taking money out of retirement accounts before age 59½.
Early withdrawal penalty deduction
An above-the-line deduction allowing taxpayers to lower adjusted gross income by deducting bank penalties for early savings withdrawals.
Earned income
Taxable income received from working, including wages, salaries, tips, and net earnings from self-employment.
Earned Income Tax Credit
A federal tax credit for low- to moderate-income workers that reduces tax owed and often provides refunds.
Earnings and profits
A corporate accounting metric used to determine whether a company’s distributions are taxable dividends or returns of capital.
Economic substance doctrine
A tax principle requiring transactions to have a meaningful economic purpose beyond just reducing tax liability.
Education credit
A federal tax credit, like the AOTC or Lifetime Learning Credit, that offsets higher education expenses.
Education credits
Federal tax credits, like the AOTC or Lifetime Learning Credit, that offset higher education tuition costs.
Education savings account
A tax-advantaged account used to save for a beneficiary’s qualified elementary, secondary, or higher education expenses.
Educator expense deduction
An above-the-line deduction allowing eligible teachers to subtract up to $300 of out-of-pocket classroom expenses.
Effective tax rate
The actual percentage of total income paid in taxes, calculated by dividing tax liability by income.
Effectively connected income
Income earned by a nonresident alien from conducting a trade or business within the United States.
EFIN
An identification number assigned by the IRS to firms authorized to file tax returns electronically.
EITC
A federal tax credit for low- to moderate-income working individuals and families that reduces tax owed.
Elective deferral
A pretax contribution an employee chooses to deduct from their paycheck into a retirement plan.
Electronic filing
The process of transmitting tax returns electronically to government tax agencies instead of mailing paper forms.
Eligible educational institution
Any college, university, or vocational school eligible to participate in federal student aid programs.
Eligible S corporation shareholder
Individuals, certain trusts, and estates that are legally permitted to own stock in an S corporation.
Employee stock purchase plan
A company program allowing employees to buy stock, often at a discount, through payroll deductions.
Employee vs. contractor
Employees have taxes withheld and employer-controlled work; contractors are self-employed and manage their own work.
Employer credit for paid family and medical leave
A federal tax credit for businesses offering paid family and medical leave to qualifying lower-wage employees.
Employer educational assistance
An employer benefit providing up to $5,250 annually in tax-free tuition or student loan assistance.
Employer identification number
A unique nine-digit number assigned by the IRS to identify businesses, estates, and trusts for tax purposes.
Employer matching contribution
An employer’s additional contribution to an employee’s retirement account based on the employee’s own deferrals.
Employer nonelective contribution
An employer’s retirement contribution made to all eligible employees regardless of whether they contribute.
Employer tax deposit
The periodic payment of withheld payroll taxes and employer taxes sent to federal, state, or local governments.
Employer-provided benefits exclusion
The IRS provision letting employees exclude certain fringe benefits, like health insurance, from taxable gross income.
Employer-provided childcare credit
A federal tax credit for businesses covering up to 25% of qualified childcare facility expenses.
Employer-sponsored coverage
Health insurance provided by an employer to employees and their dependents, often subsidized by the company.
Employment tax
Federal taxes, including Social Security, Medicare, and unemployment, paid on worker wages by employers and employees.
Ending inventory
The value of unsold goods remaining in a business’s possession at the close of an accounting period.
Energy Efficient Home Improvement Credit
A federal tax credit providing up to $3,200 annually for energy-efficient residential upgrades.
Enrolled Agent
A federally-licensed tax practitioner authorized by the IRS to represent taxpayers in all tax matters.
Entity classification election
The process where a business chooses how the IRS will tax it, using Form 8832.
Environmental tax
Taxes imposed on ecologically harmful activities or products to encourage sustainable practices and reduce pollution.
Equity
The value of ownership in an asset, calculated as total assets minus total liabilities.
Escrow account
A legal financial arrangement where a neutral third party holds funds until specific conditions are met.
Estate income
Income generated by a deceased person’s assets after their death before the estate is settled.
Estate income tax return
An IRS tax return (Form 1041) reporting income earned by a deceased person’s estate.
Estate tax
A federal tax levied on the net value of a deceased person’s estate before distribution.
Estate tax exemption
The maximum amount an individual can transfer at death tax-free before federal estate taxes apply.
Estimated tax
Quarterly tax payments made on income not subject to withholding, such as self-employment or investment earnings.
Estimated tax for self-employed
Quarterly tax payments required from self-employed individuals whose expected annual tax liability is at least $1,000.
Estimated tax payment
Quarterly financial payments made to the IRS for income not covered by standard payroll withholding.
Estimated tax penalty
A fine imposed by the IRS for failing to pay sufficient estimated taxes throughout the year.
Ethereum tax
Federal taxes owed on Ethereum transactions, triggered when selling, trading, or spending the cryptocurrency.
Excess benefit transaction
An IRS term for when a tax-exempt organization overpays an insider or provides excessive benefits.
Excess contribution
An amount contributed to a retirement or tax-advantaged account that exceeds the annual legal limit.
Excess HSA contribution
Money contributed to a Health Savings Account that exceeds the annual federally mandated contribution limit.
Excess passive investment income
Passive income of an S corporation that exceeds twenty-five percent of its gross receipts.
Excess Social Security Tax Credit
A tax credit refunding individuals who overpaid Social Security taxes by working for multiple employers.
Excise tax
A legislated tax levied on specific goods, services, or activities, often built into the price.
Excludable income
Income that is legally exempt from federal income tax and omitted from gross income reporting.
Exclusive use test
An IRS requirement stating a home office must be used solely for business to qualify for deductions.
Exercise price
The fixed price at which an option holder can buy or sell the underlying asset.
Exit tax
A tax levied on individuals who renounce citizenship or permanent residency, targeting unrealized capital gains.
Expatriation tax
A tax imposed on certain high-net-worth individuals who renounce their U.S. citizenship or long-term residency.
Extension to file
An IRS-approved formal time extension to submit a tax return, which does not extend the deadline to pay.
Extension to pay
An IRS agreement allowing extra time to pay outstanding tax liabilities, though interest and penalties still accrue.
F
Glossary of US tax and accounting terms starting with the letter F.
Failure-to-file penalty
An IRS fine charged when you miss the tax deadline without filing an approved extension.
Failure-to-pay penalty
An IRS fine charged monthly on unpaid taxes when you fail to pay by the deadline.
Fair market value
The price an asset would sell for on the open market between willing, informed parties.
Fair market value at death
The open-market value of an inherited asset on the date of the owner’s death.
Fair market value of stock
The current price a share of stock would sell for on the open financial market.
Farm fuel tax credit
A tax credit refunding farmers for federal excise taxes paid on fuel used for agricultural purposes.
Farm income
Revenue generated from agricultural operations, including crop sales, livestock production, and related government subsidies.
Farm optional method
A simplified accounting method allowing farmers to estimate self-employment income and earn social security credits.
FATCA
A federal law requiring foreign financial institutions to report U.S. taxpayers’ offshore accounts to the IRS.
FBAR
An annual report required for U.S. persons holding foreign financial accounts exceeding ten thousand dollars.
FDAP income
Fixed, Determinable, Annual, or Periodical income received by foreign individuals, subject to flat U.S. withholding taxes.
Federal excise tax
A federal tax levied on specific goods or services, like fuel, airline tickets, and tobacco.
Federal income tax
A progressive tax levied by the United States government on the annual earnings of individuals and businesses.
Federal income tax withholding
The portion of an employee’s paycheck withheld by an employer to prepay annual federal taxes.
Federal tax lien
The government’s legal claim against a taxpayer’s property when they fail to pay federal tax debt.
FEIE
A tax provision allowing qualifying U.S. citizens working abroad to exclude foreign earned income from taxation.
Fellowship income
Financial aid granted to graduate students or researchers, which is taxable if used for non-educational expenses.
FICA tax
A federal payroll tax funding Social Security and Medicare, split evenly between employees and employers.
Fiduciary
A legal relationship where one party manages money or assets ethically on behalf of another.
Fiduciary accounting income
The income of an estate or trust determined by governing documents and local probate laws.
Field audit
An IRS examination conducted in person at a taxpayer’s home, business, or accountant’s office.
FIFO method
An inventory method where the oldest stock is sold first to calculate cost of goods.
Filing requirement
The legal thresholds, based on gross income, age, and filing status, that dictate if you must file taxes.
Filing status
A category that determines your tax bracket, standard deduction, and filing requirements based on marital status.
Filing threshold
The minimum gross income amount that legally requires an individual or business to file a tax return.
Financial statement
A formal record summarizing a company’s financial activities, including the balance sheet, income statement, and cash flows.
FinCEN Form 114
The official electronic form used by U.S. persons to report offshore bank accounts exceeding ten thousand dollars.
Firearms and ammunition excise tax
A federal tax on manufacturers and importers of guns and ammo to fund wildlife conservation programs.
FIRPTA
A U.S. law requiring tax withholding on the disposition of real estate by foreign individuals.
First-time abatement
An IRS administrative waiver relieving compliant taxpayers of certain failure-to-file or failure-to-pay penalties.
Fiscal year
A twelve-month accounting period used by businesses or governments for financial reporting and budgeting.
Fiscal year taxpayer
A taxpayer who reports annual income using a twelve-month period that does not end on December 31.
Fixed asset
A long-term tangible asset used in business operations to generate income, not intended for immediate sale.
Fixed or determinable annual or periodical income
Taxable U.S. source income paid to foreign persons, consisting of passive streams like dividends and interest.
Foreclosure tax consequences
A foreclosure can trigger taxable capital gains and ordinary income from canceled debt.
Foreign bank account
A financial account held in a bank located outside of your primary country of residence.
Foreign earned income
Compensation received for performing services in a foreign country while qualifying as a tax resident there.
Foreign earned income exclusion
A tax provision allowing qualifying U.S. citizens to exclude specific foreign-sourced wages from federal income tax.
Foreign financial account
A financial asset or account located outside the United States, subject to specific federal reporting requirements.
Foreign financial asset
Any foreign-held stock, bond, or financial interest that must be reported to the IRS under FATCA.
Foreign financial institution
A non-U.S. financial entity that accepts deposits, holds financial assets, or invests for customers.
Foreign gift
Money or property received by a U.S. person from a non-U.S. source, subject to informational reporting.
Foreign housing deduction
A tax deduction for self-employed U.S. citizens abroad to cover qualifying housing expenses exceeding a base amount.
Foreign housing exclusion
A tax exclusion allowing U.S. citizens abroad to shield employer-provided foreign housing expenses from income tax.
Foreign inheritance
Money or assets inherited from a non-U.S. decedent, generally untaxed but requiring federal disclosure.
Foreign pension
A retirement fund established outside the United States, subject to complex federal tax reporting rules.
Foreign source income
Income earned outside the United States, which is generally subject to federal income tax reporting.
Foreign Tax Credit
A dollar-for-dollar reduction of U.S. tax liability for income taxes paid to a foreign country.
Foreign tax deduction
An itemized deduction reducing taxable income for foreign taxes paid instead of claiming a credit.
Foreign tax home
A taxpayer’s primary place of business or employment located entirely within a foreign country.
Foreign trust
Any trust created outside the United States or managed primarily by a non-U.S. person.
Foreign-derived intangible income
A tax deduction for U.S. corporations on income earned from selling intellectual property to foreign customers.
Form 1023
The IRS application used by charities to seek tax-exempt status under Section 501(c)(3).
Form 1023-EZ
A streamlined, shorter IRS application for small charities seeking 501(c)(3) tax-exempt status.
Form 1024
The IRS application used by organizations to request tax-exempt status under sections other than 501(c)(3).
Form 1040
The standard IRS form used by individual U.S. taxpayers to file their annual income tax returns.
Form 1040-SR
An optional IRS income tax return designed specifically with larger print for seniors aged 65 or older.
Form 1040-X
The IRS form used by individual taxpayers to correct mistakes on a previously filed tax return.
Form 1041
The IRS tax return used by estates and trusts to report their annual income and distributions.
Form 1042-S
An IRS form used to report U.S. source income paid to foreign persons and withholding taxes.
Form 1065
An IRS informational return used by partnerships to report annual income, gains, losses, and deductions.
Form 1095-A
An IRS form sent to individuals who purchased health insurance through the federal or state Marketplace.
Form 1095-B
An IRS form detailing healthcare coverage, sent by insurance companies, government programs, or small employers.
Form 1095-C
An IRS form provided by large employers detailing the health insurance coverage offered to employees.
Form 1096
An IRS compilation form used to transmit paper information returns like Form 1099 to the IRS.
Form 1098
An IRS form used by lenders to report the amount of mortgage interest you paid.
Form 1098-T
An IRS form used by eligible educational institutions to report tuition payments and related higher-education expenses.
Form 1099
An IRS information return used to report non-employee income like freelancing, dividends, or interest.
Form 1099-B
An IRS form used by brokers to report capital gains and losses from selling securities.
Form 1099-DA
An IRS form used by brokers to report digital asset transactions, capital gains, and losses.
Form 1099-DIV
An IRS form used by financial institutions to report dividend distributions and other corporate payouts.
Form 1099-G
An IRS form used by government agencies to report state tax refunds, unemployment benefits, or grants.
Form 1099-INT
An IRS form used by banks and financial institutions to report interest income you received.
Form 1099-MISC
An IRS form used to report miscellaneous income like prizes, awards, rents, or healthcare payments.
Form 1099-NEC
An IRS form used to report nonemployee compensation paid to independent contractors and freelancers.
Form 1099-R
An IRS form used to report distributions from pensions, annuities, retirement plans, IRAs, or insurance contracts.
Form 1099-SA
An IRS form used to report distributions made from health, Archer medical, or Medicare Advantage savings accounts.
Form 1116
An IRS form used by individuals to claim a tax credit for income taxes paid to foreign countries.
Form 1118
An IRS form used by corporations to calculate and claim a tax credit for foreign income taxes.
Form 1120
An IRS tax return used by domestic corporations to report income, gains, losses, deductions, and credits.
Form 1120-S
An IRS tax return used by S corporations to report income, deductions, and shareholder profits or losses.
Form 1120-W
An IRS worksheet used by corporations to estimate their taxes and determine required installment payments.
Form 2210
An IRS form used to calculate penalties for underpaying estimated income taxes during the tax year.
Form 2290
An IRS tax return used to compute and pay the Heavy Highway Vehicle Use Tax.
Form 2553
An IRS form used by an eligible small business corporation to elect S corporation status.
Form 2555
An IRS form used by expats to claim the foreign earned income exclusion or housing exclusion.
Form 3115
An IRS form used by taxpayers to request a change in their accounting method or period.
Form 3520
An IRS form used to report transactions with foreign trusts and receipt of large foreign gifts.
Form 3520-A
An IRS information return providing financial transparency about the activities and operations of foreign trusts.
Form 3800
An IRS form used to claim and calculate the sum of various general business tax credits.
Form 4361
An IRS form for ministers, religious orders, and Christian Science practitioners to elect out of self-employment tax.
Form 4562
An IRS form used to claim deductions for depreciation, amortization, Section 179 expenses, and listed property.
Form 4797
An IRS form used to report the sale or exchange of business property and capital gains or losses.
Form 4868
An IRS form used to request an automatic six-month extension to file individual income tax returns.
Form 5471
An IRS information return used by certain US citizens and residents involved with foreign corporations.
Form 5472
An IRS form used by foreign-owned US corporations to report transactions with related foreign parties.
Form 5498
An IRS form used by custodians to report contributions, rollovers, and the fair market value of IRAs.
Form 5498-SA
An IRS form used by custodians to report contributions and the fair market value of Health Savings Accounts.
Form 6252
An IRS form used to report income from the sale of property under an installment sale method.
Form 6765
An IRS form used by businesses to claim the credit for increasing research activities.
Form 706
An IRS return used to calculate estate taxes and transfer tax on a deceased person’s wealth.
Form 709
IRS Form 709 is used to report gifts exceeding the annual exclusion limit.
Form 720
Quarterly federal excise tax return for businesses reporting environmental, fuel, and luxury taxes.
Form 8027
IRS Form 8027 is used by large food businesses to report annual receipts and allocated tips.
Form 8288
IRS form used to report and pay withholding tax on foreign transfers of US real property.
Form 8332
Custodial parents use this IRS form to release their dependent child tax claim.
Form 8606
Tracks nondeductible traditional IRA contributions and calculates the tax-free portion of distributions or conversions.
Form 8621
IRS form used by Americans to report investments in Passive Foreign Investment Companies (PFICs).
Form 8829
IRS form used by self-employed taxpayers to deduct home office expenses from their taxes.
Form 8832
An IRS form used by businesses to choose how they are taxed for federal purposes.
Form 8858
Form 8858 reports information about foreign disregarded entities and foreign branches owned by US persons.
Form 8863
IRS Form 8863 is used to claim education tax credits, like the American Opportunity Credit.
Form 8865
IRS Form 8865 reports a U.S. person’s interests and transactions in foreign partnerships.
Form 8889
IRS Form 8889 is used to report health savings account contributions, deductions, and distributions.
Form 8938
IRS Form 8938 is used by taxpayers to report specified foreign financial assets.
Form 8949
IRS Form 8949 is used to report sales and other dispositions of capital assets.
Form 8949 crypto reporting
Taxpayers use IRS Form 8949 to report capital gains and losses from cryptocurrency transactions.
Form 8960
IRS Form 8960 is used to calculate and report Net Investment Income Tax.
Form 8962
IRS Form 8962 is used to calculate and reconcile the Premium Tax Credit.
Form 8992
IRS Form 8992 is used to calculate a taxpayer’s Global Intangible Low-Taxed Income.
Form 8993
IRS Form 8993 calculates the Section 250 deduction for FDII and GILTI.
Form 8995
IRS Form 8995 calculates the simplified Qualified Business Income deduction for eligible taxpayers.
Form 8995-A
IRS Form 8995-A calculates the detailed Qualified Business Income deduction for taxpayers.
Form 940
IRS Form 940 is used by employers to report annual Federal Unemployment Tax.
Form 941
IRS Form 941 is used by employers to report quarterly payroll taxes and withholdings.
Form 944
IRS Form 944 allows small employers to report and pay payroll taxes annually.
Form 945
IRS Form 945 is used to report withheld federal income tax from nonpayroll payments.
Form 990
IRS Form 990 is used by exempt organizations to report financial and operational information.
Form 990-EZ
Smaller exempt organizations use IRS Form 990-EZ to file their simplified annual returns.
Form 990-N
IRS Form 990-N is an electronic notice filed annually by very small exempt organizations.
Form SSA-1099
Form SSA-1099 shows the total Social Security benefits paid to a taxpayer annually.
Form W-2
Employers use Form W-2 to report annual wages and taxes withheld for employees.
Form W-3
Form W-3 summarizes and transmits employee W-2 forms to the Social Security Administration.
Form W-4
Employees use Form W-4 to tell employers how much federal income tax to withhold.
Form W-8BEN
Foreign individuals use Form W-8BEN to certify status and claim tax treaty benefits.
Form W-8BEN-E
Foreign entities use Form W-8BEN-E to certify status and claim tax treaty benefits.
Form W-8ECI
Foreign persons use Form W-8ECI to claim withholding exemptions on effectively connected income.
Form W-9
Form W-9 is used to request a taxpayer’s identification number and certification.
Franchise tax
Franchise tax is a state tax on businesses for the privilege of operating there.
Free File
IRS Free File offers eligible taxpayers free online tax preparation and filing services.
Freelancer
An independent contractor who offers professional services to multiple clients on a project basis.
Freelancer income
Freelancer income is earnings received by independent contractors, typically reported on Form 1099-NEC.
Fringe benefits
Fringe benefits are extra forms of compensation provided to employees besides their normal wages.
FSA
An FSA allows employees to pay for eligible healthcare expenses using pretax dollars.
Fuel Tax Credit
A federal tax credit for businesses using fuel for qualifying off-highway activities.
FUTA tax
A federal tax paid only by employers to help fund unemployment benefits for workers.
G
Glossary of US tax and accounting terms starting with the letter G.
Gambling loss deduction
An itemized deduction that allows taxpayers to deduct gambling losses up to their winnings.
Gambling winnings
All gambling winnings are fully taxable income and must be reported to the IRS.
General business credit
A combination of several individual business tax credits claimed together using IRS Form 3800.
General ledger
A master accounting document containing all financial transactions and accounts of a business.
General partnership
A business owned by two or more people who share profits and personal liability.
Generation-skipping transfer tax
This federal tax applies to property transfers to beneficiaries two or more generations younger.
Gift basis
The tax basis of gifted property, typically equal to the donor’s adjusted cost basis.
Gift exclusion
The annual limit a donor can give per recipient without reporting to the IRS.
Gift tax
A federal tax on transfers of wealth, money, or property paid by the donor.
Gig economy income
Earnings received from freelance jobs or app platforms, classified as self-employment income.
Gig worker
An independent contractor who earns income by completing temporary, flexible, or on-demand jobs.
Global intangible low-taxed income
A category of foreign income earned by controlled foreign corporations subject to US taxation.
Goodwill
An intangible asset representing the value of a business’s reputation and customer loyalty.
Grantor trust
A trust where the grantor retains control and pays taxes on the trust’s income.
Green card test
An IRS test classifying lawful permanent residents as resident aliens for tax purposes.
Gross estate
The total fair market value of all property and assets owned at death.
Gross income
Total income earned from all sources before subtracting any taxes, deductions, or expenses.
Gross profit
Gross profit is a company’s total revenue minus the cost of goods sold.
Gross receipts
The total amount of money a business receives from all sources before subtracting expenses.
Gross receipts tax
A state or local tax on a company’s gross receipts without subtracting any expenses.
Gross sales
A company’s total sales revenue before accounting for customer returns, discounts, and allowances.
Guaranteed payment
Payments made to partners for services or capital without regard to partnership income.
H
Glossary of US tax and accounting terms starting with the letter H.
Half-year convention
A MACRS depreciation rule treating property as placed in service at midyear.
Head of household
A tax status for unmarried individuals who maintain a home for a qualifying dependent.
Health FSA
An employer account allowing employees to pay for medical expenses using pretax dollars.
Health insurance exclusion
The exclusion of employer paid health insurance premiums from an employee’s taxable income.
Health Insurance Marketplace
An online shopping platform for individuals to compare and purchase health insurance plans.
Health Savings Account
A tax advantaged savings account for individuals with high deductible health plans.
Heavy highway vehicle use tax
An annual federal excise tax paid by owners of heavy highway vehicles.
High deductible health plan
A health insurance plan with higher deductibles but lower premiums, qualifying members for HSAs.
Highway use tax
A federal excise tax on heavy motor vehicles used to fund highway maintenance.
Holding period
The duration an asset is owned, which determines how its sale is taxed.
Home office deduction
Taxpayers can deduct home expenses if they use a dedicated space exclusively for business.
Home sale exclusion
A tax rule allowing taxpayers to exclude capital gains from selling their primary residence.
Household employee
An individual hired to perform domestic duties under the direct control of the employer.
Household employment tax
Taxes that employers must pay for hiring domestic workers, reported on Schedule H.
Household income
The total combined gross income of all people living in the same household.
HRA
An employer funded plan that reimburses employees tax free for medical expenses.
HSA deduction
An adjustment to income allowing taxpayers to deduct personal contributions to an HSA.
HSA distribution
Withdrawals from an HSA, which are tax free when used for eligible medical costs.
Hybrid method
An accounting method that combines elements of both cash and accrual methods.
I
Glossary of US tax and accounting terms starting with the letter I.
Imputed income
The value of noncash employee benefits that must be included in gross taxable income.
Incentive stock option
A type of employee stock option that qualifies for preferential capital gains tax treatment.
Income
Money received by individuals or entities, typically in exchange for labor, services, or investments.
Income distribution deduction
A tax deduction allowed to estates and trusts for income distributed to their beneficiaries.
Income tax
A tax imposed by governments on the earnings of individuals and businesses.
Independent contractor
An independent worker contracted to provide services to clients, rather than as an employee.
Independent contractor classification
The legal determination of whether a worker is an employee or an independent contractor.
Independent Office of Appeals
An independent organization within the IRS that provides impartial resolution of tax disputes.
Indirect rollover
Receiving a retirement distribution and depositing it into another qualified plan within 60 days.
Individual retirement arrangement
A personal tax advantaged account designed to help individuals save money for retirement.
Indoor tanning services tax
A ten percent federal excise tax charged on indoor tanning services.
Information return penalty
Fines imposed by the IRS for failing to file correct information returns on schedule.
Inherited IRA
A retirement account transferred to a designated beneficiary after the original owner’s death.
Injured spouse allocation
Reclaiming a taxpayer’s share of a joint refund seized for their spouse’s prior debts.
Innocent spouse relief
Relief from joint tax liability when a spouse understated taxes without the other’s knowledge.
Inside basis
The adjusted tax basis that a partnership holds in its own underlying assets.
Installment agreement
An IRS payment plan allowing taxpayers to pay their tax debt in monthly installments.
Installment sale
A sale of property where the seller receives payments over multiple tax years.
Intangible asset
An asset lacking physical substance but holding significant value, such as patents or copyrights.
Interest abatement
The removal or reduction of tax interest charges caused by IRS errors or delays.
Interest income
Earnings received from lending money or keeping funds in an interest bearing account.
Interest on tax debt
Interest charged by the IRS on unpaid taxes, compounded daily from the due date.
Intermediate sanctions
IRS excise taxes levied on insiders who improperly benefit from tax-exempt organizations.
Internal Revenue Code
The primary body of federal statutory tax law in the United States of America.
Internal Revenue Service
The U.S. government agency responsible for collecting taxes and enforcing federal tax laws.
Inventory
Goods and materials held by a business for sale or to produce finished products.
Investment credit
A tax credit allowed for businesses that invest in specific types of qualified property.
Investment income
Earnings from financial assets, including interest, dividends, capital gains, rents, and royalty payments.
Investment interest expense
Interest paid on loans used to purchase property held for investment by taxpayers.
Investment interest expense deduction
Taxpayers may deduct interest paid on investment debt up to their net investment income.
Invoice
A formal document sent by a seller to a buyer requesting payment for goods.
Involuntary conversion
When property is destroyed, stolen, or seized, and replaced with similar property involuntarily.
IRA
An individual retirement arrangement providing tax advantages for personal long-term retirement savings goals.
IRA contribution information form
Form 5498 is the IRS form used to report annual IRA contribution information.
IRA deduction
A tax deduction for contributions made to a traditional IRA by eligible individual taxpayers.
IRA distribution
Taxable withdrawals taken from an individual retirement account, often subject to early withdrawal penalties.
IRC
The Internal Revenue Code is the primary body of federal tax law in America.
Irrevocable trust
A trust that cannot be modified or terminated by the grantor after its creation.
IRS
The Internal Revenue Service is the federal agency responsible for collecting taxes and enforcement.
IRS Appeals
The IRS Appeals office provides an independent forum for resolving federal tax disputes.
IRS audit
A review of an organization’s or individual’s tax accounts to ensure compliance and accuracy.
IRS collection
The process by which the IRS pursues and collects unpaid federal tax liabilities.
IRS letter
A formal notification sent by the IRS regarding your tax account or filing status.
IRS notice
An official correspondence from the IRS regarding a change to your tax return information.
IRS Online Account
A secure online portal allowing taxpayers to view balances, make payments, and access records.
IRS penalty
A financial charge imposed by the IRS for failure to comply with tax laws.
IRS seizure
The IRS may legally take a taxpayer’s assets to satisfy unpaid federal tax debts.
IRS transcript
An official IRS record summarizing a taxpayer’s return and account activity for specific years.
Itemized deduction
Specific expenses taxpayers deduct from their adjusted gross income to reduce total taxable income.
Itemized deductions
Eligible expenses, such as mortgage interest and taxes, that reduce your total taxable income.
J
Glossary of US tax and accounting terms starting with the letter J.
K
Glossary of US tax and accounting terms starting with the letter K.
L
Glossary of US tax and accounting terms starting with the letter L.
Late filing penalty
A penalty charged by the IRS for failing to submit your tax return timely.
Late payment penalty
A penalty charged by the IRS for failing to pay taxes by the deadline.
Liabilities
Financial obligations or debts that a person or business owes to outside parties.
Lifetime gift tax exemption
The total amount a person can gift during their lifetime without paying federal tax.
Lifetime Learning Credit
A tax credit for qualified tuition and related expenses for eligible post-secondary education students.
Like-kind exchange
A tax-deferred exchange of similar business or investment properties under Section 1031 rules.
Limited liability company
A business structure combining corporate liability protection with the pass-through taxation of partnerships.
Limited liability partnership
A partnership providing limited liability protection to its partners against certain business debts.
Limited partnership
A partnership with at least one general partner and one or more limited partners.
Limited purpose FSA
An FSA limited to dental and vision expenses, often paired with an HSA plan.
Liquidating distribution
A distribution made to a partner or shareholder during the final dissolution of business.
Listed property
Assets like cars or computers that have both business and personal use requirements.
Livestock sale
Sales of livestock held for draft, breeding, or dairy purposes may qualify as capital.
LLC education credit
The Lifetime Learning Credit helps eligible students offset the cost of higher education expenses.
Lobbying activity
Attempts to influence legislation by communicating with government officials, often restricted for nonprofits.
Local income tax
A tax imposed by cities, counties, or local municipalities on an individual’s earned income.
Long-term capital gain
Profit from selling an asset held for more than one year, taxed preferentially.
Long-term care insurance
Insurance policies providing coverage for long-term services needed due to chronic illness or aging.
Long-term payment plan
An IRS payment plan allowing taxpayers to pay their tax debt over 120 days.
Lookback period
A specific time frame used by the IRS to review past records or compliance.
Low-income housing tax credit
A tax incentive for developers to construct or rehabilitate housing for low-income tenants.
Luxury auto depreciation limits
Annual IRS limits restricting the amount of depreciation businesses can claim on luxury vehicles.
M
Glossary of US tax and accounting terms starting with the letter M.
MAGI
Modified Adjusted Gross Income is AGI plus certain tax-exempt income for specific calculations.
Margin interest
Interest charged on loans from a broker used to purchase securities on margin.
Marginal tax rate
The tax percentage applied to the final dollar of a taxpayer’s total annual income.
Marital deduction
A tax deduction allowing unlimited tax-free transfers of property between spouses at death.
Mark-to-market election
An election allowing traders to treat securities as sold at year-end market values.
Market discount
The difference between a bond’s purchase price and its value at maturity date.
Marketplace coverage
Health insurance plans purchased through the federal or state-based Affordable Care Act exchanges.
Marketplace facilitator
A platform that collects payments and remits sales tax for third-party marketplace sellers.
Married filing jointly
A filing status for married couples who combine income and deductions on one return.
Married filing separately
A filing status where married individuals report their own income and deductions separately.
Material participation
Involvement in a business activity on a regular, continuous, and substantial basis annually.
Medical expense deduction
Taxpayers may deduct unreimbursed medical expenses exceeding 7.5% of their adjusted gross income.
Medicare premiums deduction
Medicare premiums paid by self-employed individuals may be deductible as a business expense.
Medicare tax
A federal payroll tax funding Medicare benefits, paid by both employees and employers.
Mega backdoor Roth
A strategy to move after-tax 401(k) contributions into a Roth IRA or account.
Member
An individual or entity holding an ownership interest in a limited liability company.
Mid-month convention
A depreciation rule treating property as placed in service at the month’s midpoint.
Mid-quarter convention
A depreciation rule treating property as placed in service at the quarter’s midpoint.
Military moving expense deduction
Active duty military members may deduct moving expenses when moving for permanent change.
Military spouse residency relief
This act allows military spouses to retain their original state of legal residence.
Military tax extension
Military members serving in combat zones qualify for automatic extensions for tax filings.
Minimum essential coverage
The minimum level of health insurance coverage required by law to avoid penalties.
Ministerial income
Earnings received by members of the clergy, often subject to special self-employment tax rules.
Modified Accelerated Cost Recovery System
The standard IRS method for depreciating tangible property over a specified recovery period.
Modified adjusted gross income
Adjusted gross income increased by specific tax-exempt income to determine various tax benefit eligibility.
Monthly deposit schedule
Employers who report payroll taxes must deposit withheld amounts on a monthly schedule.
More likely than not standard
A tax standard requiring a greater than fifty percent probability of successfully being upheld.
Mortgage debt forgiveness
Debt canceled by a lender that may be excluded from taxable income under conditions.
Mortgage interest deduction
Taxpayers may deduct interest paid on up to $750,000 of qualified mortgage debt.
Moving expense deduction
Generally, only active-duty military members moving for permanent change of station may deduct expenses.
Multi-member LLC
An LLC with two or more owners, typically taxed as a partnership for federal purposes.
Municipal bond interest
Interest earned on bonds issued by state or local governments is generally tax-free.
Mutual fund distribution
Payments of dividends or capital gains made by mutual funds to their shareholders annually.
N
Glossary of US tax and accounting terms starting with the letter N.
Nanny tax
Employers must pay taxes when hiring household workers, typically reported on Schedule H.
Negligence penalty
A penalty imposed by the IRS for careless, reckless, or intentional disregard of rules.
Net capital gain
The excess of long-term capital gains over short-term capital losses for the year.
Net capital loss
The excess of total capital losses over total capital gains for the tax year.
Net earnings from self-employment
The net profit from self-employment activities subject to Social Security and Medicare taxes.
Net income
The total profit remaining after subtracting all operating expenses, taxes, and costs from revenue.
Net investment income tax
A 3.8% tax on investment income for high-income individuals, trusts, and estates.
Net loss
A net loss occurs when total expenses exceed total revenue for a specific period.
Net operating loss deduction
A tax deduction allowing businesses to offset current income with losses from other years.
Net profit
Net profit is the final amount remaining after all business expenses are subtracted from revenue.
Net rental income
Total rental income minus all associated operating, maintenance, and depreciation expenses for the property.
Net rental loss
A net rental loss occurs when rental property expenses exceed the total rental income.
NOL deduction
A tax deduction allowing businesses to offset current profits with losses from previous years.
Non-fungible token
A unique digital asset recorded on a blockchain, treated as property for tax purposes.
Noncapital asset
Assets like inventory or business receivables that do not qualify for capital gains treatment.
Noncash compensation
Compensation paid to employees in forms other than cash, such as property or services.
Noncovered security
Securities purchased before 2011 for which brokers are not required to report basis.
Nondeductible expense
An expenditure that cannot be subtracted from taxable income under federal tax law.
Nondeductible IRA contribution
A contribution to a traditional IRA that does not qualify for a tax deduction.
Nongrantor trust
A trust where the entity itself, rather than the grantor, pays income tax.
Nonprofit organization
An entity organized for public or charitable purposes that qualifies for federal tax exemption.
Nonqualified distribution
A withdrawal from a retirement or savings account that does not meet tax-free requirements.
Nonqualified stock option
An employee stock option taxed as ordinary income upon the date of exercise.
Nonrecourse liability
A debt where the borrower is not personally liable, secured only by collateral property.
Nonrefundable credit
A tax credit that reduces your tax liability but cannot exceed the total owed.
Nonresident alien
A foreign individual who does not meet the green card or substantial presence test.
Nonresident return
A tax return filed by a nonresident alien to report income from U.S. sources.
Nonresident withholding
Tax withheld by the IRS on payments made to foreign persons or nonresident aliens.
Nontaxable combat pay
Military pay earned in a designated combat zone is exempt from federal income tax.
Nontaxable income
Earnings or receipts that are not subject to federal income tax by law.
Notice of deficiency
An official IRS notice proposing additional taxes and penalties before formal legal assessment.
Notice of Federal Tax Lien
A public document notifying creditors of the government’s legal claim against a taxpayer’s property.
O
Glossary of US tax and accounting terms starting with the letter O.
ODC
Other Direct Costs are expenses specifically associated with a project, like materials or travel.
Offer in compromise
An agreement allowing a taxpayer to settle their tax debt for less than owed.
Office audit
An IRS audit conducted in person at a local IRS office for tax verification.
One-participant 401(k)
A 401(k) plan for a business owner with no employees, excluding their spouse.
Operating expense
Costs incurred by a business to maintain and support its daily operational activities.
Opportunity zone
A designated distressed area where investors receive tax incentives for long-term capital investment.
Ordinary and necessary expense
An expense that is common, accepted, helpful, and appropriate for your business or trade.
Ordinary dividend
Ordinary dividends are the most common type of dividend, taxed as ordinary income.
Ordinary dividends
Ordinary dividends are distributions from earnings and profits, taxed at standard income rates.
Ordinary gain
An ordinary gain arises from selling assets taxed at standard individual income tax rates.
Ordinary income
Any income, such as wages or interest, that is taxed at ordinary tax rates.
Organizational cost
Costs incurred to create a corporation or partnership, such as legal and filing fees.
Organizational cost amortization
Businesses may amortize qualifying startup and organizational costs over a fifteen-year recovery period.
Origin-based sales tax
Sales tax is calculated based on the location of the seller’s business.
Original basis
The initial cost or purchase price of an asset, used for tax purposes.
Original issue discount
The difference between a bond’s issue price and its stated redemption price at maturity.
Outside basis
The tax basis a partner has in their specific interest within a partnership.
Overpayment
An overpayment occurs when a taxpayer pays more in taxes than they actually owe.
Owner’s draw
A distribution of cash or assets from a business taken by its sole owner.
P
Glossary of US tax and accounting terms starting with the letter P.
P&L statement
A financial document summarizing a company’s revenues, costs, and expenses over a period.
Paid preparer
A professional who receives compensation for preparing, assisting, or filing tax returns for others.
PAL rules
Passive Activity Loss rules limit the deduction of losses from passive business activities.
Paper filing
Submitting physical tax returns to the IRS via mail instead of electronically filing online.
Parsonage allowance
A housing allowance for clergy that may be excluded from their taxable gross income.
Part-year resident return
A state tax return filed by individuals who lived there only part of the year.
Partially refundable credit
A tax credit that reduces your liability and may provide a refund for remaining amounts.
Partially refundable tax credit
A tax credit that reduces liability and may provide a partial refund for remaining amounts.
Partner
An individual or entity who shares ownership, profits, and management of a partnership business.
Partner basis
A partner’s adjusted tax basis in their partnership interest, used to determine gain or loss.
Partner’s distributive share
A partner’s allocated portion of the partnership’s income, gains, losses, deductions, or tax credits.
Partner’s share of liabilities
A partner’s share of partnership debt included in their adjusted tax basis calculation.
Partnership
A business owned by two or more people who share profits and tax liabilities.
Partnership audit rules
IRS procedures for auditing partnerships and adjusting tax at the partnership level instead.
Partnership contribution
Money, property, or services contributed by a partner in exchange for a partnership interest.
Partnership distribution
Cash or property transferred by a partnership to a partner as a profit distribution.
Partnership income
Partnership income is reported on informational returns and passed through to each partner’s taxes.
Partnership representative
An individual designated to act as the primary contact for IRS partnership audits.
Partnership tax return
Partnerships file Form 1065 to report annual income, deductions, gains, and losses.
Pass-through entity tax
A state-level tax paid by pass-through entities, often allowing a federal deduction.
Passive activity loss
Losses from passive business activities that can only offset passive income, not wages.
Passive foreign investment company
A foreign corporation meeting certain income or asset tests for U.S. tax purposes.
Passive income
Income earned from sources like rental property or limited partnerships with minimal active involvement.
Pay-as-you-go tax system
Taxpayers must pay income taxes as they earn or receive income throughout the year.
Payment plan
An IRS agreement allowing taxpayers to pay their tax debt in manageable monthly installments.
Payroll tax
Payroll taxes are federal taxes withheld from employee wages to fund Social Security and Medicare.
Payroll withholding
Employers deduct federal income tax from employee paychecks to remit to the IRS.
Penalty abatement
The process of requesting that the IRS remove or reduce assessed tax penalties.
Pension income
Taxable retirement payments received from an employer-sponsored plan after an employee’s career ends.
Per diem
A daily allowance paid to employees for lodging, meals, and incidental business expenses.
Permanent difference
A permanent difference exists when an item is included in financial income but never taxable.
Permanent establishment
A fixed place of business that subjects a foreign entity to local income taxation.
Personal exemption
A tax deduction for yourself and dependents, currently suspended under federal tax law.
Personal holding company tax
A penalty tax on closely held corporations with high passive income and few shareholders.
Personal property tax
A state or local tax on movable assets like vehicles, boats, or business equipment.
Personal representative
A person or entity appointed to manage an estate after the owner’s death.
Physical presence test
A test determining resident alien status based on days spent physically in the U.S.
Placed in service
The date an asset is ready and available for its specific business use.
Points
Fees paid to a lender to reduce the interest rate on a mortgage loan.
Political campaign activity
Prohibited activities for tax-exempt organizations aimed at influencing elections or supporting political candidates.
Portfolio income
Income from interest, dividends, royalties, and capital gains, excluding income from passive activities.
Power of appointment
The authority given to someone to decide who receives property from an estate or trust.
Premium Tax Credit
A refundable tax credit helping eligible individuals afford health insurance through the Marketplace.
Previously Owned Clean Vehicle Credit
A tax credit for buyers of eligible used electric vehicles from qualified dealers.
Primary residence
The home where a taxpayer lives most of the time and maintains their domicile.
Principal place of abode
The location where a taxpayer lives and maintains their home for the majority year.
Principal place of business
The primary location where a business conducts its main activities and administrative management.
Principal residence
The primary home where a taxpayer lives and resides for the majority of time.
Prior-year tax safe harbor
A rule allowing taxpayers to avoid underpayment penalties by paying 100% of last year’s tax.
Private benefit
An impermissible private gain conferred by a tax-exempt organization to an individual or entity.
Private foundation
A non-governmental, nonprofit entity typically funded by a family or single donor source.
Private inurement
Improper benefit provided by a tax-exempt organization to insiders or related parties.
Private letter ruling
A written statement from the IRS interpreting tax law for a specific taxpayer.
Prize income
Winnings from contests or awards are generally considered taxable income by the IRS.
Profit and loss statement
A financial report detailing a business’s total revenues, costs, and expenses over time.
Profit or loss from business
Net earnings or losses derived from business activities, reported on Schedule C annually.
Progressive tax system
A tax structure where rates increase as the taxpayer’s total income level rises.
Property tax
A tax assessed by local governments on the value of real estate property.
Property tax deduction
Taxpayers may deduct state and local property taxes paid, subject to specific limits.
Proposed regulations
Draft tax rules published by the IRS for public comment before becoming final.
PTC
The Premium Tax Credit is a refundable credit helping individuals afford health insurance premiums.
PTIN
A Preparer Tax Identification Number is required for anyone paid to prepare tax returns.
PTP income component
The specific share of income allocated to partners from a publicly traded partnership.
Public charity
A nonprofit organization that receives significant financial support from the general public.
Publicly traded partnership income
Income earned from partnerships whose interests are traded on established securities exchanges.
Q
Glossary of US tax and accounting terms starting with the letter Q.
QBI component
The specific portion of business income eligible for the Qualified Business Income deduction.
QBI deduction
A tax deduction allowing eligible self-employed individuals to deduct up to 20% of income.
QBI phaseout
The income range where the QBI deduction begins to be limited or eliminated.
QTIP trust
A trust providing income to a surviving spouse while controlling the remaining assets’ distribution.
Qualified business income
Net income from a qualified trade or business, excluding certain capital gains and dividends.
Qualified business income deduction
A tax break allowing owners of pass-through entities to deduct qualified business income.
Qualified charitable distribution
Tax-free distribution from an IRA directly to a qualifying charitable organization by seniors.
Qualified disclaimer
A formal refusal to accept an interest in property, often used for tax planning.
Qualified distribution
A tax-free withdrawal from a retirement account that meets all specific IRS requirements.
Qualified dividend
A dividend taxed at lower long-term capital gains rates rather than ordinary income.
Qualified dividends
Dividends meeting specific holding period requirements, taxed at preferential long-term capital gains rates.
Qualified education expense
Costs required for enrollment or attendance at an eligible post-secondary educational institution.
Qualified intermediary
An entity that facilitates like-kind exchanges by holding funds to defer capital gains.
Qualified medical expense
Unreimbursed costs for the diagnosis, cure, mitigation, treatment, or prevention of physical disease.
Qualified nonrecourse financing
Debt used in real estate activities for which the taxpayer is not personally liable.
Qualified opportunity fund
An investment vehicle used to defer and potentially reduce taxes on capital gains.
Qualified plan
An employer-sponsored retirement plan, such as a 401(k), meeting specific IRS tax requirements.
Qualified REIT dividends
Dividends from Real Estate Investment Trusts eligible for the 20% pass-through tax deduction.
Qualified small business stock
Stock in certain domestic corporations that may be eligible for capital gains exclusion.
Qualified trade or business
Any trade or business, excluding specified service trades, eligible for the QBI deduction.
Qualified tuition and related expenses
Fees and costs required for attendance at an eligible educational institution for students.
Qualified tuition deduction
A former tax deduction for higher education expenses, now mostly replaced by tax credits.
Qualified tuition program
A state-sponsored savings plan, or 529 plan, used to fund future education expenses.
Qualifying child
A dependent who meets specific age, relationship, residency, and financial support tests annually.
Qualifying disposition
The sale of stock that meets specific holding period requirements for favorable tax treatment.
Qualifying relative
A dependent who does not meet the qualifying child test but meets support requirements.
Qualifying surviving spouse
A filing status allowing widows to use joint tax rates for two years.
Quarterly estimated tax payment
Periodic tax payments made by taxpayers to cover income not subject to withholding.
Quarterly tax payment
Scheduled payments made throughout the year to satisfy annual income and self-employment taxes.
R
Glossary of US tax and accounting terms starting with the letter R.
R&D tax credit
A tax incentive for businesses conducting qualified research and development activities annually.
Real estate professional status
A designation allowing taxpayers to treat rental losses as non-passive for tax deductions.
Real estate tax
A tax imposed by local government on the value of owned real property.
Real property tax
A tax levied on land and buildings owned by individuals or business entities.
Realized gain
The difference between an asset’s sale price and its adjusted tax basis amount.
Reasonable basis
A standard for reporting tax positions that are supported by some legal authority.
Reasonable cause
A valid justification for failing to comply with tax laws, avoiding some penalties.
Recapture
The process of reclaiming previously taken tax benefits when certain conditions are no longer met.
Receipt
A written record documenting a transaction, including the date, amount, and purpose paid.
Recognized gain
The portion of a realized gain that must be reported as taxable income.
Record of account transcript
An IRS document showing tax return data plus any subsequent account activity changes.
Recordkeeping
Maintaining accurate books and supporting documents to substantiate all reported income and expenses.
Recourse liability
A debt for which the borrower is personally liable, beyond just the collateral.
Recovery period
The specific number of years over which the IRS allows asset depreciation deductions.
Recovery Rebate Credit
A refundable credit claimed by taxpayers who did not receive their full stimulus payments.
Refund claim
A request filed by a taxpayer to receive money back from overpaid taxes.
Refund offset
The process of applying a tax refund toward an outstanding federal or state debt.
Refund status
The current progress of an IRS tax refund, tracked through the official website.
Refundable credit
A tax credit that can result in a refund even if liability is zero.
Regular Tax Court opinion
A formal, precedential court decision regarding significant tax law interpretations or major disputes.
Regular use test
A requirement for the home office deduction that space be used consistently for business.
Rehabilitation credit
A tax credit for costs incurred to renovate certified historic or older buildings.
REIT dividend
A distribution from a Real Estate Investment Trust to its shareholders, often taxed specifically.
REIT dividend component
The portion of dividends received from a REIT qualifying for specific tax treatments.
Relationship test
A requirement that a dependent must be a relative or a member of household.
Religious exemption from self-employment tax
An exemption for certain religious groups conscientiously opposed to accepting public insurance benefits.
Relinquished property
The property given up by a taxpayer during a tax-deferred like-kind exchange transaction.
Rental expense
Costs incurred for maintaining, managing, and operating a property held for rental income.
Rental income
Money received from renting out property, which must be reported as taxable gross income.
Rental property
Real estate property held for the purpose of generating income through tenant leasing.
Repair expense
Routine costs to maintain property in good condition, generally deductible in the year.
Repairs vs. improvements
Repairs maintain property value while improvements add value or extend its useful life.
Replacement property
The new property acquired in a like-kind exchange to defer capital gains taxes.
Required beginning date
The deadline by which taxpayers must begin taking their required minimum distributions annually.
Required minimum distribution
The minimum amount owners of retirement accounts must withdraw annually after reaching age 73.
Research Credit
A federal tax credit designed to encourage investment in qualified business research activities.
Residency test
A set of criteria determining whether a person is considered a U.S. tax resident.
Resident alien
A foreign individual who meets the green card test or substantial presence test criteria.
Resident return
A tax return filed by a taxpayer who is considered a resident for tax.
Residential Clean Energy Credit
A tax credit for homeowners installing qualifying renewable energy systems like solar or wind.
Residential rental property
Real estate used as housing for tenants, typically depreciated over 27.5 years.
Responsible party
The individual who controls or manages a business entity for IRS tax purposes.
Restricted stock
Stock granted to employees subject to vesting requirements and certain transferability limitations annually.
Restricted stock unit
A promise to grant company stock to an employee after specific conditions are met.
Retained earnings
Profits a business keeps to reinvest rather than distributing them to its owners.
Retirement plan
A tax-advantaged account, such as a 401(k) or IRA, for long-term savings purposes.
Retirement Savings Contributions Credit
A tax credit for low to moderate-income individuals contributing to eligible retirement plans.
Return transcript
An IRS record showing the original data from a filed tax return annually.
Revenue procedure
An official IRS statement explaining internal management practices and procedures for tax filings.
Revenue ruling
An official IRS interpretation of tax law applied to a specific set of facts.
Revocable trust
A trust that can be modified or terminated by the grantor at any time.
Rollover
The transfer of funds from one qualified retirement account to another without tax consequences.
Roth 401(k)
An employer-sponsored retirement plan where contributions are made with after-tax dollars, tax-free withdrawals.
Roth conversion
Moving funds from a traditional IRA or 401(k) into a Roth account, triggering taxes.
Roth IRA
An individual retirement account with after-tax contributions and tax-free distributions during later retirement.
Royalty income
Payments received for the use of property like copyrights, patents, or natural resources.
S
Glossary of US tax and accounting terms starting with the letter S.
S corp
A corporation that elects to pass corporate income, losses, and deductions through shareholders.
S corp election
The legal process by which a corporation chooses to be taxed as an S-corporation.
S corp salary
Reasonable compensation that S-corporation shareholder-employees must pay themselves for services provided to business.
S corporation
A business structure where profits are taxed at the shareholder level to avoid double-taxation.
S corporation distribution
Payments made by an S-corporation to its shareholders, often treated as tax-free returns.
S corporation election
Filing Form 2553 to request that the IRS treat a corporation as an S-corp.
S corporation income
Business income reported on Form 1120-S and allocated to shareholders via Schedule K-1.
S corporation shareholder
An individual or entity that owns stock in a corporation taxed as an S-corp.
Safe harbor rule
IRS provisions allowing taxpayers to avoid certain penalties by meeting specific pre-defined requirements.
Salary
Fixed compensation paid by an employer to an employee for services rendered over time.
Sale of business property
The disposition of assets used in a trade or business, reported on Form 4797.
Sales tax
A consumption tax imposed by state and local governments on the sale of goods.
SALT deduction
A deduction for state and local taxes, capped at $10,000 annually per tax return.
Salvage value
The estimated value of an asset at the end of its useful business life.
Saver’s Credit
A tax credit for low-to-moderate-income individuals making contributions to eligible retirement savings plans.
Saving clause
A provision in tax treaties that prevents U.S. citizens from claiming certain treaty benefits.
Schedule 1
Used to report additional income, such as capital gains, rents, and business income, annually.
Schedule 2
A form used to report additional taxes owed, including self-employment and household employment taxes.
Schedule 3
Used to claim nonrefundable credits and report payments for taxes paid throughout the year.
Schedule 8812
The form used to calculate the Child Tax Credit and the Credit for Dependents.
Schedule A
Used by taxpayers to list itemized deductions instead of taking the standard deduction amount.
Schedule B
A form used to report taxable interest and dividend income exceeding $1,500 annually.
Schedule C
Used by sole proprietors to report profit or loss from their specific business activity.
Schedule C business
A business owned by an individual and reported on Schedule C of Form 1040.
Schedule D
Used to report capital gains and losses from the sale of various capital assets.
Schedule E
Used to report income or loss from rental real estate, royalties, partnerships, and trusts.
Schedule F
A form used by farmers to report their annual profit or loss from farming.
Schedule K-1
A document providing a partner’s share of income, deductions, and credits from a partnership.
Schedule K-1 Form 1041
Used to report income, credits, and deductions distributed to beneficiaries of estates and trusts.
Schedule SE
Used to calculate the self-employment tax due on earnings from self-employment activities annually.
Scholarship income
Educational grants generally excluded from income if used for tuition and required course materials.
SE tax
Self-employment tax covers Social Security and Medicare taxes for individuals working for themselves.
Second class of stock
S-corporations are generally prohibited from having more than one class of issued stock.
Section 1031 exchange
Allows taxpayers to defer capital gains taxes by exchanging similar business or investment properties.
Section 1033 exchange
Defers taxes on gains from property involuntarily converted due to theft, destruction, or condemnation.
Section 1202 exclusion
Allows taxpayers to exclude a portion of capital gains from qualified small business stock.
Section 121 exclusion
Excludes up to $250,000 of gain from the sale of a taxpayer’s primary residence.
Section 1231 gain
Gains from the sale of depreciable property used in trade or business held long-term.
Section 1231 loss
Losses from the sale of business assets that may be treated as ordinary losses.
Section 1231 property
Depreciable business property held for more than one year, used for business or trade.
Section 1244 stock
Stock in small corporations that allows losses to be treated as ordinary, not capital.
Section 1245 property
Depreciable personal property subject to ordinary income recapture upon its sale or disposition.
Section 125 plan
A cafeteria plan allowing employees to pay for certain benefits using pre-tax salary dollars.
Section 1250 property
Real estate property subject to special depreciation recapture rules upon its sale or disposition.
Section 127 educational assistance
Allows employers to provide up to $5,250 in tax-free educational assistance to employees.
Section 163(j) limitation
Limits the amount of business interest expense that a taxpayer can deduct annually.
Section 179 deduction
Allows businesses to expense the full cost of qualifying property in the year purchased.
Section 179D deduction
A tax deduction for energy-efficient commercial building property improvements placed in service annually.
Section 197 intangible
Intangible assets, like goodwill, that are amortized over a fifteen-year period for taxes.
Section 199A deduction
The formal tax name for the 20% Qualified Business Income deduction for pass-throughs.
Section 475 election
Allows securities traders to mark their securities to market and avoid capital loss limits.
Section 704(b) capital account
A partner’s equity interest in a partnership, maintained according to specific tax rules.
Section 704(c) gain
Built-in gain or loss allocated to a partner who contributed property to a partnership.
Section 734(b) adjustment
An adjustment to the basis of partnership property following certain partnership distributions of assets.
Section 743(b) adjustment
An adjustment to the basis of partnership property following the transfer of partnership interests.
Section 754 election
An election allowing partnerships to adjust the basis of assets following certain ownership transfers.
Section 83(b) election
Allows taxpayers to pay taxes on restricted stock at the time of grant.
Security deposit
Money paid to a landlord that is not considered income until forfeited by tenants.
Self-employed health insurance deduction
An above-the-line deduction for medical insurance premiums paid by qualifying self-employed individuals.
Self-employed individual
A person who earns a living through their own business rather than as employees.
Self-employed taxpayer
A person who works for themselves and is responsible for their own tax payments.
Self-employment income
Net earnings derived from carrying on a trade or business as a sole proprietor.
Self-employment tax
The Social Security and Medicare taxes paid by individuals who are self-employed annually.
Self-employment tax for clergy
Specific rules apply to ministers regarding their obligation to pay self-employment tax annually.
Self-rental rule
Prevents owners from using rental losses to offset passive income from their own businesses.
Seller’s permit
A state-issued license allowing a business to sell tangible goods and collect sales tax.
Semiweekly deposit schedule
A payroll tax deposit schedule based on the timing of employee wage payments.
SEP IRA
A Simplified Employee Pension plan allowing employers to contribute to their own retirement accounts.
Servicemembers Civil Relief Act
Provides legal and financial protections to active duty military members during their service.
Severance pay
Additional compensation paid to an employee upon termination, generally taxable as ordinary income.
Shareholder
An individual or entity that owns shares of stock in a corporation or company.
Shareholder basis
The tax basis an individual has in their stock, used to determine gain/loss.
Short sale tax consequences
Tax rules governing the timing and character of gains and losses from short selling.
Short-term capital gain
Profit from selling an asset held for one year or less, taxed as income.
Short-term payment plan
An IRS agreement to pay off a tax debt within 180 days or less.
Short-term rental
Rental property occupied for seven days or less, often treated differently for tax purposes.
SIMPLE IRA
A retirement plan allowing small businesses to make contributions to their employees’ retirement accounts.
Simple trust
A trust required to distribute all of its income to beneficiaries on annual basis.
Simplified home office method
A standard rate deduction calculated per square foot of a qualifying home office space.
Single filing status
A tax filing status for unmarried individuals who do not qualify for other statuses.
Single-member LLC
A limited liability company with one owner, typically taxed as a disregarded business entity.
Small Business Health Care Tax Credit
A credit for small employers providing health insurance coverage to their employees annually.
Social Security benefits
Monthly payments from the government to eligible retirees, disabled individuals, and surviving family members.
Social Security tax
A federal payroll tax that funds the Social Security program for elderly and disabled.
Soil and water conservation expense
Costs incurred by farmers for conserving soil or water, subject to specific tax deductions.
Sole proprietor
A business owned by one individual who is personally responsible for all debts incurred.
Solo 401(k)
A 401(k) plan for business owners with no employees, excluding their spouse and partners.
Special depreciation allowance
Allows businesses to deduct a percentage of the cost of new qualifying business assets.
Specific identification method
A method of tracking the cost basis of sold assets by identifying each unit.
Specified foreign financial asset
Foreign assets, like bank accounts or stock, that must be reported on Form 8938.
Standard deduction
A fixed dollar amount that reduces the income on which you are taxed annually.
Standard mileage rate
A set IRS rate used to calculate deductible costs of operating vehicles for business.
Startup cost
Expenses incurred before a business begins its active trade or starts its normal operations.
Startup cost amortization
A tax election allowing businesses to recover startup costs over a fifteen-year amortization period.
State and local tax deduction
An itemized deduction for state and local income, property, and sales taxes paid annually.
State estimated tax
Periodic payments made to a state to cover tax liability not met by withholding.
State income tax
A tax imposed by individual states on the income earned by residents or workers.
State tax return
A filing submitted to state tax authorities to report income and pay state taxes.
State withholding
Taxes taken from an employee’s paycheck by the employer and remitted to the state.
Statute of limitations
The legal timeframe during which the IRS can assess taxes or claim refunds owed.
Statutory employee
Workers who are independent contractors by common law but treated as employees for taxes.
Statutory exception
A specific situation provided by law where tax rules do not apply as expected.
Statutory nonemployee
A worker who is legally classified as a nonemployee for tax and withholding purposes.
Statutory residency
Being considered a resident of a state for tax purposes due to time spent there.
Step transaction doctrine
An IRS principle used to combine multiple related steps of a transaction into one.
Step-up in basis
Increasing the cost basis of inherited property to its fair market value at death.
Stepped-up basis
The adjusted tax basis of inherited assets, reflecting fair market value at the owner’s death.
Stock basis
The total investment in a company’s stock, used to calculate capital gains or losses.
Stock option
A contract granting the right to purchase company stock at a specific set price.
Straight-line depreciation
A method of depreciating assets by spreading the cost evenly over their useful life.
Stretch IRA
A tax planning strategy that previously allowed beneficiaries to stretch distributions over their lifetimes.
Strike price
The set price at which a stock can be bought under a stock option.
Student loan interest deduction
A tax deduction for interest paid on qualified student loans, subject to income limits.
Subpart F income
Certain types of income earned by a foreign subsidiary that is taxable to shareholders.
Substance over form
An IRS principle that prioritizes the economic reality of a transaction over its structure.
Substantial authority
A standard for tax reporting that justifies a position taken on a filed return.
Substantial presence test
A test used to determine if a foreign individual is a U.S. tax resident.
Substantial understatement penalty
A penalty charged when a taxpayer significantly understates their tax liability on a return.
Substitute for return
A tax return prepared by the IRS when a taxpayer fails to file their own.
Support test
A requirement for claiming a dependent, based on providing more than half their support.
Suspended passive loss
A loss from passive activities that cannot be currently deducted but is carried forward.
SUTA tax
State Unemployment Tax Act tax paid by employers to fund state unemployment insurance programs.
T
Glossary of US tax and accounting terms starting with the letter T.
Tangible personal property tax
A tax on physical assets like machinery, equipment, or business vehicles owned locally.
Tax
A mandatory financial charge imposed by a government to fund public services and programs.
Tax account transcript
An IRS record showing changes and activity on a taxpayer’s account for a year.
Tax assessment
The official process of determining the amount of tax liability owed by a taxpayer.
Tax basis
The amount of capital investment in property, used to determine gain or loss upon sale.
Tax bracket
A range of income levels subject to a specific federal income tax rate percentage.
Tax capital account
An account tracking a partner’s equity in a partnership based on federal tax law principles.
Tax classification
The legal designation of a business entity for federal income tax reporting and filing purposes.
Tax Court
A specialized federal court that hears disputes between taxpayers and the Internal Revenue Service.
Tax Court case
A legal proceeding in Tax Court to resolve a dispute over tax liability assessments.
Tax Court memorandum opinion
A Tax Court decision that applies existing law to facts but is not considered precedent.
Tax Court petition
A formal document filed to initiate a case in the United States Tax Court.
Tax credit
A dollar-for-dollar reduction of the actual amount of tax that a taxpayer must pay.
Tax deadline
The specific date by which a taxpayer must file their return or pay taxes.
Tax deduction
An expense that reduces the amount of a taxpayer’s income that is subject to tax.
Tax deposit
The act of sending withheld payroll or estimated taxes to the IRS or Treasury.
Tax due
The amount of tax liability that a taxpayer owes after filing their annual return.
Tax examination
An official IRS audit of a taxpayer’s return to verify accuracy and tax law compliance.
Tax extension
A granted period of extra time to file a tax return without penalty implications.
Tax filing deadline
The date, usually April 15, by which annual tax returns must be submitted electronically.
Tax home
The general area of a taxpayer’s principal place of work for tax deduction purposes.
Tax income
The total amount of income earned that is subject to federal or state taxation.
Tax levy
The legal seizure of a taxpayer’s property or assets to satisfy an unpaid tax debt.
Tax liability
The total amount of tax legally owed to the government by an individual or business.
Tax lot
A specific group of securities or assets acquired at the same time and cost.
Tax payment
The act of transferring funds to the IRS to satisfy a taxpayer’s debt obligation.
Tax penalty
A financial charge imposed by the IRS for failing to comply with specific tax laws.
Tax preparer
A professional who helps individuals or businesses complete and file their tax return forms.
Tax reciprocity agreement
A deal between states allowing residents to pay income tax only in their home state.
Tax refund
Money returned to a taxpayer when their total payments exceed their actual tax liability.
Tax return
A document filed with the IRS reporting income, expenses, and other relevant financial information.
Tax shelter
A strategy used to minimize taxable income or reduce the overall tax burden legally.
Tax software
Digital applications designed to assist taxpayers in preparing and filing their federal income returns.
Tax treaty
An agreement between two countries to avoid double taxation on the same earned income.
Tax withholding
The portion of an employee’s wages held back by the employer for tax payments.
Tax withholding estimator
An online tool provided by the IRS to help employees calculate correct withholding amounts.
Tax year
A twelve-month period for which a taxpayer reports income and calculates their tax liability.
Tax-exempt bond
A bond whose interest earnings are generally free from federal and often state taxes.
Tax-exempt interest
Interest income that is not subject to federal income tax, often from municipal bonds.
Tax-exempt organization
A nonprofit entity that meets specific IRS criteria to be excluded from paying taxes.
Taxable distribution
A payment from a retirement plan or account that must be reported as income.
Taxable estate
The portion of a deceased person’s property that is subject to federal estate taxes.
Taxable fringe benefit
Employee compensation in a form other than cash that must be included as income.
Taxable income
The total gross income minus all allowable deductions and exemptions for the year.
Taxable income limitation
Rules that restrict certain deductions based on the total amount of taxable income reported.
Taxable interest
Interest income earned that must be reported as ordinary income on a tax return.
Taxable scholarship
The portion of scholarship money used for room and board, rather than tuition costs.
Taxable Social Security benefits
The portion of Social Security income that may be subject to federal income tax.
Taxable termination
A transfer of assets from a trust that triggers potential generation-skipping transfer tax obligations.
Taxpayer
An individual or entity that is legally obligated to pay taxes to the government.
Taxpayer Advocate Service
An independent organization within the IRS that helps taxpayers resolve problems with their accounts.
Taxpayer Bill of Rights
A set of fundamental rights that every taxpayer has when dealing with the IRS.
Temporary difference
A difference between book income and tax income that reverses over future accounting periods.
Temporary regulations
IRS regulations that provide immediate guidance while final regulations are being drafted and reviewed.
Termination of S election
The event where an S-corporation ceases to meet requirements and reverts to C-corp status.
Theft loss deduction
A deduction for losses resulting from theft, generally only available for casualty-related business losses.
Throwback rule
A tax rule preventing income from being shifted to beneficiaries in lower-taxed jurisdictions.
Throwback tax
A tax applied to certain distributions from trusts to account for previously untaxed income.
Tip income
Money received from customers for services that must be reported as taxable wage income.
Tip reporting
The requirement for employees to report their total tips received to their employer monthly.
Tips
Discretionary payments made by customers that are considered taxable income for service employees.
Tobacco tax
A federal or state excise tax imposed on the sale of tobacco-related products.
Token swap
The exchange of one cryptocurrency for another, which is a taxable event for investors.
Totalization agreement
A treaty between the U.S. and another country to prevent double taxation of Social Security.
Trade name
The name under which a business operates, which is different from its legal name.
Trader tax status
A designation for active securities traders allowing them to deduct expenses as business costs.
Traditional IRA
A retirement account where contributions may be tax-deductible and earnings grow tax-deferred until withdrawal.
Transfer pricing
The rules for setting prices for goods or services traded between related business entities.
Treasury interest
Interest earned on U.S. Treasury securities, which is taxable at federal but not state.
Treasury Offset Program
A system used to collect delinquent debts owed to federal and state government agencies.
Treasury regulations
Official interpretations of the Internal Revenue Code issued by the Department of the Treasury.
Treaty tie-breaker rule
A rule used to determine the tax residency of an individual under an international treaty.
Trust
A fiduciary arrangement where a trustee holds assets for the benefit of one or more.
Trust fund recovery penalty
A personal penalty for individuals who willfully fail to collect or pay payroll taxes.
Trust income
Earnings generated by the assets held within a trust for its designated beneficiaries annually.
Trust income tax return
An annual return, Form 1041, filed to report the income of a trust entity.
Trustee
The individual or entity responsible for managing the assets held within a trust arrangement.
Tuition and fees deduction
A tax deduction for higher education expenses, which has largely been replaced by credits.
U
Glossary of US tax and accounting terms starting with the letter U.
U.S. citizen
An individual who holds citizenship and is subject to U.S. global income taxation.
U.S. person
A term including U.S. citizens, residents, and domestic entities subject to U.S. tax laws.
U.S. shareholder
A U.S. person who owns ten percent or more of a foreign corporation’s stock.
U.S. source income
Income derived from activities, property, or services performed within the United States borders.
UBIA of qualified property
Unadjusted basis immediately after acquisition, used to calculate limitations for the QBI deduction.
Unadjusted basis immediately after acquisition
The original cost of property before any adjustments for depreciation or other tax factors.
Underpayment
The failure to pay the full amount of tax due by the required deadline date.
Underpayment penalty
A fee charged to taxpayers for failing to pay enough tax throughout the current year.
Unearned income
Income from investments such as interest, dividends, and capital gains, not from work.
Unemployment compensation
Payments received from government programs during periods of involuntary unemployment, which are generally taxable.
Unitary business
A business operating in multiple states that is taxed as a single combined entity.
Unrealized gain
The increase in value of an asset that has not yet been sold or exchanged.
Unrecaptured Section 1250 gain
Gain from selling real estate that is taxed at a specific 25% maximum rate.
Unrelated business income
Income from a trade or business regularly carried on by a tax-exempt organization.
Unrelated business income tax
Tax on income earned by a tax-exempt organization from business unrelated to its mission.
Use tax
A tax on the use of goods purchased without paying sales tax in the state.
Useful life
The estimated number of years an asset is expected to be used in business.
V
Glossary of US tax and accounting terms starting with the letter V.
Vacation rental
Property rented out for short periods, often subject to specific tax and expense rules.
Vehicle expense deduction
A deduction for the cost of operating a vehicle for business, using mileage or actual.
Vesting
The process by which an employee earns the right to their employer’s retirement plan contributions.
Veterans disability benefits
Payments made to veterans for service-connected disabilities, which are entirely exempt from federal tax.
Virtual currency
Digital assets, like Bitcoin, that the IRS treats as property for federal tax purposes.
W
Glossary of US tax and accounting terms starting with the letter W.
W-2 wage limitation
A rule limiting the QBI deduction based on the amount of W-2 wages paid.
Wage and income transcript
An IRS document showing data from information returns, like W-2s and 1099s, for taxpayers.
Wage garnishment
A legal procedure where an employer is required to withhold money from an employee’s paycheck.
Wagering tax
A federal excise tax on the amount of wagers accepted by a gambling business.
Wages
Compensation paid to an employee for services, which is subject to income and payroll tax.
Wash sale
The sale of a security at a loss and repurchase of substantially identical stock quickly.
Wash sale rule
An IRS rule that disallows a loss deduction if an identical security is purchased recently.
What Is a “401(k) Distribution
A withdrawal of funds from a 401(k) retirement plan, which may be taxable or penalized.
What Is a “Nonrefundable tax credit
A credit that reduces your tax liability but cannot exceed the total amount owed.
What Is a “Refundable tax credit
A credit that reduces liability and may provide a refund if it exceeds tax.
What Is a Tax Credit?
A direct reduction in the total amount of income tax a taxpayer is required.
Where’s My Refund
The official online IRS tool used to track the status of a filed tax refund.
Withholding agent
A person or entity responsible for withholding tax on payments made to foreign persons.
Work Opportunity Tax Credit
A federal tax credit available to employers who hire workers from specific disadvantaged groups.
Worthless security
A stock or bond that has lost all its value, potentially allowing for a loss.
WOTC
The Work Opportunity Tax Credit incentivizes employers to hire individuals from specific targeted groups annually.
X
Glossary of US tax and accounting terms starting with the letter X.
Y
Glossary of US tax and accounting terms starting with the letter Y.
Z
Glossary of US tax and accounting terms starting with the letter Z.