Tax Terms Dictionary
28% rate gain
This could be the taxable profits made from the final sale of a qualified business stock or the monetary gain that is accumulated from the selling of valuable collectibles. If this gain is the profits from the sale of the qualified business stock then these shares need to have been owned for a time period of 5 years or more.
A 401(k) is a savings plan designed to be used towards the retirement of an individual. It is a plan based on a commitment arrangement between an employer and the employee. The worker is allowed to make specified allotments from their paycheck before taxes, contingent upon the alternatives that are offered in the agreement. The agreed upon allotted contributions go into the 401(k) account in light of alternatives given under that specific arrangement. In a few places, the business will likewise make contributions, for example, coordinating the representative's commitments up to a specific rate. There are also 401(k) plans that have a required employer contribution agreement and these are known as SIMPLE and Safe Harbor plans.
A 403(b) is a retirement plan similar to a 401(k) plan, but is offered by non-profit organizations such as universities, school districts, and some charitable organizations, instead of corporations. There are several advantages to 403(b) plans: contributions lower taxable income, larger contributions can be made to the account, earnings can grow tax-deferred, and some plans allow loans. 403(b) contributions can grow tax-deferred until withdrawal at which time the money is taxed as ordinary income. For those receiving W-2s, the 403(b) contributions are indicated in the W-2 itself. There is no need to enter 403(b) contributions separately as long as the W-2 is entered exactly as seen. Distributions from 403(b) plans are documented by form 1099-R for tax return purposes.
A 457(b) plan is a non-qualified tax-deferred compensation plan that works very much like other retirement plans such as the 403(b) and 401(k). Created in 1978, the name refers to the relevant section  in the Internal Revenue Code that governs the plan. Two main types of 457 plans exist: governmental and tax-exempt 457(b) plans.
An account of the monies spent by the buyer for the examination and searching of the history behind the title to a parcel of real estate. It is termed as Abstract Fees for Abstract of Title.
The time period formulated by the educational institute for the measurement of academic duration. That may be a semester of 6 months, an annual term, a quarterly term, or any other period agreed upon by the institution. The payment period is considered to be an academic period if the institute applies credit hours or clock hours to consider the degree durations.
Accelerated Cost Recovery System (ACRS) *
Since the Economic Recovery Tax Act of 1981, this is the system used to calculate depreciation for an income-generating asset or property that is utilized in periods of service before the year 1987 and after the year 1980. However, the Modified Accelerated Cost recovery System (MACRS) has replaced this system for any asset or property that has been utilized in service after the year 1986.
Accelerated depreciation *
A method used by a company which calculates the depreciation of its fixed assets at a faster rate than would be permitted under the straight-line method of depreciation (definition listed below). Greater deductions are permitted in the earlier years of the assets useful lives. Taxpayers are allowed to discount 20 percent of the cost every year using the straight-line method of depreciation. Accelerated depreciation is a more time efficient strategy that gives you a chance to deduct 20 percent of the business costs the primary year, 32 percent the second year, 19.2 percent the third year, 11.52 percent in the fourth and fifth years, and the 5.8 percent remainder in the 6th year. Six years is the amount of time it takes to completely devalue the property, on account of the material "half-year" convention. This "half-year" convention fundamentally expects that business resources have been put into use by the middle of the year.
Accountable reimbursement plan
The accountable reimbursement plan is a plan that is formulated by a company for its employee. He or she is reimbursed if they fulfill the following requirements.
- There must be a clear connection to the business and the expenditures must serve a valid purpose for the benefit of the business and fit into the employee's job responsibilities.
- All the expenditures made must be accurately accounted by employee for their employer.
- Any extra reimbursements should be paid back in a specific yet reasonable time period.
Accrual method *
It is a method in which the earned incomes and the expenditures are registered and reported, as opposed to when they are received or paid. It is the opposite of the cash method and is also known as the accrual basis.
The outstanding debt that accumulated from a loan with the purpose of buying, building or improving of an existing property. A mortgage is an example of this.
Active conduct of a trade or business *
If a taxpayer actually participates in the overseeing of the operations of a certain trade, they may be allowed to actively manage it under what is known as the section 179 deduction. Whereas, a person who is an inactive investor does not participate actively in the trade.
It is the business management involvement over decisions such as renting, rental terms and repairs made by the owners of property that may qualify them for deductions (as much as $25,000) of the passive losses acquired from the renting of the property.
A person on active duty serving in the military earns and receives a basic salary during their tour of duty; this is what is termed as active pay.
Actual expense method
An IRS-approved method for computing and asserting expenses incurred when utilizing a car for business functions. For this method, the taxpayer needs to compile expenses such as fuels, repairs, parking fees, tolls and even loan interest.
Additional child tax credit
If you do not benefit from the full amount of the Child Tax Credit, you may be eligible for the Additional Child Tax Credit. The Additional Child Tax Credit is a refundable credit and may give you a refund even if you do not owe any tax. For more information see IRS Publication 972, Child Tax Credit at www.IRS.gov.
Adjusted basis / Adjust basis - our definition only applies to the 1099-R *
The adjusted basis is typically the total contributions to the plan minus any prior distributions which were treated as nontaxable.
Adjusted Gross Income (AGI)
This is the total gross income that is earned by the taxpayer after specific deductions have been subtracted.
Adjusted Qualified Education Expenses (AQEE)
This is the calculated expenses the taxpayer made for their qualified educational expenses after all scholarships, education assistance and any other expense deductions they claimed on their return as deductions have been factored in. Some examples of the reductions to the calculated expenses are tax-free educational assistance, employer-provided educational assistance and tax-free scholarships.
Adjustments to income
These adjustments are deductions that appear directly on the taxpayer's tax return. These can be reported on federal forms 1040 and can be used where the findings lessen the wages in ascertaining the taxpayer's adjusted gross income for the reported taxable year. This deduction is also called an above-the-line deduction and can be used without having to itemize deductions.
A person, usually a minor that the taxpayer has taken legal responsibility of, as a parent, is considered as a dependent and they are treated just as the taxpayer's very own biological child.
Adoption credit *
You may be able to take a tax credit for qualifying expenses paid to adopt an eligible child. This is a tax credit offered to adoptive parents as an encouragement for adoption. It effectively refunds you part of what you paid as "qualified adoption expenses" to adopt the eligible child. In order to be eligible, the child must be a minor (under the age of 19 at the end of the tax year) or unable to care for themselves (mentally or physically). In the case of a special-needs child, the qualified adopted parent may also qualify for a credit that exceeds their adoption expenses. The right to the adoption credit is highly dependent upon the taxpayers final AGI. For more information see the instructions for IRS Form 8839, Qualified Adoption Expenses.
Adoption Taxpayer Identification Number (ATIN)
This is a temporary number issued by the Internal Revenue Service (IRS) to provide identification for an adopted child in lieu of a social security number. This temporary number can be used by the qualified adopted parents as a way to identify the child on their federal income tax return until the adoption process is completed or until they can obtain the child's social security number
See Taxpayer Advocate definition listed below.
In order to qualify for the Earned Income Tax Credit the child must fulfill the following requirements as a dependent.
- If filling jointly, at the end of the year, the child must be under the age of 19 or should be younger than the qualified filing parents.
- Or under the age of 24 as well as a fulltime student who has lived in a parents' place of residence for at least 6 months of the tax year.
- The qualifying child can be of any age group if he/she is disabled (completely or partially).
A payment to or from a spouse or former spouse under a divorce or separation instrument. It does not include voluntary payments that are not made under a divorce or separation instrument.
An employer is required to allocate tips when their employees work in large food or beverage establishments. Allocated tips are the tips that were assigned in addition to the tips that the taxpayer has reported.
Alternative Minimum Tax (AMT)
An income tax created that imposes an additional flat rate above the exemption threshold to ensure that a minimum amount of tax be paid by particular tax payers who benefit from the tax laws due to levels of income that allows certain expenses, special credits and deductions.
When a tax return is accepted by the IRS but needs correction a tax amendment needs to be filed using the Form 1040X (Amended Individual Income Tax Return) which will be used by the IRS to correct errors that have occurred on any previous returns up to a three-year period. This can result in a higher tax liability or a different refunded amount dependent upon the mistakes rectified.
Amortizable bond premium *
If the amount the taxpayer paid on a bond is more than the face value of the bond that excess amount is called the bond premium. The bond premium can be tax deductible and reduced (amortized) on particular types of bonds over the life span of that bond.
A fixed schedule arrangement using regular installment payments in order to pay off a debt such as a car loan or a home mortgage. The payments are regulated to cover intangible assets such as interest balancing out against the payments made to cover the principle. This displays amortization matching asset expenses with generated revenue. Taxpayers, according to the IRS, can take deductions on particular amortized expenses such as goodwill, sometimes a non-compete agreement, researching costs, and mineral exploration along with mining costs.
This is the amount calculated following a sale or an exchange referred to as a "realization event." This calculation realizes the gain or loss resulting from the event in the form of fair compensation. It does not consider any transaction fees or commissions but it does include any liabilities assumed by the buyer and/or any liabilities to which any property involved may be subject to.
It is an agreed-upon scheduled series of payments in the form of a contractual financial product between an individual and a financial institution. Annuities are arranged to accept and produce revenue from an individual with the total sum of the revenue to be paid out regularly at a later date.
Assets (business) *
A capital asset can be any type of property you own and use for personal purposes, pleasure, or investment. If you purchased a capital asset at one price and later sold it for a higher price, you have to pay income tax on the gain you realized.
If you purchased a capital asset for investment purposes and later sold it at a loss, you may deduct all or a portion of your capital loss. You may not deduct any losses from a capital asset purchased for personal use.
Individuals can only claim the loss that is equal to the potential loss that can potentially be incurred. This is equal to the amount of value of a particular activity that would be the cause of the risked loss.
An audit is a process in which an individual proves his/her expenditures and tax deductions to a review body formulated by IRS. However, the majority of these audits are processed through mail and they only require proof pertaining to a certain particular issue or issues listed on the tax return.
Authorized IRS e-file provider
An Authorized IRS e-file Provider is a professional tax service that has been approved by the Internal Revenue Service and accepted into their electronic online tax filing program. The IRS acknowledges online e-filed tax returns from this approved organization. These organizations have met the qualification criteria, and have passed a suitability check so that the IRS can then relegate an Electronic Filing Identification Number (EFIN). Candidates accepted by the IRS are fully qualified to prepare, transmit and process e-filed tax returns are then known as Authorized IRS e-file Providers. ezTaxReturn has been an Authorized IRS e-File Provider dating back to 1999.
Automobile, business use
The expenditures incurred by using a car strictly for business purposes are deducted in terms of being a business expense or as an employee expense. For example, fuel, repairs, parking fees, toll taxes or just the standardized mileage rate published by the IRS can all be calculated as deductions.
Automobile, donating to charity
Vehicles that are donated to charity bear some strict rules and regulations in order to be claimed as a deduction. The final amount of money that is collected after the sale of your donated vehicle by the charity is what will be viable for a deduction. The charitable organization to whom you have donated, should notify you within 30 days of the selling day. If you do not receive the required sale information, then the total deduction allowed for the vehicle donation will be set to a $500 limit.
Automobile, driving for charity
If an automobile is used for charity work then some of these expenses can be deductible. 14 cents for every mile you drive using your automobile can be deducted. Similarly, to the business use of a vehicle mentioned above, parking fees as well as the tolls can also be also reported as charitable deductions.
Bargain sale to charity *
Bargain sale to charity is a process through which a donor can sell real estate property to a charitable or non-profit organization for a price that is less than the fair market value. The selling of this property can serve the charity as support for their mission while also serving as a valuable tax deduction for the donor.
Basis - definition is for cost basis (the definition of adjusted basis is listed above)
Basis is generally your cost to purchase the residence, plus expenses for home improvements. Please see Publication 551 for the IRS description of Cost Basis at https://www.irs.gov/publications/p551/ar02.html
This is the value of the goods registered in the onset of the year that are made available and displayed for the purpose of being sold. The producer includes the total amount of costs for all of the raw materials, the works that are in process, the goods that are finished and all the things that are utilized in the production of the commodities as a segment of the initial inventory sum. The initial inventory amount should be equal to the final inventory amount that was reported for the preceding year.
Below-market loan *
Also known as an arm's-length transaction, a gift loan or a demand loan, a below market loan is the kind of loan on which the viable interest rate is actually less than the standardized applicable federal tax rate. The IRS may require for tax purposes that the interest rate be increased for the lender in accordance to the Applicable Federal Rate (AFR).
Below-market-rate loans *
Refer to above listing.
The IRS considers you to be blind if either of the following is true:
- You cannot see better than 20/200 in your better eye with glasses or contact lenses, or
- Your field of vision is 20 degrees or less.
If you are legally blind, make sure your records contain a statement certified by your eye doctor to this effect.
Blocked income *
It is a type of income which is not subject to U.S. taxation due to the fact that the taxpayer is not able to exchange their foreign currency into U.S. dollars. This would be due to the law governed by the local foreign government or other local foreign policy. Special tax rules and regulations can permit the taxpayer to get an extension on reporting that particular part of their income for taxation.
Bona fide residence test *
If you are a bona fide resident residing in a permanent tax home in a foreign country, then you qualify for the foreign earned income exclusion provided you can prove that your physical presence was in fact residing in the reported foreign country for one sustained tax year.
If the amount the taxpayer paid on a bond is more than the face value of the bond, that excess amount is called the bond premium. A portion of the bond premium can be tax deductible and reduced on particular types of bonds every tax year over the life span of that bond.
Bonus depreciation *
The term bonus depreciation refers to additional deductible depreciation that is awarded as an added incentive for small businesses that need to purchase more assets, specifically equipment. As the value of equipment depreciates immediately once it is placed in service the bonus depreciation deductible will be used the first year the equipment is put to use.
Burden of proof
The burden of proof is the responsibility of the tax payer to keep accurate records in order to substantiate any information and statements provided on their tax return. Should any tax matters be brought before the courts and data is required then it is up to the tax payer to provide the proper documentation (W2s, receipts, bills, cancelled checks, expenses) as evidence.
Business assets *
These assets may be various types of business equipment such as mechanical machinery or even office furniture that has been purchased solely for the use of a particular business or trade.
There are expenditures that are expected to be made in order to maintain the day-to-day activities required for the operation of any business or trade and these are what is known as business expenses.
Business use *
Business use is a term that defines the total calculated amount of the usage that is required of a particular property or business asset.
It is a right that a purchaser can avail in buying a determined amount of an underlying security such as a stock option. It can be utilized within a specified period of time at a particular rate.
This is also known as forgiven debt, debt cancellation or cancellation of debt. If a lender or financial institution has cancelled a taxpayers debt wiping out their financial obligation then that amount of debt that was forgiven becomes taxable as income and must be reported as such. When reporting the amount on the tax return it would be documented as cancellation-of-debt income. There are certain types of debt cancelation that are not taxable, such as the student loan debt forgiveness that the federal government is currently providing.
Candidate for a degree
An undergraduate or graduate student conducting research or studying to meet the requirements of a professional recognized academic degree course at an educational institution, college or university.
Capital expenditure *
These major expenses also known as a capex that may incur due to the complete and permanent betterment in a material asset that may be a tangible property. They enhance the viable taxation of the property. An example of this would be a home improvement such as an addition.
If you purchased a capital asset at one price and later sold it for a higher price, you may have to pay income tax on the gain you realized.
If you purchased a capital asset for investment purposes and later sold it at a loss, you may deduct all or a portion of your capital loss. You may not deduct any losses from a capital asset purchased for personal use.
Capital loss carryover
If any part of a capital loss is not used as a deductible over the course of the current year then it can be carried over into future tax years indefinitely. Capital losses can be used to offset capital gains up to the limit of $3000. Any losses in excess of the $3000 restriction will be the capital loss that carries over.
If some expenditure is found to be helpful for a period longer than one fiscal year then it is viable to be capitalized. These items are not deductible in the current expenses and they are registered as having long term lifespans in order to spread out the costs so not to impact any revenue negatively.
This accounting method is contrary to the accrual method because income is reported and recognized as a revenue or expense when money is physically exchanged.
Casualty loss results from the swift and unforeseen destruction of some property or asset by a natural disaster or calamity; that results in a tax deduction.
If the taxpayer fails to report their charitable donations as a deduction in the current tax year due to the exceeding gross incomes, then they may carry over the charitable contributions. The surplus is managed into the next five tax years until it is consumed. These deductions should not be in excess of 50 percent of your managed gross income. This carryover also cannot be claimed by heirs should the taxpayer pass away.
When a taxpayer makes a donation to a qualified charity they need to maintain a registered written communication, bank receipt or bank record (an invalid check) to report any contributions that are being made, irrespective of the amount. The donations exceeding $250 should be registered and written in accordance with the qualified charity.
See Standard mileage rate.
Child and dependent care credit
You may be able to claim the credit if you pay someone to care for your child under age 13 so that you can work or look for work. For more information see IRS Publication 503, Child and Dependent Care Expenses.
A payment that is specifically designated as child support or treated as specifically designated as child support under your divorce or separation instrument is not alimony.
Child tax credit
You may be able to take this credit on your tax return for each of your children under age 17. If you do not benefit from the full amount of the Child Tax Credit, you may be eligible for the Additional Child Tax Credit. The Additional Child Tax Credit is a refundable credit and may give you a refund even if you do not owe any tax. For more information see IRS Publication 972, Child Tax Credit.
Circumstantial is different from any direct evidence in a way that it relies on the assumption in concluding an established fact whereas direct evidence does not require anything additional.
Citizen or resident test
This is one of the dependency tests that has been formulated by the IRS to guarantee that a person can be claimed as a dependent to qualify for exemption. Qualified adopted children are given certain exemptions and liberties. However the qualifying person should be a resident of United States, they may be a United States resident alien, national citizen of United States or may have been a citizen of Mexico or Canada for part of the tax year.
Class life *
Class life is defined as the specific period of time in which the utilization of a tangible property asset is established according to the IRS asset types and it depends on the range of class asset devaluation such as the General Depreciation System or the Alternative Depreciation System.
This is a special rate of pay to active-duty military personnel who served in a designated combat zone or hazardous duty area that is tax free.
As determined by Executive Order from the President of the United States, a combat zone is the geographical location where it has been designated that U.S. Armed Forces have engaged in warfare and were in imminent danger for a specified period of time. Serving in a combat zone qualifies military personnel to tax benefits.
Community income *
Community income is the sum of money generated collectively by the taxpaying individuals living in community property states. It is basically the wages they earned. Any properties owned by a spouse, in addition to all incomes, belongs equally to both partners that are married.
Community property *
It is the property that is owned by a married couple jointly and is divided if they get divorced. Death and annulment can also result in the division of the property unless there is some other proof to the contrary.
Commuting is the distance from the house of the taxpaying individual to his or her work place that they must use on regular basis to maintain gainful employment.
Generally, this is money that is given from an employer to an employee as wages or a salary. This can also be termed as commissions, tips, bonuses, or professional fees. The income or allowances from self-employment can also be termed as compensation.
Apart from income that a taxpayer physically receives, this is the income that has been credited and made available to the taxpayer without any limitations. This can also refer to the gross income of the taxpayer that is liable for income tax payments.
Consumer interest *
See Personal interest.
Coverdell Education Savings Account
This savings account is used to pay qualified educational expenses at an eligible educational institution. Contributions are not deductible, however, qualified distributions generally are tax-free. For more information see IRS Publication 970, Tax Benefits for Education.
Credit (tax credit)
A tax credit is not like a tax deduction or tax exemption which can reduce the taxable income. Tax credits can reduce the amount of taxpayer liability, reducing what is owed at the end of the tax year. Credits can be utilized in the form of earned income for low-income taxpayers, child care expenditures (for qualifying children) as well as expenses used for higher education.
Credit for Other Dependents
If you have a dependent who doesn't qualify for the Child Tax Credit or Additional Child Tax Credit, you may be able to claim the Credit for Other Dependents. It is worth up to $500 for each dependent.
Credit for qualified retirement savings contributions
See Retirement credit.
Damages are of many types. In some legal judicial trials, damages are paid and awarded to the side, which bears some type of injury or some kind of loss. If the awarded money is used for medical treatment or medical care then it will not be taxed.
Date of transaction
It is the date at which the something is traded, exchanged or been made available, this may be a sum of money or some other financial instrument. This date is also used in determining the exchange rate for monies that may have been converted to U.S. dollars from a foreign currency. Money is awarded to the taxpayer according to this date.
Decedent estate *
Unfortunately, we do not support form 1041.
Form 1041 (U.S. Income Tax Return for Estates and Trusts) is used by the fiduciary of a domestic decedent's estate, trust, or bankruptcy estate to report:
- Income, deductions, gains, losses, etc. of the estate or trust,
- Income that is either accumulated or held for future distribution or distributed currently to the beneficiaries,
- Income tax liability of the estate or trust, and
- Employment tax on wages paid to household employees.
Deductions (tax deductions)
Deductions are the sum of amounts that taxpaying individuals can exclude from their earnings (gross income). Deductions can become available due to some expenditures that taxpayers may have incurred during the tax year. These deductions can vary from region to region placing them under varying tax codes. Deductions can also lower the tax-expense obligations of the tax-paying individual. When filing the taxpayer may choose the standard deduction, otherwise their deduction will need to be itemized. Itemized deductions may include such things as medical expenses, dental expenses, home mortgage interest, investment interest, charitable contributions, and casualty and theft losses.
Defined benefit plan
A retirement plan providing benefits for the employee that is being sponsored by the employer. Employees benefit from this plan in terms of certain parameters like salary, the total term dates of service, and even their age. Upon the withdrawal of specific benefits, some particular limitations and restrictions may be used as penalties for the employee. This is usually defined as a traditional pension plan.
Defined contribution plan
Defined contribution plan is one in which the employee along with the employer contribute together to the employee's retirement plan. Contribution plan is the account that individually belongs to the employee and its benefits are defined by the specifically contributed sum of money. These monies will not be subject to taxation until distribution. The plan's value may fluctuate due to changes in contributions or the investment performance. These types of plans can be defined as profit-sharing, stock ownership or even a 401(k).
A very simplified definition of a dependent is someone who is given financial support (e.g. a child or elderly parent). If you provide all the financial support for your child, that child is probably your dependent. If your parent (or someone else) provides all of your financial support, you are probably that person's dependent. Generally, if any relative of yours paid for more than half your support for the income year, they probably are claiming you as a dependent on their tax return. If you made more than $12,950 in 2022 or were older than 24 at the end of 2022, you probably cannot be claimed as somebody else's dependent. Please review Publication 501 (Exemptions, Standard Deduction, and Filing Information) at https://www.irs.gov/pub/irs-pdf/p501.pdf or https://www.irs.gov/publications/p501/index.html for more information on dependents.
The two major self-employment issues not supported by our program are depreciation and depletion. Additionally, our program only supports one home office per business.
The two major self-employment issues not supported by our program are depreciation and depletion.
The salary, tips and commissions that you earn against personal services you offer to anyone. If you are self-employed, any profit from your business is also considered earned income. It is different from your unearned income which is generated without your effort like dividends and interests.
Earned Income Credit (EIC) same as the Earned Income Tax Credit (EITC)
An amount of money that you can claim on your tax return provided that your gross income after making necessary adjustments is below a certain level. EIC is not limited to your income tax bill and may result in refund of leftover credit. The dependency variables to qualify for this credit are the level of your income and number of qualifying children you are claiming.
There are two tax credits available that can be used to offset the expense of getting a higher education. A qualified student can get a $2,500 credit with the American Opportunity Tax Credit which is accessible for the initial four years of postsecondary instruction at a qualifying professional school or college depending upon one's adjusted gross income. There is also a credit that can be used up to $2,000 per year for continuing education called the Lifetime Learning Credit. This credit is also only available depending upon the taxpayer's adjusted gross income. You can guarantee an American Opportunity credit for every qualifying understudy yet only one Lifetime Learning credit can be asserted every year. These credits cannot be combined for use.
Any interest paid by a qualified student on a student loan from a qualified source used for higher education (tuition, fees, books) may be used as a tax deduction. A taxpayer may deduct up to the amount of $2,500 in a given year even without itemizing their deductions. This can also apply to a loan used for a spouse or dependent. The amount of the deduction will be phased out dependent upon certain adjusted income levels.
Education savings account
Consult Coverdell education savings account.
This is a deduction (limited to $300 per educator) claimed directly on form 1040 as an adjustment to income for state-approved school employees who held positions in classes ranging from kindergarten level up through to grade 12. This deduction is used to offset expenses incurred for classroom peripherals considered "ordinary and necessary" by the IRS.
Elderly or disabled credit (Senior Tax Credit)
Dependent upon their filing status, this credit is for taxpayers who qualify as elderly (aged 65 or above), retired or disabled at the end of the reported tax year and earned a limited income.
Elderly or disabled credit (Senior Tax Credit) *
Dependent upon their filing status, this credit is for taxpayers who qualify as elderly (aged 65 or above), retired or disabled at the end of the reported tax year and earned a limited income.
An employee can request excludable amounts to be withdrawn as elective deferrals from their pay and then be contributed into an employer-sponsored retirement plan. These deferrals include all deferrals that fall under SARSEP and SIMPLE IRA plan as well as a 401(k) and a 403(b) and are also known as salary-deferrals and salary-reduction contributions.
Electronic filing (e-filing)
An electronic, online method for taxpayers to file their tax returns to the IRS. According to IRS, you get the fastest possible refund when you electronically e-file your tax return and choose direct deposit in order to receive your refund. You will get your refund weeks earlier when you e-file than when you file on paper.
Eligible educational institution
This is a post-secondary school that is qualified to participate in student aid programs run by the U.S. Department of Education such as a university, college or vocational school.
In order to claim any educational tax credits the person who received the benefits of the qualified educational expenses needs to meet specific requirements during that credited tax year. Each educational credit has its own specific prerequisites pertaining to the student.
Employee Stock Ownership Plan (ESOP) *
The primary investment in this type of defined contribution employee benefit plan is stock in the company of the sponsoring employer.
Employer Identification Number (EIN)
Also known as a Federal Tax Identification Number, this nine-digit number that is appointed by IRS is used to identify a business entity.
This credit is awarded to taxpayers who own their own home and have invested in alternate energy sources, such as solar electricity equipment, solar hot water heaters, and wind turbines in order to make their home more energy-efficient.
A tax preparer who, by passing an IRS test or has prior IRS work experience, is empowered by the U.S. Department of the Treasury in order to represent their clients at IRS audits and appeals.
Equity option *
An option that provides the right to buy or sell shares of stock within a specified period of time and at a set price rate.
Estate tax *
Part of the U.S. Unified Gift and Estate Tax system, the estate tax that is imposed upon the net value of the deceased person's estate prior to distribution to the heirs of the estate.
Estimated tax *
Unfortunately, estimated tax payments to the IRS cannot be made through our company. Nor does our program generate estimated tax payment vouchers.
However, when preparing your tax return, our program has provisions in the Expenses section for filers to enter the estimated tax payments for both Federal and state (where applicable) that were made during the year.
Excess social security tax withheld
Every year there is a set limit to how much social security tax can be withheld, for the individual. If there is an excess over this set limit that is withheld then the individual needs to report the excess on their Form 1040.
Exchanging a property for another property, service or something in return as in a barter or swap.
Various forms of qualified income that do not need to be included into the taxpayer's gross income is then tax exempt and referred to as excludable income such as student financial assistance or combat pay.
Exempt (from withholding) *
If certain eligibility requirements are met then a taxpayer may claim exemption from withholding for the current tax year. This exemption does not free the taxpayer from other tax liabilities.
Expensing is when business assets are deducted as immediate expenses (operating costs) instead of a capital investment. Also known as Section 179 deduction, the assets are depreciated over their useful life.
Fair Market Value (FMV)
The agreed upon price for an item that buyer and seller both feel is fair based on reasonable information acquired from the market.
See Scholarships and fellowships.
Also referred to as a trustee, a fiduciary acts as a responsible manager for someone else's asset account as they are entrusted in good faith working on that person's behalf.
A qualifying component needed to compute taxable income of a taxpayer, that includes five categories which are single, married filing separately, married filing jointly, qualifying surviving spouse, or head of household.
First-time homebuyer credit
Consult Homebuyer credit.
Flexible spending account
Consult Reimbursement account.
Flexible Spending Arrangements (FSA)
This option is also known as a flexible spending account, and it allows an individual to be reimbursed for any medical expenditures usually through an agreed upon arrangement with said individual's employer. Taxes are not paid on any of the money deducted from the employee's pay for their contribution into this account.
The difference between the amount of interest you actually received for a loan and the amount you could have received if you had charged the applicable federal interest rate.
Foreign earned income exclusion *
The option for a reduction of taxable income that has been earned for work performed outside of the United States.
Foreign tax credit *
This is a tax credit used for balancing out previously paid taxes imposed by foreign income taxes on eligible income that was also subjected to U.S. income taxes.
Consult Cancelled debt.
Form 1040, U.S. Individual Income Tax Return
Form 1040 is used by U.S. citizens and residents to prepare their annual income tax return. Based on the information provided, you'll either owe additional taxes or be issued a refund. This form can be filed online or by paper depending on your preference. Tax returns are usually due on April 15th unless it falls on the weekend or a holiday.
Form 1095-A, Health Insurance Marketplace Statement
If you bought coverage through the Health Insurance Marketplace, you should receive a Form 1095-A. It will help you claim the Premium Tax Credit and reconcile any advance payments of the credit you received.
Form 1099-C, Cancellation of Debt
If a creditor forgives $600 or more of your outstanding debt, you may receive a Form 1099-C reflecting the cancelled amount. This amount will be considered taxable income and must be reported on your tax return.
Form 1099-DIV, Dividends and Distributions
A 1099-DIV used by investment companies to report capital gains and/or dividends paid to an investor during the year.
Form 1099-G, Certain Government Payments
This form is used to report unemployment income, state tax refunds or government assistance received during the year.
Form 1099-INT, Interest Income
Any bank or other financial institution that pays interest to investors will report the income on form 1099-INT. The form must be issued if you receive $10 or more in interest during the year.
Form 1099-K, Payment Card and Third Party Network Transactions
This form is used to report business payments you receive from credit card, debit card and third-party payment processors.
Form 1099-MISC, Miscellaneous Income
Form 1099-MISC is used to report miscellaneous income. Businesses must issue a Form 1099-MISC if they paid someone at least $10 in royalties or broker payments instead of dividends or tax-exempt interest. The form is also sent to anyone who received at least $600 in rent, prizes, and other income payments.
Form 1099-NEC, Nonemployee Compensation
Form 1099-NEC is used to report nonemployee compensation. If you're an independent contractor or freelancer, you'll receive one from each person who paid at least $600 for your services during the year.
Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.
A 1099-R is used to report distributions from IRAs, pensions, annuities and other retirement plans. The form must be issued if you receive $10 or more from a retirement plan.
Form 4137, Social Security and Medicare Tax On Unreported Tip Income
Form 4317 is used to calculate the Social Security and Medicare taxes owed on unreported tip income.
Form 5695, Residential Energy Credits
If you made energy saving improvements to your home, you may qualify for residential energy credits. Form 5695 is used to claim the Residential Clean Energy Credit* and the Energy Efficient Home Improvement Credit.
Form 7202, Credits for Sick Leave and Family Leave for Certain Self-Employed Individuals
If you were unable to work due to COVID-19, Form 7202 was used to claim a refundable Credit for Sick Leave and Family Leave for Certain Self-Employed Individuals. This was available for tax years 2020 and 2021.
Form 8829, Expenses for Business Use of Your Home
Form 8829 is used by self-employed taxpayers to calculate their home office deduction. You can deduct expenses that apply to part of your home that is used exclusively for business purposes on a regular basis in one of the following capacities: as your primary place of business, as a place of business used by your clients or customers in the normal course of your business or in connection with your business if it is a separate structure that is not attached to your home.
Form 8863, Education Credits (American Opportunity and Lifetime Learning Credits)
Form 8863 is used to claim education tax credits. If you, your spouse or dependent have qualified education expenses at an eligible educational institution, you may be eligible for the American Opportunity Credit or the Lifetime Learning Credit. You cannot claim both credits for one student.
Form 8959, Additional Medicare Tax
If your Medicare wages, Railroad Retirement Tax Act (RRTA) compensation, and self-employment income exceeds a certain threshold, you'll pay a 0.9% Additional Medicare Tax. Form 8959 is used to calculate how much Additional Medicare Tax you owe, if any.
Form W-2, Wage and Tax Statement
A W-2 is used to report your wages and taxes withheld for the year. An employer must issue a W-2 if an employee earned at least $600 or had taxes withheld from any amount of income. This information is then used to prepare a tax return if you meet the filing requirements. All W-2's must be issued to employees no later than January 31st.
Form W-4, Employee's Withholding Allowance Certificate
A W-4 is used to determine the how much federal taxes your employer must withhold from your paycheck. It's in your best interest to complete and submit a new W-4 to your employer whenever your personal or financial situation changes. Having too much taxes withheld will result in you getting a refund at tax time. On the other hand, not withholding enough will cause you to owe money.
Forward contract *
A customized informal agreement between two parties (broker and dealer) that allows for deliverance of property at a specified date for a certain price where all aspects of the agreement were already decided upon.
Free Application For Student Aid (FAFSA) *
In order for currently enrolled or soon-to-be enrolled students to qualify for this government-sponsored financial aid they need to fill out the qualifying form on an annual basis.
A student who was enrolled in a school, or an on-farm course at an institute for a period of at least 5 months or courses that the qualifying school would consider full-time status. An institution with a regular teaching staff, sufficient courses offering and a student body such as a technical, grade or mechanical school can be defined as a qualifying school.
Fungible commodity *
An agricultural commodity which has individual units that can be mutually substituted in another's place in order to simplify the exchange process.
Futures contract *
A contractual agreement where two parties acknowledge an exchange in the buying or selling of assets such as commodities or shares at a pre-decided price at a future date. This may also be referred to as a Commodity future.
General limitation income *
All income that is earned outside of the U.S. by means of an enterprise which does not involve the taxpayer physically and is not fully excluded under the foreign earned income exclusion (FEIE).
General partner *
A member of a partnership who is responsible for their share of all debts and loans and has unlimited liability.
General partnership *
This is a partnership which is an arrangement of general partners with unlimited liability who are conducting business in a joint effort.
This is typically a gift between friends or family members in the form of an interest free or reduced-interest loan.
This is a federal tax imposed on an individual giving an item of value to another individual without the receiving person being obligated to pay the full value for the gift. The annual gift tax exclusion amount is $16,000.
Going concern value *
This is a value added to an established business entity that is currently in the process of earning a profit. This excess value is in addition to the sum of the market value of the company's assets and is recorded for tax purposes as the firm's goodwill.
The reputation of an established business entity which serves as an added value or bonus represented by an excess monetary number added as a quantifiable asset.
The individual or entity that can create a title of ownership for transfer or convey the rights to a deeded property to another, usually the previous owner of the property.
The taxpayers total income from all sources to be used as a starting point for calculating their tax liability and deductions.
Gross income test
In order for a relative to qualify as a potential dependent they must pass the dependency tests. One of these tests is applicable only to a potential dependent over the age of 18 or a full-time student over 23 and is called the gross income test. The potential dependent in question may earn an annual gross income under the limit of $4,400 provided this income is not from a disability source.
This tax term has to do with a business entity. Any taxpayers who produce or supply goods and services to consumers need to report their gross receipts for that tax year. It is the sum of all business activities that generated revenue without costs, expenses or deductions factored in.
Guaranteed payments *
These are payments made in an amount that is guaranteed by a partnership to a partner for services or capital regardless of any income, profits or losses.
Dependent upon the number of credit hours a student is enrolled may qualify them for tax benefits or loans. Any students who are enrolled in 6 - 8 credits hours will be considered a half-time student for that semester according to the requirements of the respective educational institution.
Head of household
To file as head of household you must meet the following requirements:
- You are unmarried or considered unmarried on the last day of the year.
- You paid more than half the cost of keeping up a home for the year.
- A qualifying person lived with you in the home for more than half the year (except temporary absences, such as school). An exception to this is that a dependent parent does not have to live with you.
Health Savings Account (HSA)
A tax-exempt account used to pay or reimburse certain medical expenses you incur.
You must be covered under a high deductible health plan (HDHP) and have no other health coverage except permitted coverage. If you were an eligible individual on December 1st, you are considered to be eligible for the entire year.
High deductible health plan
A health insurance plan with lower premiums and higher deductibles than a traditional health plan. It is a form of catastrophic coverage.
High withholding tax interest *
As specified in the U.S. tax code, this is the excess amount of interest earned on investments qualifying as earned income that has been subjected to a gross withholding tax higher than 5% which has been levied by a foreign country.
Highly-paid individuals *
Highly-paid individuals are defined as people earning more than $120,000 (during tax filing year) or having a 5% share as an owner in a company. Due to special anti-discrimination rules, they are limited with regard to their retirement plan contributions. Their annual contributions to their individual plan may be returned at the end of the year rendering it taxable if a sufficient amount of lower-paid employees haven't contributed into the same company retirement savings plan.
When there is a non-deductible loss instead of a profit while doing a regular activity for enjoyment in your leisure time. If the activity generates a profit then this rule will determine whether it is to be considered a hobby or a business. For example, if the hobby earns a profitable income for three out of five years then it can be treated as a business and then the two years of loss can be realized now that an actual business activity can be proven. Tax deductions under this rule are only viable when expenditures on the hobby turned business do not supersede the earnings.
This is the time period that needs to be determined in order to calculate the tax treatment of capital gains and losses. For tax purposes, the holding period begins on the day after an asset is purchased and ends on the day that the asset is sold. These dates serve to classify whether the asset gain or loss is short-term or long-term.
Home equity loans
Also known as a "second mortgage," this is a consumer loan with which the amount is based upon the difference between the current market value of the home in question and the homeowner's remaining home equity. This type of loan is secured by a second mortgage which allows the home owner to borrow against the equity of their home as the loan's collateral.
Home office expenses
These are deductible expenses for individuals who have dedicated part of their home residence for business operations and devote a great deal of time generating business income from their home office. Some of the expenses that may be eligible for deduction could be a portion of the utilities, rent, mortgage interest or property taxes while expenses such phone lines, computer equipment and supplies could be fully deducted.
Home sale profit
A taxpayer filing as a single individual can enjoy a tax free profit of up to $250,000, if you have lived in, or owned a house for a period of at least two years leading to the sale of the home. This particular tax break can be availed once every two-year-period. For those filing jointly as a married couple can enjoy tax-free profit of up to $500,000. A widowed spouse who sells their home within two years of the death of their loved one is also eligible for this married filing jointly exclusion.
Military pay earned while the service person is hospitalized is excluded from taxable income if that individual is hospitalized for a period of not more than five years, abroad or in the U.S. The military personnel should have been wounded or injured while serving on active duty in a qualified combat zone in order to qualify for this benefit.
Any individual who works to earn an income or provides paid services within the residence of a taxpayer is considered a household employee. More common examples of this would be babysitters, nannies and housekeepers who cook, clean and care for a dependent. The taxpayer who pays the household employee is responsible for the payment of a "Nanny Tax" which can include Social Security, Medicare and even Unemployment depending on the level of income paid to their employee.
Imported drugs *
The expenses paid for the delivery of prescription drugs into the U.S. from any country outside of the U.S. are not eligible for any tax deduction.
Also referred to as a "home improvement," this can encompass any addition or alteration to the building structure of a living residence or even maintenance and repairs which can include the yard and outdoor structures as long as it adds a clear benefit or value to the property.
This refers to an estimated interest rate that is used by the IRS in order to reflect a more accurate current market value and to estimate a reasonable accounting of the rate of earnings. Once this is established then the interest accrued and earned by the taxpayer can be recorded for tax purposes.
Incentive Stock Option (ISOs) *
This is one of two types of options offered by employers to employees giving them the right to purchase shares of the company stock at a fixed price below the market rate for a defined amount of time. However, tax is not imposed on the amount of difference between paid price and market value of stock. This phenomenon is termed as a "spread" or "bargain element" for regular income tax purposes. When the stock is being sold, tax has to be paid on it. Spread is also taxed the following year, for other minimum tax purposes.
Be aware that the IRS has a broad interpretation of what's includable into a taxpayers' gross income. The tax code requires taxpayers to report all income from any and every possible source including from other countries outside the U.S. Some lesser known examples of these are awards, gambling proceeds, side jobs, exchanges of goods and services and so on.
Income taxes are the main source of income for the government that it in turn uses to support many public agencies, utilities and programs. All U.S. taxpayers (individuals and entities) are responsible to report their income taxes under personal income tax and corporate income taxes respectively. All tax responsibilities are calculated upon the salaries, wages, and commissions termed as earned income as well as interest and dividends that are known as unearned income.
For tax purposes, it is important for business owners to determine whether or not someone who provides goods or services falls under the status of an employee or an independent contractor. This may depend upon the temporary or permanent nature of the work as well as other considerations such as equipment, materials, hours and benefits of employment. An independent contractor is self-employed (ineligible for benefits) and their work is defined by the contract by which they control the means and method to fulfill the obligations of the agreement.
Indexing provides a proactive method that adjusts taxes, wages and other rates to a weighted annual average of consumer pricing in order to retain purchasing power and avoid the higher taxation that can be brought about by the effects of a period of inflation.
Individual 401(k) plan
Also referred to as a "Solo 401(k)" or "Self-employed 401(k)," this is a qualified retirement savings plan for U.S. citizens intended for the use of employers owning a business without a full-time employee or a staff of employees.
Individual Retirement Account (IRA)
An IRA is an Individual Retirement Account, of which there are two basic varieties. If you made contributions to a traditional IRA, you may be able to deduct up to $6,000 of those contributions ($7,000 if you are 50 or older) from your taxable income for the year 2022. And you may be able to deduct up to $6,500 of those contributions ($7,500 if you are 50 or older) from your taxable income for the year 2023. The 2022 limits are what is deductible for 2022 tax returns but the 2023 amounts is what you can currently contribute starting in 2023. If you made contributions to a Roth IRA, those contributions are not deductible from your taxable income. The benefit of a Roth IRA is that the distributions (when you finally take money out of the account) are tax-free.
Individual retirement arrangement
Consult Individual Retirement Account (IRA).
Individual Taxpayer Identification Number (ITIN)
The IRS issues these identification numbers to help individuals without a Social Security Number to comply with the U.S. tax laws. This ID number allows for efficient tax processing and payments for those ineligible for Social Security Numbers from the Social Security Administration.
Injured spouse exception *
A taxpayer is considered an injured spouse if they filed a joint tax return and their share of the refund is expected to be applied against their spouse's child and/or spousal support payments, past-due federal debts or state taxes. When a joint return is filed the tax ID number for the spouse with the liability can trigger an offset affecting the entire refund. The taxpayer who feels they may qualify for an injured spouse allocation must apply for the exception immediately upon awareness of the obligation and file a federal form 8379.
Innocent-spouse rules *
Not to be confused with the above injured spouse exception, this rule is designed to protect married or recently divorced taxpayers from wrongfully incurred tax liabilities due to evasive or dishonest financial behavior conducted by their spouse or former spouse who they filed jointly with. It is the responsibility of the innocent spouse to prove that the error or fraud was committed by the other spouse using the appropriate documentation. The innocent spouse also needs to prove that they were unaware of any fraudulent activity. The innocent spouse must also apply for relief (form 8857) within two years after the date that the IRS has begun the collection process.
This term is used for the taxpayer who is unable to pay their tax debt because their obligation exceeds their total assets.
Installment sale *
An extension is granted on a purchase made for a gain to future regulated annual payments in the successive tax years. The first loan payment must be scheduled immediately after the close of the tax year in which the purchase was made.
Intangible property *
Also referred to as "incorporeal property," these are items of valuable worth that are not physical in nature but their ownership may be purchased or transferred. Some examples of these items are copyrights, patents, trademarks, computer software and goodwill.
Interest is basically a charge for borrowing money, usually a percentage of the amount borrowed. If you deposited money in a savings account or purchased a T-bill or savings bond, you were actually lending your bank or Uncle Sam some money, and you probably received interest in return. Interest income is taxable and needs to be reported as ordinary income.
Internal Revenue Service (IRS)
Established in 1862 by President Lincoln, the Internal Revenue Service is a government agency that is responsible for collecting taxes and the administration of the internal revenue tax code. Under the department of treasury of the United States federal government, IRS is a revenue service wing that has also overseen various benefit programs.
This is a compiled list of the raw materials, property, goods, or the freight inside of a store that a taxpayer has purchased and makes available to consumers for resale.
This term refers to compensation that the taxpayer has earned from profitable investments, usually in the form of interest, dividends, capital gain net income or rent.
This is interest that has accumulated on debt for an equity that generates income. An example of this would be interest incurred on a loan to purchase property.
IRA payouts for first-time homebuyers
There is a 10 % penalty that is imposed on the amount that is withdrawn from a traditional IRA by taxpayers under the age of 59 years and six months. However, if the money withdrawn from the IRA is used by the taxpayer to buy a first home for themselves or to buy the first home of a qualified family member then the penalty is waived up to the amount of $10,000.
IRA withdrawals for education
If a taxpayer makes an early withdrawal (under the age of 59.5 years) from a traditional IRA in order to pay higher education expenses, then the 10% penalty is not imposed at all. The amount withdrawn for their continued education will be subject to taxation.
When a taxpayer uses the tax software of an Authorized e-file provider, such as ezTaxReturn, in order to submit a tax return via the internet. E-filing gives U.S. taxpayers the edge of getting their refunds much faster as compared to filing a request on paper. Especially if e-file is used and then direct deposit is chosen to receive the refund. E-filing, also referred to as efiling, is not only a faster way to do your taxes and receive your refund but it is also a more accurate and secure process.
Also known as "job-related continuing education and training" and "work-related education." This is education that is required for a current trade or business in order to maintain present and ongoing employment. The expenses incurred by the taxpayer for this education is tax deductible. Various courses that involve improving skill sets or personal development may also be qualified as deductible.
Consult Moving expenses.
Jock tax *
This is a state and local income tax that is required of traveling professionals who are required to work in multiple states, especially athletes and musicians. These taxes are erratic in their enforcement and can impose an unrealistic burden upon the professionals involved.
This is a filing status on a U.S. income tax return that is provided for the benefit of a married couple who prefer to file with a combined tax obligation. When this status is checked then the two people filing will not be charged individually and their united income will be viewed as a whole. This is a status that applies to married couples who are living together, couples who are separated but not divorced, also to widowers that did not yet re-marry.
Joint return test
The joint return test is one of the dependency tests that is administered by the IRS. The purpose of the test is to ensure that the qualifying taxpayer being claimed by another qualifying taxpayer is accurate and whether or not the couple filing qualify to file a joint return. This is to establish that neither of the two individuals filing jointly be claimed as a dependent on any other tax return. There are a couple of exceptions to this qualification.
Jury duty pay repaid to employer
When you serve jury duty, you usually get paid, and this income is taxable. If you are getting paid by your employer for the time you are out, your employer may require you to pay him or her the income you received as jury duty pay.
Keogh plan *
This is a tax deferred retirement plan that is available to self-employed individuals such as entrepreneurs and business holders, that is usually set up as a defined-contribution plan but can also be a defined-benefit plan. This could also be known as an "H.R. 10 plan."
Kiddie cards *
Also known as "TINs for tots," and "Enumeration program," refers to cards issued to children that are being claimed as dependents due to the fact that U.S. taxpayers need a social security number for all dependents being claimed over the age of 5 years. The numbers issued on the cards are to be used by the parents of the claimed child when filing their return. In the scenario where a dependent child is born near the end of the year and the Social Security number has not been received by the parent(s), IRS rules dictate that the taxpaying parents should delay filing and request an extension. Their tax bill will be hiked if you do not put in a number of the claimed dependent and this is enforced to halt the claiming of fake dependents.
Kiddie tax *
This is a tax that is imposed on the unearned investment income of a child that exceeds $2,300 during the tax year.
Letter of determination
Members of the U.S. Armed Forces who have been honorably discharged or separated from active duty due to medical reasons and receive severance payments will be taxed on their payments as wages unless there is a letter of determination sent from Veterans Affairs (VA) stating that the veteran qualifies for their severance pay due to their medical disability. If there is a letter of determination then the severance pay will not be subject to taxation.
The enforcement or collecting on an amount owed. In the case of taxation, to charge a tax on an item.
Lifetime learning credit
Consult College credits.
Like-kind exchange *
Also known as a "1031 exchange," this is a transaction which can be the tax deferred exchange of a real estate investment property for a similar one or even one comparable business entity for another. As long as similar assets are involved in the exchange (or exchanges) with various considerations met and a form 8824 has been filed with the IRS then any tax on the profit will be deferred until consequent property is sold.
Like-kind property *
Property that is similar in its characteristic to another property. Their similar feature is their nature and not their relative quality. If they are considered to be the same type, such as two vacant land plots or two pieces of residential real estate then the grade or quality of the property is irrelevant.
Limited Liability Company (LLC) *
This is a United States-specific non-complex flexible business structure that allows pass-through taxes like a partnership, liability limited to the business entity itself not the owners or investors, and legal protection for personal assets, all in the form of a private limited company. Rules in Regulations section 301.7701-3 are to be applied in the case of an LLC being classified for federal income tax purposes as a corporation, a partnership, or as any entity disregarded as one separate from the owner.
Limited Liability Partnership (LLP) *
This is a business model that has more than one owner but unlike a General Partnership it offers its owners limited personal liability for the debts of the business entity according to state limited liability partnership laws. Each individual is responsible for their own debts, acts and omissions, not for the LLP or anyone else.
Limited partnership *
Unfortunately, we are not able to support Schedule K-1, or the accompanying form 1065, because ezTaxReturn.com does not support limited partnerships.
Also known as "exchange-traded options," this is an option that can be bought or sold on a qualified registered board/exchange with their own exercise prices and expiration dates which are subjected to varying exchange rules and terms.
Listed property *
A property which is depreciable in nature and is placed on a list for scrutiny for the IRS, by Congress. These things include all items which you intermingle in usage with personal and business use like a car, telephone, computer, etc. However if the item is solely designated for either business or personal use, it is not listed in the "Listed property". If business use is under 50 percent, the item is not under scrutiny.
Long-term care insurance premium
Long-term care insurance is a way to help finance long-term care which is the type of care one needs when they can no longer perform everyday tasks. Long-term care can span many years and become very expensive quickly. The amount of money paid for this kind of insurance is called a premium. The taxpayer can deduct the premiums paid for long term care insurance as a medical expense with the amount of annual deduction depending upon their age.
Long-term gain or loss
Consult Capital gain or Capital loss.
This is a one-time payment made from the entirety of a plan participant's balance from their employer's qualified plan such as a pension, stock bonus or profit-sharing plans. However, some prerequisites must be met to be eligible as a lump sum distribution.
Luxury car rules *
Many vehicles used by U.S. taxpayers fit into this category. There are rules and restrictions pertaining to cars, trucks and vans used for business purposes that permit annual depreciation deductions.
This is the Modified Accelerated Cost Recovery System which is the current method that is used to calculate a taxpayer's depreciation deduction in the U.S. The capitalized cost of tangible assets is recovered over a specified asset life span by annual deductions accounting for the depreciation. This system allows for greater accelerated depreciation over longer periods of time.
Consult Investment interest.
Marginal tax rate
The marginal tax rate is the defined amount of tax that is imposed on a taxpayer according to their particular income level and filing status with the goal of creating a tax system that treats tax payers fairly based upon their level of earnings.
This is a tax law that allows one spouse to transfer ownership of an asset over to the other spouse with either a reduced tax or even no tax imposed upon the transfer.
Marked to market rule
Utilizing this rule adjusts the value of a security to mirror the current market value as opposed to the purchase price or book value.
This is the difference in value between the stated redemption at maturity pricing of a bond (selling value) compared to its purchase price. This difference impacts the taxpayer because their tax obligation can differ significantly based upon when the bond was sold and whether or not the bond is taxable.
Married filing jointly
This is the filing status used by a couple who are lawfully declared married before the end of the tax year and choose to pool their income and report it on a single tax return so that they can enjoy different tax benefits like joint credits and deductions.
Married filing separately
This is a filing status for those married couples who prefer to keep separate accounts and then go on to file separate tax returns.
Master Limited Partnerships (MLP) *
This is a type of limited partnership that has nearly all (90%) of its cash flow acquired from the public trading of real estate, natural resources and commodities. This particular type of partnership combines the tax advantages of a limited partnership with the liquidity of a publicly traded company. The income from this type of partnership is considered investment income rather than passive income, but the losses are considered passive.
This is a tax law used to determine the difference between a passive investment in a business or being physically active in a business. A taxpayer must pass one of seven material participation tests in order to identify the amount of their participation in either a business enterprise or a trade during the tax year. If the taxpayer materially devoted an excess of 500 hours, then they would qualify as having non-passive losses to report.
Medical Savings Account (Archer)
This is a tax-exempted health savings account developed for the self-employed and the employees of a small business in order to put aside money in the event of unforeseen medical costs. A tax deduction may be claimed for the contributions the taxpayer has made into this type of an account.
Medical savings account (MSA)
Tax-exempt accounts used to pay or reimburse certain medical expenses you incur.
You must be an employee of a small employer or be self-employed. You (or your spouse) must be covered under a high deductible health plan (HDHP) and have no other coverage except permitted coverage. You must be an eligible individual on the first day of a month to take an Archer MSA deduction for that month (to be eligible for that month).
Medical severance pay
This is also known as "Disability Severance Pay," and is available to those service members of the military who are discharged due to medical reasons. Depending upon the type of discharge they may or may not be entitled to the disability pay benefit.
This is a payroll tax imposed at a flat rate upon wages, salaries, business or farming income that has been earned by the self-employed. The current flat rate is 2.9% of which, usually the employer pays 1.45% and the taxpayer has the other 1.45% deducted automatically from their paycheck. Self-employed taxpayers are responsible for the entire rate. This is a portion of the combination of the Medicare Tax and the Social Security that pays for one's Medicare.
Member of household test
This is a dependency test which requires that the dependent being claimed by the taxpayer lived with them for the entire tax year and is related in one of multiple qualifying ways such as biological child, foster child, stepchild, adopted child, grandchild, niece, nephew, sibling, etcetera.
Mid-month convention *
This is a tax rule that treats depreciable property as if it were placed into service in the middle of the month that it was first made available to be put into use so that depreciation can be recorded for half of the month.
Mid-quarter convention *
This is a tax rule that only applies to businesses who have purchased more than 40% of their depreciable assets during the last quarter of the tax year (the last three months). Utilizing this tax rule, the deduction would then be lower than the normally used "half-year convention" principle.
Consult Standard mileage rate.
Modified Adjusted Gross Income (MAGI) *
This is the Adjusted Gross Income of the taxpayer's household which is then modified by including more deductions such as education expenses, rental losses, IRA contributions, passive income or passive losses which can greatly impact their overall tax return.
This is the fixed or adjustable rate of interest that is charged in addition to the principle on a mortgage. Taxpayers can use this interest as a major itemized deduction on their tax return.
These are expenses that are incurred when a taxpayer and their family needs to relocate for a new job or there is a transfer of location for their current position which also requires them to move. If the circumstances of these expenses qualify as acceptable prerequisites, then they may be tax deductible. Beginning in 2018, this deduction is only available to members of the military who are on active duty.
This is when multiple taxpayers agree to provide joint support for the same single dependent. This type of agreement will then allow the taxpayers to exchange the right to claim this dependent on their tax returns during different tax years.
Nanny tax *
Consult Household employee.
Net capital gain
This is when the taxpayer, over the course of the year, has a larger amount of net long-term capital gain compared to the amount of their net short-term capital loss.
Net investment income
This is when a taxpayer receives income during the year from investment assets such as stocks, bonds, mutual funds and loans which can then subject the taxpayer to the 3.8 percent Net Income Investment Tax depending upon their levels of income.
Net Operating Losses (NOL) *
This is when a company has acquired more expenses than revenue during the tax period leading to more tax deductions over a negative taxable income referred to as a "Net Operating Loss."
The individual that a taxpayer can designate to receive a distribution of interest income on behalf of their name.
Nonbusiness bad debt *
This is a debt that has been incurred outside of your business or trade dealings and is in no way connected to the business or trade. This type of debt is only deductible as a short-term capital loss.
Nondeductible traditional IRA contributions *
This is when a traditional IRA has been funded by the contributions of after-tax dollars. A taxpayer who contributes to a non-deductible IRA is required to keep a record of their tax basis in order to properly determine the taxes to be imposed upon any of their IRA withdrawals.
Nonequity option *
This is an agreement between a buyer and seller that involves an agreed upon price and date but pertains to physical commodities or anything other than a common stock, such as fixed income securities, real estate or currencies. Debt options, commodity futures options, currency options and broad-based stock index options are termed as an equity option.
Non passive income is what a taxpayer earns when they physically participate in the activity. Basically, this includes any type of income, such as earnings from salaries, wages, commissions and dividends, along with the annuities or royalties.
Nonqualified Deferred Compensation (NQDC)
This term refers to a type of agreement that is elective or non-elective between the employee and the employer regarding the subject of the paying of compensation to the employee or independent contractor at a specified time in the future.
A Non-Refundable Tax Credit is a tax credit that can only reduce the amount of tax owed to zero.
It is a tax credit which is applied to the amount of tax owed by the taxpayer after all deductions are made from his or her taxable income and will not result in the taxpayer receiving a refund based on this particular credit.
As a simplified example, if you end up with a tax burden of $500 and you have a non-refundable credit of $600, this would result in no tax owed, but you would also not get a refund. If the same situation had a refundable credit instead, you would end up with a $100 refund.
If your tax liability is reduced to $0 before a non-refundable credit is calculated, then you would not receive that credit since it would have no effect on your tax liability.
Nonresidential real property
This refers to most fixed property which involves the land and the buildings on it but not residential rental property.
Nontaxable income can include child support, public assistance benefits, veteran benefits, gifts, inheritances, property settlements, court awards, insurance proceeds, or workers' compensation.
Although this income is not taxable on your federal return, it should be reported, may be taxable on your state return, and may be required for the calculation of other credits and deductions.
Consult IRS e-file.
Online tax preparation
Also consult IRS e-file.
Options dealer *
Also known as a "market maker" or "specialist," this is an individual who is registered with a relevant national securities exchange and is different from a "trader" because buying and selling securities is part of their regular business dealings. A dealer is also different than a "broker" because they act as a principal in trading for its own account unlike a broker acting as an agent in executing orders for their clients.
Dividends are payments made by a corporation or mutual fund to its shareholders. If you own stock or shares in a mutual fund, you may have received ordinary dividends.
Original Issue Discount (OID) *
This is a bond that has been issued at a price that is below face value. These types of discounts are regarded to be a type of interest so tax matters can quickly become convoluted. When these bonds are given discounts, some part of it must be reported as taxable interest income.
Out-of-pocket charitable contributions
These are reasonable expenses that are incurred when performing volunteer work for a qualified charitable organization that provides an actual benefit to the organization. These expenses must be substantiated as a contribution and clearly show a connection to the charitable organization such as the incidental expenses of phone bills, stamps, stationery, gas and oil incurred in the volunteer work.
A type of business entity that is owned and/or operated by two or more individuals. The partners enter into an agreement relationship to share and invest their capitals in terms of material inputs like, money, labor, property etc. Therefore the profits from the business is then also divided accordingly.
Passive activity *
This is one of two types of passive activity. One is where the taxpayer does not engage physically or materially in any activity within a trade or business. The other involves passive activity in rental activities, even if the taxpayer physically participated (not applicable to real estate professionals).
Passive Activity Loss (PAL) *
This is an economic loss that happens within an investment placed into a trade or business and the investment was made by an individual who does not engage in any physical or material activity within the organization.
Passive income *
Regularly scheduled income payments that are received without any sustained effort or physical activity (consult passive activity).
Passive-loss rules *
These are a set of guidelines that were created in order to prevent the use of passive losses as an offset against earned or ordinary income. These rules are contingent upon the physical or material participation of the taxpayer who is claiming the financial loss.
A retirement instrument offered by an employer that promises to pay a specified amount to individuals who retire after a set number of years of service.
This is the Latin phrase meaning "by the day," and refers to payments made to employees on a daily basis usually as a reference for reimbursement or to calculate expenses.
Period of stay *
In order for a taxpayer to qualify for the foreign earned income exclusion, they are required to prove the length of time that they resided in the foreign country.
This is the personal nondeductible interest that taxpayers must pay on all personal and consumer loans such as credit cards, car loans and life insurance.
This refers to all moveable types of property as opposed to real estate property such as building structures or land. Personal property includes items like mechanical machinery, office equipment and wooden or metallic furniture.
Personal property tax
Personal property taxes are taxes paid on movable items (boat or car, for example) and not immovable items (like a house or barn).
You may deduct taxes paid on personal property as long as the tax you paid was based on the value of your property alone and as long as the tax is charged on a yearly basis.
An example is the annual fee for car registration; you would deduct only the part of the fee based on the car's value.
Note: Taxes on immovable items are considered "real estate taxes" and are entered separately from person property taxes.
A phase out refers to the gradual reduction of a tax credit that a taxpayer is eligible for as their income approaches the upper limit to qualify for that credit. An example of this is when the Modified Adjusted Gross Income (MAGI) exceeds a particular level of income, then the sum of credit or the deductions allowable are progressively reduced as a phase-out.
Physical presence test *
For this test, a taxpayer needs to be materially and physically present in the residence of a foreign country in order to qualify for the foreign earned income exclusion. The taxpayer must have resided in the residence abroad for a time period of at least 330 full days during the course of the tax year.
This is the acronym for a Personal Identification Number. These are usually assigned numbers used to authenticate a user into a system that provides access to the confidential information of the user.
Placed in service *
In order to accurately determine depreciation on an asset the owner of the asset needs to document the start and end dates of its service use. The term "Placed in service" is a reference to the start date. The date of purchase may be used but it is not always the same date as when the asset was put to use. The asset is something that is available for some particular purpose that may be utilized in a business or trade providing value to the organization in the production of income.
These are also known as "origination points," "mortgage points," or "discount points," and references the paying of the closing mortgage fees in exchange for a reduced interest rate in the obtaining of a home mortgage. This is a common home mortgage practice in the United States. These points are generally formulated as being equal to 1 % of the total value of the mortgage amount. Payments made for these points are usually tax deductible.
This is one of the three main categories of income. Active, passive and portfolio income. Portfolio income is earned from investments, dividends, interest, royalties and capital gains not passive investments or normal business activity.
This is an advanced level of education. In the United States this refers to any education continued after graduating from high school such as institutions that offer Certification, Associate's degrees, Bachelor's degrees, Master's degrees or more.
These are items with rules applied to them that are constructed to ensure that high-income taxpayers cannot use their participation in specific enterprises for the purpose of avoiding paying more income tax. These are usually types of tax-free income that may trigger the alternative minimum tax such as private-activity municipal-bond interests, qualifying exclusions for small business stock or other intangible expenses declared by the taxpayer. If the amount seems excessive then these preference items will be added to the amount of AMT income and incur the additional flat rate.
Generally, the amounts an individual withdraws from an IRA or retirement plan before reaching age 59½ are called "early" or "premature" distributions. Individuals must pay an additional 10% early withdrawal tax unless an exception applies.
This is an option to help publicly fund the federal Presidential election. This was formulated to lessen the burden of the candidate by minimizing his/her dependence on big contributions. It makes him/her stand on firm grounds in the general elections. By checking the Yes box, you donate $3 to this fund.
Presidential election campaign fund
This is an option to help publicly fund the federal Presidential election. This was formulated to lessen the burden of the candidate by minimizing his dependence on big contributions. It makes him stand on firm grounds in the general elections. By checking the Yes box, you donate $3 to this fund.
Private activity bond
This is a bond that is distributed for the advantage of the local or state government with the intention of generating an investment into the enterprise of a private user.
Prizes and awards
Generally, if a taxpayer manages to win a lottery or has been given a prize or award, a tax is then imposed on it. A non-cash employee award may be presented for recognition, retirement or length of service and a non-cash gift for sympathy, participation or an accomplishment may qualify as tax exempt depending upon the type of gift and the value of the gift.
Property class *
For the determination of depreciation calculations and rates, recovery duration and convention, this category for property under MACRS is usually referenced.
Consult Real estate taxes.
Publicly Traded Partnership (PTP) *
This is also known as "master limited partnerships or MLP," and is a limited partnership. It can be run by multiple general partners or corporations. The partners provide the capital to fund the business entity but play no role in the management of it.
This is an option that facilitates the purchaser in way that he can sell the property or stock shares before a specified date or time.
These are the dividends which meet the criteria to qualify for a lower long-term capital gains tax rate as opposed to the higher rate which is applied to the taxpayers' ordinary income.
Qualified education expenses
These are the costs incurred by the taxpayer in order to further their education by attending classes at an eligible educational institution earning credits toward a degree program. Some of these costs, such as tuition and enrollment fees may be claimed on a tax return to qualify for a credit. Below is a list of ways that a taxpayer may qualify for the expenses to be claimed.
- American opportunity credit. Tuition, student activity fees, books and supplies may be claimed.
- Coverdell Education Savings Account (ESA). Enrollment, contributions to qualified tuition program and some specialized expenses may be claimed.
- Education savings bond program. Enrollment, contributions to qualified tuition program and some specialized expenses may be claimed.
- IRA, early distributions from. Tuition, student activity fees, books, supplies, special needs services and even limited room and board may be claimed.
- Lifetime learning credit. Tuition, student activity fees, books and supplies may be claimed.
- Qualified Tuition Program (QTP). Tuition, student activity fees, books, supplies, special needs services and even limited room and board may be claimed.
- Scholarships and fellowships. Tuition, student activity fees, books and supplies may be claimed.
- Student loan interest deduction. This includes the total amount of a student's expenditures while attending an accredited and recognized educational institute. This may even include limited room and board.
Qualified Performing Artist (QPA)
In the U.S., a qualified performing artist is eligible to deduct various job-related expenses. Some general details are listed below as to the requirements as a qualifying performing artist: Have been an employee in the performing arts industry and worked for more than two employers. Have received from at least two employers wages of $200 or more per employer. Spent over 10% of their gross income attributable to the performing arts industry. Have adjusted gross income of $16,000 or less before expenses.
This is a plan which meets the IRS' requirements designed to protect and conserve an employee's interests; a pension plan, profit sharing plan or other plan for the benefit of the employee.
A taxpayer claiming a dependent for tax purposes needs to ensure that the child fulfills the IRS requirements as a qualifying child. To fulfill these requirements the child needs to satisfy multiple tests and additional rules such as relationship, residence, age, support, nationality and filing status. Some general details are listed below.
- Child by blood or adoption, stepchild, foster child, sibling, stepsibling, or even a descendant of these.
- Same residence as taxpayer for more than 6 months with exceptions.
- At years end, they must be under 19 years of age or 24 years of age for full-time student.
- Did not provide more than half of their own support.
- U.S. citizen.
For a person to be qualified as a relative for tax purposes, they must meet the IRS requirements in order to qualify as a dependent. They do not necessarily need to be a blood relative. To fulfill these requirements the individual needs to satisfy multiple tests such as relationship, residence, gross income, support and filing status.
Qualifying Surviving Spouse with dependent child
If your spouse passes away, and you have a dependent child who lives with you all year, you may be able to file as a qualifying surviving spouse with dependent child. You can use this filing status for the two tax years after the death of your spouse. In most cases, if you file as a Qualifying Surviving Spouse you will pay less in taxes than you would if you filed as Single or Head of Household.
Railroad Retirement Benefits (RRBs) *
Unfortunately, we do not support any Form RRB-1099 for railroad retirement benefits.
Real Estate Mortgage Investment Conduit (REMIC) *
ezTaxReturn.com supports the sale of land providing there is no partnership, S Corp, real estate mortgage investment conduit, estate or trust involved in the sale.
We do support capital gains and losses.
Real estate professional
You were a real estate professional for the year only if you met both of the following conditions:
- More than half of the personal services you performed in trades or businesses during the year were performed in real property trades or businesses in which you materially participated.
- You performed more than 750 hours of services during the year in real property trades or businesses in which you materially participated.
Real estate taxes
Real estate taxes (not property taxes) are taxes paid on immovable items such as land and buildings (a house, for example).
You may deduct taxes you paid on real estate you own that was not used for business.
Example: Home ownership real estate taxes
Note: Taxes on movable property (such as a car or boat) are considered "property taxes" and are entered separately from real estate taxes.
What qualifies is anything considered immovable, attached to the land, part of the land or even the land itself.
This is the result of an activity that requires the taxpayer to include a deduction or a credit from the return of a previous year and add it back to their current income.
Recovery period *
Recovery period refers to the number of the years, over which the value or cost of property is recovered through depreciation.
A refundable tax credit is a tax credit that is not limited by the amount of an individual's tax liability.
Typically a tax credit only reduces an individual's tax liability to zero.
Refundable credits go beyond this and result in a tax refund. They can essentially be considered the same as a tax payment. In other words, you'll still get the credit even if you don't owe any tax.
This is the most common of the three methods that are used to calculate a taxpayer's net earnings from their self-employment.
This is part of a U.S. employer-funded health benefit plan that works as a plan to reimburse employees for out-of-pocket medical expenses and may also be known as a "flexible spending account" or a "salary reduction plan."
This is another one of the dependency tests that is used to qualify whether or not a child can be claimed as a dependent by a taxpayer. The child would need to be the taxpayers' biological child or sibling, a blood relative, stepchild, foster child, half-brother or half-sister, stepbrother, stepsister, or a descendant from any of the previously mentioned.
An individual that is in some way connected to the taxpayer by way of blood, marriage or even adoption. This could be a qualifying descendant, child, grandchild, sibling, spouse, parent, step-parent, half-brother, half-sister, or even an in-law.
Remainder interest *
Following the proper dissolution of an estate trust there may be a remainder interest which may exist in order to meet the future needs of the estate.
A property that is being accurately utilized by a qualified business entity strictly for business purposes under agreement for rental payments that are reasonable but accrue no right to ownership or equity can incur costs to the organization that can be used as a tax deduction. These deductions are the expenses that are invested in the rent as well as maintenance costs of the rented property.
The total amount of money collected by the taxpayer acting as a landlord from a tenant or group of tenants occupying the rented area over the course of the tax year.
Resident alien *
A permanent resident in the country they currently reside in who is not yet a citizen of that country. In the U.S., this individual must possess a green card which serves as proof of their immigration process and pass the Substantial Presence Test.
Restricted stock *
Also known as "letter stock" or "restricted securities," this is defined as the stock a taxpayer usually has obtained for the sake of the services rendered. It is non-transferable in nature and viable to the risk of confiscation by the state or governing body unless specified conditions have been met by the taxpayer.
Retirement saver's credit
Also known as "Saver's Tax Credit" or "Retirement Savings Contribution Credit," this is a non-refundable tax credit that was designed to encourage low income workers to save for their retirement by contributing to a qualified retirement savings plan. The amount of this particular credit can vary based upon the adjusted gross income of the taxpayer and the size of their contribution. This credit phases out as income rises. Ineligible people include taxpayers under 18 years of age, full-time students and those claimed as a dependent on their parent's returns.
When a taxpayer needs to move the funds from one retirement savings plan into a different retirement savings plan without any tax penalties, this is referred to as a "rollover." The transfer distribution and the contribution both need to be reported and rollovers may be limited to one per tax year. The complete transfer process must be completed within the time period of 60 days.
This is another type of employer-sponsored retirement savings plan that was created for people who may be in a higher tax bracket in retirement by combining the features of the Roth IRA and a traditional 401k plan. This plan is funded with after-tax money but does not restrict high-income investors.
This is an individual retirement savings plan that is very similar to the traditional IRA. This plan allows an individual to set aside specified annual income contributions that are not tax deductible. However, earnings and qualified distributions after the age of 59.5 are tax-free.
S Corporation *
ezTaxReturn.com supports the sale of land providing there is no partnership, S Corp, real estate mortgage investment conduit, estate or trust involved in the sale.
We do support capital gains and losses.
This is an agreed upon form of fixed, regular payments (usually weekly or biweekly) from an employer to an employee which may be specified in an employment contract as expressed as an annual amount.
Salary reduction plan
Consult Reimbursement account.
This is an indirect tax that is imposed on the purchase of goods and services. Also referred to as a "consumption tax" the amount of tax levied is defined by the laws of that particular jurisdiction of the government. It's collected by the retailer and passed on to the government.
Salvage value *
This is the estimated residual or resale value of a depreciable asset/property at the end of its economical or useful life to be used as a component of the depreciation computation.
Consult Retirement saver's credit.
Scholarships and Fellowships
Scholarships are awards of financial aid awarded to students to further their education. These awards based upon various criteria, which usually reflect the values and purposes of the donor or founder of the award. Fellowships are an amount that is paid out in the form of a grant to an individual for the purpose of continuing studies or research. These are usually short term opportunities lasting from a few months to several years. Fellowships are sponsored by a specific association or organization seeking to expand leadership in their field. Some or all of your scholarship or fellowship grant may be taxable
Securities futures contract *
A security futures contract is a legally binding agreement between two parties to buy or sell a specific quantity of shares of an individual stock or a narrow-based security index at a specified price, on a specified date in the future.
Self-employed health insurance premiums
The self-employed health insurance allows a person to reduce his/her Adjusted Gross Income by the amount they pay in premiums on medical insurance, dental insurance, and qualified long-term care insurance for them self, their spouse, and their dependents.
If you are in business for yourself, or carry on a trade or business as a sole proprietor or an independent contractor, you generally would consider yourself a self-employed individual. You are an independent contractor if the person for whom you perform services has only the right to control or direct the result of your work, not what will be done or how it will be done.
Self-Employment Contracts Act (SECA) *
A form of taxes that self-employed business owners must pay based on their net earnings from self-employment in order to cover their own Social Security, Medicare, and Old Age Survivors and Disability Insurance (OASDI) costs.
Taxable income earned from self-employment. Self-employed persons are those who act as independent contractors, sole proprietors or members of a partnership or limited liability company that would file a 1065 Form. Self-employed individuals are required to file an annual return and pay estimated tax on a quarterly basis. These individuals must pay self-employment tax and income tax.
Individuals who work for themselves are required to pay a self-employment tax. The rate is 15.3 percent and is split between Social Security and Medicare taxes. Social Security takes 12.4 percent and Medicare takes 2.9 percent.
This is a real estate agreement that can be used when the buyer does not qualify for a traditional mortgage. As the term suggests, the seller of the home becomes the lender for the financing. Instead of utilizing a lending institution, the buyer and the seller enter into terms agreed upon where the buyer makes monthly payments to the seller. This type of agreement is also referred to as a "purchase-money mortgage."
Short sale *
A short sale is a sale of real estate in which the proceeds from selling the property will fall short of the balance of debts secured by liens against the property, and the property owner cannot afford to repay the liens' full amount and where the lien holders agree to release their lien upon the real estate.
Short term gains and losses
Consult Capital gain and Capital loss.
A SIMPLE IRA plan (Savings Incentive Match Plan for Employees) allows employees and employers to contribute to traditional IRAs set up for employees. It is ideally suited as a start-up retirement savings plan for small employers not currently sponsoring a retirement plan.
This is sometimes called a "408 Plan".
Simplified Employee Pension (SEP)
It is a retirement arrangement of the individual and it is adopted by the business owners in order to provide the retirement benefits for their employees and themselves. There are no additional costs for the person who has no employees and is self-employed and the contributions made are usually tax deductible.
Sin Tax *
This is a state-sponsored tax that is imposed to discourage the activities or the use of items that are considered dangerous, harmful or just un-necessary such as gambling, alcohol, tobacco, candies, soft drinks or drugs.
The IRS considers you to be single for the full year only if any of the following was true on December 31 of the tax season:
- You were never married.
- You were married, but got legally separated through a legal divorce or decree of separation maintenance.
- You were widowed before January 1, of the tax year you are filing and did not remarry in that year.
Please know you are still considered married until you have legal documents stating your divorce, or a decree of separation. This means that if you were still going through your divorce/separation proceedings on December 31, of the tax year, you were still legally married that year.
Social Security Administration (SSA)
An agency in charge of regulating and adhering to policies related to social security benefits. The agency covers a wide range of social security services, such as disability, retirement and survivors' benefits. It was previously operating under the department of health and human services.
Social Security benefits
If you receive monthly checks from the Social Security Administration, you receive Social Security benefits. Depending upon your filing status and your income level, your Social Security benefits may be partially or fully taxable. All you need to do is enter your total benefits, and we will calculate the taxable portion that needs to be reported on your return.
Social security tax
This is the tax imposed on wages that are earned and is paid by both employers and their workers in the form of payroll taxes or self-employment taxes. The money collected by this tax is utilized in the form of worker contributions gathered as capital to support the operations of the social security program. The social security program works as a financial safety net for older Americans by funding their retirement and disability benefits.
Social security tax, excess withheld
If you had more than one employer and your total wages and compensation were over the wage base limit for the year, the total social security tax or social security equivalent for railroad employers, Tier 1 Railroad Retirement Tax Act (RRTA) tax withheld may have exceeded the maximum amount due for the tax year.
This is another type of individual retirement account that allows the wage-earning spouse to contribute to their unemployed spouse's retirement savings provided they filed jointly. The individual contributing must have an earned income that is equal to or exceeds the total IRA contributions.
The standard deduction amount depends on several factors:
- your filing status,
- whether you are 65 or older or blind, and
- whether you or someone else can claim you as an exemption.
Generally, the standard deduction amounts are adjusted each year for inflation.
Standard deductions for persons 65 or older at the end of the year, blind or partially blind and other special cases should access IRS Publication 501 and 554.
You can only choose the Standard deduction if a filer does not instead choose to itemize deductions.
The IRS provides a calculator at https://www.irs.gov/ita/article/0,,id=219900,00.html . This page can also be found by typing "standard deduction amount" in the search bar at www.IRS.gov.
Standard deduction for a dependent
If you can be claimed as a dependent on another person's tax return, your standard deduction may be limited. For details, please see https://www.irs.gov/publications/p501/ar02.html#enUS2014_publink1000221069
Standard mileage rate
This is a specified rate defined by the IRS which applies to every mile that was driven by the taxpayer for the purposes of employment, charity, medical or relocation. The total of this applied rate may serve as a tax deduction.
Statutory employees may deduct business expenses and thereby reduce their net taxable income reported on Form W-2. If you have business expenses related to this income, you will have to file a Schedule C. This is no problem. Our program will collect all of your business expenses.
Stock options *
Our program does not support stock options.
Also known as a "share", "equity" or "stock," this is a portion in the ownership of a company which represents a claim on the company's assets and earnings and this share of value can be traded, purchased or sold as an personal investment.
An options purchasing strategy with which the investor holds a position in both a call and put with the same strike price and expiration date which allows the investor to make a profit no matter how the pricing changes.
Straight line method *
This is a form of depreciation used to determine the estimated useful life of the asset that results in an equal distribution of depreciation expenses over each year. Divide the estimated useful life (in years) using the number 1 to arrive at the straight-line depreciation rate.
These are the parts that are compiled by the building designer which together result in the framework of a building structure. These components are essential parts integrated into the permanent building structural system serving a passive function such as walls, partitions, floors, ceilings, tiling, paneling, windows, doors, sinks, bathtubs, wiring and HVAC.
Student loan interest deduction
You may be able to deduct the interest you pay on a qualified student loan. The deduction is claimed as an adjustment to income so you do not need to itemize your deductions. For more information, see IRS Publication 970.
Supplemental Security Income (SSI)
This is a government program funded by the U.S. Treasury and overseen by the Social Security Administration which grants allowances to qualified low-income U.S. taxpayers with limited resources who may be elderly, blind or disabled.
Also known as "Child Support," this consists of the monetary award order made by the court according to the terms finalized in the divorce decree. Generally, these monetary payments are made by the noncustodial parent to the parent with the custody until the child reaches the age of majority.
Tangible property *
Also known as "Tangible personal property," this refers to property which occupies physical space and can be perceived. From a tax perspective, this is property that can be relocated unlike land or a permanent building structure which are referred to as "real property." Examples of tangible personal property could be vehicles, office fixtures, jewelry, toys and sports equipment.
Basically, this is a scope of income levels that are taxed at a specified, given rate per each range. For example, individuals earning higher income levels will be taxed at a higher rate than individuals who earn lower income levels. These brackets provide cessation points for clear illustration to individual taxpayers for the tax rate they're required to pay for their portions of income.
This is a reduction in a taxpayer's taxable income which is usually brought about by the issue of expenses especially in the form of costs incurred to earn additional income. Tax authorities allow tax deductions to be removed from the taxpayer's adjusted gross income before calculating their overall tax liability.
This refers to a status being applied to an individual or entity which grants them the privilege of being entirely excused from the liability of taxation by regulators or government entities.
Tax exempt interest
Not all interest income is taxable. If you own bonds issued by a state or local government (these are called municipal bonds), this interest income is not taxed at the federal level (but may be taxable in your state).
Consult Cancelled debt.
This is the location or the general vicinity where the taxpayer conducts their regular business activities which can impact their travel deductions. This is not to be confused with the taxpayer's place of residence.
Tax liability (tax bill)
This is the total amount of taxes that a taxpayer or an entity is legally obligated to pay according to their finalized tax return based upon their income and withholdings or as the result of a taxable event.
Tax preference item
Consult Preference item.
This is a process of a taxpayer or an entity fulfilling their tax obligation by collecting all the required information and submitting this information to the IRS in the form of a tax return. The process is the preparation and this can be done by the taxpayer or with the help of tax preparation software and online software as a service. ezTaxReturn is one such software as a service website where the average American tax payer can file their federal and state returns from any device in a safe, secure manner with no math, no forms and no stress.
Money that needs to be remitted by the federal government to a tax payer who has overpaid the IRS by submitting a larger tax payment than what was owed. Tax rebates are calculated during the tax season.
The return of excess amounts of income tax that a taxpayer has paid to the state or federal government throughout the past year. In certain cases, taxpayers may even receive a refund if they owed no taxes, because certain reported tax credits are fully refundable. ezTaxReturn guarantees you will get the biggest possible refund when you file with them.
Tax liabilities are considered and accounted for in a standardized form that is provided by the tax authorities as an annual statement of income. Taxpayers complete the form by reporting their taxable income and the deductibles they're allowed. The tax authorities then use the form to assess the taxpayer's liabilities.
This is a type of computer software that is developed in order to assist business entities or tax paying individuals to prepare for and file their finalized tax returns. It is done without paying any kind of expense to any tax professionals. ezTaxReturn offers software as a service so that there is nothing to install or download.
This is a time period which consists of 12 consecutive calendar months used as an annual accounting period for reporting the income and expenses of taxpayers. In the U.S., the calendar year is reported as beginning January 1st and ending December 31st.
This is money earned and received by the taxpayer usually on a regular basis from their employment or their investments which is calculated to gross income or adjusted gross income less their deductions and exemptions. The final annual amount of income is calculated to figure the tax payer's tax obligation.
Taxes are the amount of money imposed on the persons and entities that are enforced by the government that may be local government, it might be regional or even national government. Taxes are imposed at a specific rate on every entity usually in proportion to the value of the income involved. These taxes are used by the government to fund public works, facilities and services.
The Taxpayer Advocate Service (TAS) is your voice at the IRS. Their job is to ensure that every taxpayer is treated fairly, and that you know and understand your rights. They can offer you free help with IRS problems that you can't resolve on your own.
Temporary assistance for needy families
This is a program that equips needy families with dependent children with a cash benefit to help pay for food, shelter, utilities, and expenses other than healthcare.
Temporary work location
This is when the taxpayer is required to perform services for their employer at a location for a short-term or irregular basis. If the period of their work at this location is less than one year then it is considered a temporary work location. When a taxpayer is assigned to work at one of these locations then they may be able to deduct their travel expenses.
Ten-year averaging *
Consult Forward averaging.
Ten-year forward averaging *
Consult Forward averaging.
Also known as "term structure of interest rates" and "yield curve", this is interest on an income from property that displays curved shapes which illustrate the yields being offered as short-term, medium-term and long-term rates so investors can quickly compare the yields based upon market expectations.
This is basically a commercial loan from a financial institution which works off of a term-loan program that incorporates a floating interest rate with a specified repayment schedule.
The Federal Insurance Contribution Act (FICA)
A payroll tax created to fund Social Security and Medicare imposed upon employers and employees as a provision for retirees and qualified recipients.
If you work in a service profession (i.e. as a waiter, bartender, doorman, etc.), a good portion of your income probably comes from customer tips. As you might imagine, the government expects such tips to be reported as regular taxable income.
Tip income should be included on your W-2 form (boxes 1, 16, and/or 18 for federal, state, and local income respectively) from any such job.
This is usually a small sum of money given as a gratuity to someone who performs a service in addition to their usual employment wage.
This is an individual retirement account which allows taxpayers to save for retirement by contributing after tax or pre-tax dollars, and which allows the savings to grow tax-deferred. It will be treated as the current income with tax obligations when you make withdrawals after retirement age.
Also known as a "trustee-to-trustee transfer," this is a tax-free transaction due to its tax-free nature because the taxpayer never has access to the money. The transfer of retirement assets must be reported on federal income tax forms.
Travel expenses are the ordinary and necessary expenses of traveling away from home for your business, profession, or job. Generally, employees deduct these expenses using Form 2106 (PDF) or Form 2106-EZ (PDF) and on Form 1040, Schedule A. You cannot deduct expenses that are lavish or extravagant or that are for personal purposes.
Also known as a "trust fund," this is comprised of financial assets existing under terms dictated under the relationship between the trustor and the trustee pertaining to the rights granted for ownership and the benefit of the beneficiary as a third party. There can be either a "Living Trust" while the trustor is alive or a "Testamentary Trust" created through the will of a deceased person.
Also known as an "Education Credit," this is a reduction in tax liability granted to qualifying students which is based upon the amount of money spent for the tuition for higher education at a qualifying educational institute.
U.S. savings bonds
U.S. savings bonds are securities issued by the U.S. Department of Treasury. They are a virtually risk free investment offering a fixed rate of interest over a period of time. Since they are government issued, they are not subject to state or local income taxes. These bonds are non-negotiable and cannot be easily transferred.
A method used to determine the gain on a sale without accounting for depreciation.
Under payment of estimated tax penalty *
This is when the IRS determines that there has been a shortage in the tax obligation of a taxpayer and imposes an additional payment amount as a disciplinary measure onto the taxpayer's liability. Usually, the majority of taxpayers avoid this penalty due to the fact that there are many exceptions.
Under payment penalty
This is a tax penalty that is imposed for not paying enough taxes throughout the year, either through withholding or estimated tax payments.
Any income that comes from investments and other sources unrelated to employment services or earned income.
Unit of production method *
This method measures the depreciation of an item based on its productivity rather than the number of years it is in use.
Unrecaptured section 1250 gain *
These are the profits from the sale of a depreciated property. This gain may be taxed at a rate up to 25% the same as the maximum capital-gains rate.
The amount of interest the IRS assumes was paid on a loan, if the interest charged is less than the required minimum rate.
A sales tax applied to purchases made outside of a person's home state. Applies to purchases that would be subject to sales tax had the purchase been made in their state.
Useful life *
An estimate of how long an item is expected to be used to produce income.
This is a place of residence that is not the primary residence of the taxpayer and is usually considered a second home for recreational purposes or even an investment property. The tax deductions will vary greatly depending on the uses of this second home.
This is when a financial benefit is no longer contingent upon any conditions and now belongs to the employee completely and absolutely.
The maximum amount of earnings to which the full social security tax applies. For 2022, the social security wage base is $147,000.
If you have a job and receive regular paychecks based on an hourly rate, you receive wages. At the end of the year, you should receive a Form W-2 summarizing the wages you have earned.
Wash sale *
When an investor sells a security for a loss then repurchases the same or a closely identical security for a good deal.
Money deducted from your wages to pay taxes throughout the year.
Employee claimed exemptions that are used to determine how much taxes their employer needs to deduct from their wages.
Also known as "withholding," this is money that is withheld from an employee's pay by an employer as a requirement from the government and is paid as a portion of the employee's income tax liability.
This is when the market value of a security, such as a stocks and bonds, has reached zero which can result in a tax deduction as an ordinary loss or even a capital loss.
Zombie savings account *
Also known as a "zombie bank account," this is usually a bank account that may have lured customers in with a high interest rate but quickly reduce the rates so that the account is earning almost no interest.
This can also be a closed account that was reopened by the bank. Many banks reserve the right to reopen closed accounts and are not required to notify the customer.
If taxpayers have any issues with anything regarding a zombie account, they should to contact the Consumer Financial Protection Bureau.
These terms and their general explanations have been developed and are provided with the sole intention to educate visitors to our site with their understanding of tax terminology. These are not intended as any kind of tax advice or as a substitute for professional tax consultation. Definitions listed here may differ from other sources. Please seek the assistance of a tax professional who understands your specific needs and your particular circumstances before taking any action that involves your personal information as well as your money, tax situation, investments, or any of your professional, personal or legal matters.
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