What does it mean?

Here are some accounting and tax terms that may interest you:

Abatement- The Internal Revenue Service’s partial or complete elimination or cancellation of taxes, penalties, or interest owed by a taxpayer.

Accelerated Depreciation Method– A depreciation method that provides for a higher depreciation amount in the first year of the asset’s use, followed by a gradually declining amount of depreciation. A method of tax deducting the cost of a business – used asset more quickly than using straight-line depreciation.

Account – An accounting form that is used to record the increases and decreases in each financial statement item.

Accountant – Someone who works with financial data. Often denotes a person with special training, such as a Certified Public Accountant.

Accounting – Process by which financial information about a business is recorded.

Accounts Payable – Money owed by a business to vendors, suppliers, and other creditors; a liability created by a purchase on account.

Accounts receivable – Money owed to a business for goods or services rendered. A business asset.

Accrual Basis of Accounting – Under this basis of accounting, revenues and expenses are reported in the income statement in the period in which they are earned or incurred.
Administrative Expenses (general expenses) – Expenses incurred in the administration or general operations of the business.

Adjusted Gross Income (AGI) – On personal income tax returns, Form 1040, this figure is the result of reducing a taxpayer’s total income by certain adjustments allowed by the tax code, such as a contribution to a traditional IRA (Individual Retirement Account), college tuition fees, interest, etc. From this figure, personal deductions are subtracted to reach at taxable income.

Adjustment – An IRS change, usually by an auditor, to a tax liability reported on a tax return.

Alternative Minimum Tax (AMT) – A federal flat tax on income of individuals or corporations that may apply when a taxpayer claims certain tax benefits that decrease tax liabilities below specified levels. The AMT prevents higher-income taxpayers from getting too many tax benefits.

Amortization – The periodic transfer of the cost of an intangible asset to expense. A tax method of recovering cost of certain assets by taking deductions evenly over time.

Annuity – A series of equal cash flows at fixed intervals.

Appeal – (1) An administrative process allowing taxpayers to contest certain decisions, typically audits, within the IRS. (2) Judicial process for reviewing decisions of lower courts.

Assess – The IRS process of recording a tax liability in the account of a taxpayer.

Assets (business) – The resources owned by a business. (2) Any property with a value and useful life of at least one year that is used in a trade or business. Examples: equipment, machinery, buildings, vehicles, patents, and monies held or owed to a business.

Audit – A review of financial records; an examination of a taxpayer return and supporting documents to determine if tax laws have been violated.

Auditor – An IRS employee who reviews the accuracy of a tax return.

Bad debt (business) – The operating expense incurred because of the failure to collect receivables. (2) Money owed to a business that cannot be collected and can be deducted as an operating expenditure.

Balance Sheet – A list of the assets, liabilities, and owner’s equity as of a specific date, usually at the close of the last day of a month or a year. (2) A statement listing a business’s assets (what it owns), liabilities (what it owes), and net worth (the difference between the assets and liabilities. A balance sheet shows the financial position of a business at a given point in time.

Bankruptcy – A federal law providing a way for individual or business to wipe out certain debts. There are different kinds of bankruptcy. Chapter 11 and 13 bankruptcy allow businesses and individuals to repay debts over time while remaining in operation. Business will likely file Chapter 7 bankruptcy, wherein its assets are distributed to creditors and any remaining debts are canceled.

Bank Reconciliation – The analysis that details the items responsible for the difference between the cash balance reported in the bank statement and the balance of the cash account in the ledger

Bank statement – A summary of all transactions mailed to the depositor or made available online by the bank each month.

Basis (tax basis) – The tax cost of an asset. Basis is adjusted upward by improvement or downward by depreciation. Basis is used to calculate depreciation and amortization deductions and to determine gain or loss on the sale or other disposition of an asset. Basis is normally your purchase price for an item.

Bookkeeper – One who analyses and records financial data in the accounting records of a business and maintains the accounting system.

Books (business) – The collection of records of financial accounting of business activity kept on paper or computer file.

Bond Indenture – The contract between a corporation issuing bonds and the bondholders.

Book Value – The cost of a fixed asset minus accumulated depreciation on the asset.

Boot – The amount a buyer owes a seller when a fixed asset is traded in on similar asset.

Business – An organization in which basis resources (inputs) such as materials and labor, are assembled and processed to provide gods or services (outputs) to customers.

Business License – A permit issued by a local or state governmental agency allowing a business to operate.

Business Combination – A business making an investment in another business by acquiring a controlling share, often greater than 50%, of the outstanding voting stock of another corporation by paying cash or exchanging stock.

Capital expenditures – The costs of acquiring fixed assets, adding to a fixed asset, improving a fixed asset, or extending a fixed asset’s useful life.

Calendar Year Accounting Period – A 12 month period for tax purposes that ends on December 31.

Capital – The investment in a business by its owners

Capital Asset – Any type of property that has a useful life of more than one year, such as a computer or truck used for business.

Cash – Coins, currency (paper money), checks, money orders, and money on deposit that is available for unrestricted withdrawal from banks and other financial institutions.

Cash Basis of Accounting – Under cash basis of accounting, revenues and expenses are reported in the income statement in the period in which cash is received or paid.

Cash Dividend – A cash distribution of earnings by a corporation to its shareholders.

Capitalized Expenditures – An expenditure for a capital asset that must be tax deducted over more than one year, as opposed to an ordinary expense. For example, repairing a broken window expense is an ordinary expense, but remodeling a storefront is an expense that must be capitalized.

Carryovers – Tax laws often limit the ability of a taxpayer to use deductions, losses, and credits in the year incurred. The excess of a tax deduction, loss, or credit over what can be used in a current year is called a carryover, and may be taken in past or future.

Certified Public Accountant (CPA) – The most highly qualified of all accounting professionals. CPAs are licensed by the state and must meet rigorous educational and testing requirements.

Cohan Rule – A federal court decision allowing taxpayers to use reasonable approximations of expenses when records are missing. The cohan rule has its limitations and cannot be used to approximate travel and entertainment business expenses.

Common Stock – A stock outstanding when a corporation has issued only one class of stock.

Constructive Receipt – Income not physically received but treated by the tax code as if it had been because it is accessible to the recipient without qualification.

Copyright – An exclusive right to publish and sell a literary, artistic, or musical composition

Corporation – A state-registered business that is owned by shareholders. The tax code considers all corporations to be taxable entities, called C Corporations, unless the shareholders have elected S status.

Cost of Goods Sold (CGS) – The amount paid by a business for inventory that is sold during a tax year. The formula for determining the CGS is: the beginning inventory plus the cost of purchases during the period, minus the ending inventory at the end of the period. It is also called cost of sales.

Death Benefit – A fringe benefit payment that is tax deductible to a C corporation, within dollar limitations, and not taxable to the recipient.

Deductible Business Expense – An expenditure that is normal and necessary from the business gross receipts.

Deduction – An expense that the IRC allows an individual or business to subtract from its gross income to determine its taxable income.

Deferrals – An asset or liability that is recorded when cash is received or paid that is expected to become a revenue or expense in a later period.

Deferred Compensation – Earned income of an individual that is put into a retirement plan and not taxed until withdrawn, such as a 401(k)

Defined Benefit Plan – A pension plan that promises employees a fixed annual pension benefit at retirement, based on years of service and compensation levels.

Defined Contribution Plan – A pension plan that requires a fixed amount of money to be invested for the employee’s behalf during the employee’s working years.

Deficiency (Tax) –Any difference found by the IRS between a taxpayer’s reported tax liability and the amount of tax the IRS says that the taxpayer should have reported.

Dependent Care Plan – A fringe benefit that can be provided tax free to employees of a business to care for their dependents and is deductible to the business. Some limitations apply.

Depletion –The process of transferring the cost of natural resources to an expense account.

Depreciation – The systematic periodic transfer of the cost of a fixed asset to an expense account during its expected useful life. (2) An annual tax deduction allowed for the loss of value of an asset due to wear over a period of years, such as a business auto or real estate improvement. The amount of the deduction each year depends on which of the depreciation methods allowed in the tax code for the kind of asset is applied.

Depreciation Expense – The portion of the cost of a fixed asset that is recorded as an expense each year of its useful life.

Disallowance (Audit) – An IRS finding at audit that a taxpayer was not entitled to a deduction or other tax benefit claimed on his/her tax return.

Dividend – Corporation earned distributed to shareholders.

Earned Income – Compensation for services rendered, such as wages, commissions, and tips.

Education Benefits – Financial assistance to an employee that is tax-free to the recipient and a tax deductible expense to the business, within tax code limitations.

Employee – A worker under the direction or control of an employer and subject to payroll tax code rules.

Employer Identification Number (EIN) – A 13 digit number assigned to a business by the IRS.

Enrolled Agent (EA) – A type of tax professional permitted to practice before the IRS along with attorneys and CPAs. An EA must demonstrate competence by passing an IRS test or have at least five year’s work experience with the IRS.

Equity –The net worth of a business, equal to its assets minus its liabilities. It is also referred to an owner’s investment in the business.

ERISA (Employees’ Retirement Income Security Act) – A federal law that governs employee benefits, such as retirement and pension plans.

Estate Tax – A tax imposed by the federal government and states (and many states) on the net value of a decedent’s assets.

Estimated Taxes (ES) – Quarterly payments to the IRS (by self-employed) taxpayers for their anticipated income tax liability for the year. Payments should be made on time to avoid penalty that may be imposed by the IRS.

Excise Tax (Federal) – A tax, usually at a flat rate, levied on some business for a certain type of transaction, manufacturing, production, or consumption.

Exemption – An annual deduction amount allowed to a taxpayer and each of his or her dependents on the tax payer’s return.

Expense – A business cost.(2) Assets used up or services consumed in the process of generating revenues.

Fair Market Value – The price a buyer and seller of any kind of property agree on a just, when neither is under any compulsion to buy or sell.

Family Limited Partnership – A business that is a limited partnership of only related members. It can be used to shift present business income and to transfer a business to succeeding generations at a tax savings.

Fees Earned – Revenue from providing services

FICA Tax – Federal Insurance Contributions Act tax used to finance federal programs for old-age and disability benefits (social security) and health insurance for the aged (Medicare)

File (a Return) – To mail or electronically transmit to the IRS in a specified format the taxpayer’s information about income and tax liability.

Financial Statements – Financial reports that summarize the effects of events on a business.

Fiscal Year – The annual accounting period adopted by a business.

Fixed (plant) Assets – Assets that depreciate over time, such as equipment, machinery, and buildings. A business asset with a useful life of more than one year as determined by the Internal Revenue Code.

Fringe Benefits – Benefits provided to employees in addition to wages and salaries. (2) Any tax-advantaged benefit allowed a business owner or employees. A fringe benefit may be partially or totally tax free to the recipient and tax deductible to the business. Prime examples are retirement plans and health insurance.

Freelancer – Independent contractor.

401(K) Plan – A tax-advantaged deferred compensation arrangement in which a portion of a worker’s pay is withheld by the business and invested in a plan where it earns income tax-deferred until withdrawn.

FUTA (Federal Unemployment Tax Act) – An annually paid tax on all employers for unemployment insurance.

General Journal – A book or computer file where all financial transactions of a business are recorded.

Goodwill – An intangible asset that is created from such favorable factors as location, product quality, reputation, and managerial skill. (2) The excess value of a going business, over and above the worth of all of its other assets.

Gross Income – Money, goods and property received from all sources required to be reported on a tax return, before subtracting any adjustments, exemptions, or deductions allowed by law.

Gross Pay – The total earnings of an employee for an employee for a payroll period.

Gross Profit – Sales minus the cost of merchandise sold.

Hobby Loss Provision (IRC § 183) – An IRC limitation on tax deducting losses or expenses of any activity that is not carried on with a profit motive.

Home Office – The portion of a home in which the taxpayer carries on a business activity. If the home office is used regularly and exclusively for business and meets other tax code tests, then a deduction – up to the amount of business income – may be taken for the business portion of the home, for depreciation on the structure, or for rent paid.
Improvements – Additions to or alterations of a capital asset, which either increase its value or extend its useful life.

Income – All money and other things of value received, except items specifically exempted by the tax code.

Income Statement – A summary of the revenue and expenses for a specific period of time, such as a month or a year.

Independent Contractor – A self-employed individual whose work hours and methods are not controlled by anyone else; not subject to payroll tax rules.

Individual Retirement Account (IRA) – A retirement plan established by an individual allowing annual contributions of earned income, and tax deferred accumulation of income in the account. Contributions may or may not be tax deductible, depending on the individual’s annual income, and whether the IRA is a Roth IRA.

Information Return (Income) – A report filed with the IRS by a business showing amounts paid to a taxpayer, such as Form W-2 (wages) or Form 1099 (independent contractor) and other types of income). No tax is due with an information return, but there are penalties or not filing one of filing late.

Installment Payment Agreement (IA) – An IRS monthly payment plan for unpaid federal taxes.

Installment Sale – The purchaser of an asset pays the seller over several years, allowing the tax liability on any gain to be spread over the same period of time instead of all in the year of the sale.

Intangible Assets – Long-term assets that are useful in the operations of a business, are not held for sale, and are without physical qualities.

Intangible Property – Assets that consist of rights rather than something material. For example, the accounts receivable of a business is an intangible asset because it is the right to receive payment rather than the money itself. The funds, when received, become a tangible asset.

Intent to Levy – A notice to a delinquent taxpayer that the IRS intends to seize (levy) the taxpayer’s property to satisfy a tax obligation. This warning is usually issued at least 30 days prior to any confiscation. Intent to levy notices don’t necessarily mean the IRS will actually make any seizures.

Interest – Cost of borrowing or owing money, usually a tax deductible business expense. The IRS adds interest to overdue tax bills.

Interest Revenue – Money received for interest.

Internal Revenue Code – The tax laws of the United States as enacted by Congress. Also called the tax code or simply the code.

Internal Revenue Service – (IRS) – The branch of the U.S. Treasury Department that administers the federal tax law.

Inventory – Goods a business has on held for sale to customers, and raw materials that will become part of merchandise.

IRC § 179 – A tax rule allowing a deduction for the purchase of certain trade or business property in the year the property is placed in service.

IRC § 1244 Stock. – Corporation stock issued under the rules of IRC § 1244, which allow an ordinary tax loss to be claimed, within tax code limitations, by the shareholder.

Itemized Deductions – Expenses allowed by the tax code to be subtracted from your tax-reported income, such as medical expenses, mortgage interest, charitable donations.

Investments – The balance sheet caption used to report long-term investments in stocks not intended as a source of cash in the normal operations of the business.

Invoice – The bill that the seller sends to the buyer.

Joint Return – A combined income tax return filed by a husband and wife. Alternatively, a spouse may file a separate tax return.

Keogh Plan – A type of retirement plan for self-employed people, allowing part of their earnings to be taken from their income to accumulate tax-deferred in an investment account until withdrawn.

Last-in, first-out (LIFO) Method – A method of inventory costing based on the assumption that the cost recent merchandise inventory costs should be charged against revenue.

Lease – A rental agreement for the use of property, such as buildings or equipment. Lease payments are deductible if the property is used in a trade or business.

Ledger – A group of accounts for a business.

Levy – An IRS seizure of property or wages from an individual or business to satisfy a delinquent tax debt.

Liability (business) – Money owed by a business to others, such as a mortgage debt, payroll taxes, or an Account Payable

Limited Liability Company (LLC) – A business form consisting of one or more persons or entities filing an operating agreement with a state to conduct business with limited liability to the owners, yet treated as partnership for tax purposes. (2) A form of business that is taxed much like a partnership and shields its owners from liability for business debts, like a corporation.

Liquidation – The winding-up process when a partnership goes out of business.

Limited Partnership (LP) – An entity consisting of at least one general partner with unlimited liability for business debts, and one or more limited partners whose liability is limited to their investment in the partnership.

Listed Property – Certain types of depreciable assets used in a business on which the IRC may require special record keeping, such as cellular phones, home-based computers, boats, airplanes, and personal cars used for business.

Long-term Liabilities – Liabilities that usually will not be due for more than one year.

Loss (Operating) – An excess of a business’s expenses over its income in a given period of time, usually a tax year.

MACRS (Modified Accelerated Cost Recovery System) – An IRC established method for rapidly claiming depreciation tax deductions.

Marginal Tax Rate – The income tax rate at which an individual’s next dollar of income is taxed.

Medicare Tax – A portion of the Social Security tax of 2.9% on all of an individual’s net earned income. For higher income taxpayers, the employee portion of Medicare tax has increased by an additional 0.9% bringing the former 1.45% rate to 2.35%. This was effective in 2013.

Mileage Log – a record of miles traveled in a vehicle used for business.

Net Loss – The amount by which expenses exceed revenues.

Net Pay – Gross pay less payroll deductions, the amount the employer is obligated to pay the employee.

Net Operating Loss (NOL) – An annual net loss from a business operation. An NOL may be used to offset income of unincorporated business owners from sources in the year of the loss. An NOL may be carried back two years to reduce tax liabilities or secure refunds of taxes.

Ninety-Day Letter – Official warning from the IRS that a taxpayer has 90 days to contest an IRS audit by filing a petition to the United States Tax Court, or else the decision will become final.

Offer in Compromise – A formal written proposal to the IRS to settle a tax debt for less than the amount the IRS claims is owed.

Operating Expense – A normal out-of-pocket cost incurred in a business operation, as opposed to depreciation or amortization expense. Example: rent, wages, utilities, supplies etc.

Owner’s Equity – The owner’s right to the assets of the business

Paid-in-Capital – Capital contributed to a corporation by the stockholders and others

Parent Company – The Corporation owning all or a majority of the voting stock of the other corporation.

Partnership – An unincorporated business form consisting of two or more persons conducting business as co-owners for profit. (2) A business of two or more individuals (or other entities) which passes its income or losses to its individual partners. A partnership does not pay taxes but is required to file an annual tax return.

Profit – The difference between the amounts received from customers for goods or services provided and the amounts paid for the inputs used to provide the goods or services.

Profitability – The ability of a firm to earn income.

Profit and Loss Statement (Income Statement) – A writing showing a business’ gross income, and subtracting from that figure its expenses and the cost of goods sold to reveal a net profit or loss for a specific period.

Proprietorship – A business owned by one individual.

Prorate – To allocate or split one figure between two items, such as prorating business and personal use of an asset.

Protest – A request to appeal a decision within the IRS.

Public Accounting – The field of accounting where accountants and their staff provide services on a fee basis.

Real Property – Real estate, consisting of land and structures built on it.

Retained Earnings – Net income retained in a corporation.

Personal Asset – Property owned by someone, which may also be used in a business.

Personal Income Tax – Annual tax based on an individual’s taxable income, less adjustments, deductions, and exemptions allowed by the tax code.

Records – Tangible evidence, usually in writing, of the income, expenses, and financial transactions of a business or individual.

Regulations (Regs) – Treasury Department interpretations of selected Internal Revenue Code provisions.

Representative – A tax professional who is allowed to represent a taxpayer before the IRS.
The representative must be a Certified Public Accountant, Tax Attorney or Enrolled Agent.

Research and Development Expenses – Certain tax-deductible costs for developing new products or services.

Residual Value – The estimated value of a fixed asset at the end of its useful life.

Retained Earnings – The accumulated and undistributed profits of a corporation. Retained earnings are subject to tax.

Retirement Plan – Typically, a tax-advantaged arrangement under

Qualified Personal Service Corporation – (QPSC) – A tax-code qualified incorporated business composed of one or more members of a specific profession. It must file an annual tax return.

Qualified Plan – A tax-code qualified and IRS-approved employee benefit plan, usually a pension or profit-sharing plan.

Qualified Small Business Stock – Certain small business corporation shares held for more than five years, with any gain upon sale being taxed at 50 of the normal rate.

Real Property – Real estate, consisting of land and structures built on it.

Receivables – All money claims against other entities, including people, business firms, and other organizations.

Record Keeping – The list of transactions (financial) for a business.

Records – Tangible evidence, usually in writing, of the income, expenses, and financial transactions of a business or individual.

Regulations (Regs) – Treasury Department interpretations of selected Internal Revenue Code provisions.

Rent Revenue – Money received for rent.

Representative – A tax professional who is permitted to represent a taxpayer before the IRS. The representative must be a Certified Public Accountant, Tax Attorney, or Enrolled Agent.

Research and Development Expenses – Certain tax-deductible expenses for developing new products or services.

Residual value – The estimated value of a fixed asset at the end of its useful life.

Retained Earnings – Net income retained in a corporation.

Retirement Plan – Usually, a tax-advantaged arrangement under which annual deposits are made to an account for an owner’s or employee’s benefit on retirement. Income tax on the accumulated funds is deferred until the year in which they are withdrawn.

Revenue Agent – An IRS examiner who performs audits of taxpayers or business entities in the field, meaning outside IRS offices.

Revenue expenditures – Cost that benefit only the current period or costs incurred for normal maintenance and repairs of fixed assets.

Revenue Recognition Concept – The accounting concept that supports reporting revenues when the services are provided to customers.

Revenues – Increases in owner’s equity as a result of selling services or products to customers.

Sales – The total amount charged to customers for merchandise sold, including cash sales and sales on account.

Sarbanes-Oxley Act – An act passed by Congress to restore public confidence and trust in the financial statements of companies.

S Corporation (sub-chapter S corporation) – A state-incorporated business that elects special tax treatment to pass its income or loss through to shareholders instead of being directly taxed on its income.

Sales Tax – A state tax levied on sales of retail based on a percentage of the price.

Selling Expenses – Expenses that are incurred directly in the selling of merchandise.

Service Business – A business providing services rather than products to customers.

Solvency – The ability of a firm to pay its obligations as they come due.

Schedule – A form on which taxpayers report details about an item, usually income or expense, in which is attached to the main tax return.

Section 1231 Assets – Assets used in a trade or business that is depreciable and for which gains, when sold, are taxed at capital gains rates, while losses are treated as ordinary losses.

Self-employed – One who earns income from his/her own business or profession rather than by working for someone else; either full-time or part-time.

Self-employment (SE) Tax – Social Security and Medicare taxes on net self-employment income. The SE I reported on the taxpayer’s income tax return.

Service Business – Any enterprise that derives income primarily from offering personal services.

Simplified Employee Pension (SEP, SIMPLE, or SEP-IRA) – A pension plan allowing self-employed business owners and their employees to deduct and put part of their earnings into a retirement account to accumulate tax-deferred until withdrawn.

Standard Deduction – An annual tax deduction granted to each taxpayer who does not choose to itemize deductions. The amount depends on your age, your filing status, and whether you can be claimed as a dependent on someone else’s tax return

Standard Mileage Rate – A method for deducting automobile expenses based on the mileage drive for business. This is an alternative to claiming actual operating and operating expenses.

Statement of Cash Flows – A summary of the cash receipts and cash payments for a specific period of time, such as a month or a year.

Statutes of Limitation (Tax) – Varying limits imposed by Congress on assessing and collecting taxes, charging tax crimes, and claiming tax refunds.

Stock – Shares of ownership of a corporation.

Stock Dividend – A distribution of shares of stock to its stockholders.

Stock split – A reduction in the par or stated value of a common stock and the issuance of a proportionate number of additional shares.

Stockholders – The owners of a corporation.

Stockholders Equity – The owner’s equity in a corporation.

Straight-Line Depreciation – Depreciating business assets by deducting their cost in equal annual amounts. The period of time is specified by the tax code for different categories of property, typically from three to 39 years.

Summons – A legally enforceable order issued by the IRS compelling an individual taxpayer or business to provide information, usually financial records.

Tax – Required payment of money to governments to provide pubic public goods and services.

Tax Attorney – A lawyer who specializes in tax-related legal work and has a special degree (L.L.M. – Tax) or certification from a state bar association.

Tax Auditor – (Examiner) – An IRS employee who determines the correctness of tax returns filed by individual taxpayers and business entities at the IRS offices.

Tax Bracket – The percentage rate at which and individual or taxable entity’s last dollar of income is taxed.

Tax Court – A federal court where a taxpayer or business taxpayer can contest an IRS sanction, usually a tax assessment, without first paying the taxes claimed due.

Tax Credit – An amount the tax code allows you to subtract from your tax bill.

Tax Exempt Income – Receipt of income that is specifically made exempt from taxation by Congress. Example: municipal bond interest

Tax Fraud – A manner to deceive the federal and state government,, or cheat in the assessment or payment of any tax liability. It can be punished by both civil penalties (money) and criminal ones (imprisonment and fines) by both the IRS and state tax agencies.

Taxable Income – The income according to the tax laws that is used as a base for determining the amount of taxes owed.

Tax Lien – If money is owed to the IRS and it is not paid after IRS has demanded payment, the IRS has a claim against your property. This is called a tax lien, which arises automatically by operation of law. The IRS has the right to inform the public that you are subject to a tax lien. This is done by recording a Notice of Federal Tax Lien at the county recorder’s office or with your secretary of state’s office. A tax lien lets the IRS to seize property to satisfy a tax debt. Most state tax agencies are given lien powers for state taxes due.

Tax Lien Notice – An IRS communication of tax debt placed in the public records where the debtor resides or the business is located.

Tax Rate – A percentage rate at which income is taxed, which may be fixed or may change at differnet income levels, and is set by Congress.

Taxable Income – A taxpayer’s or entity’s income minus deductions (allowed), adjustments, and exemptions. Tax obligation is calculated on the net result.

Taxpayer Bill of Rights – Federal tax laws restricting IRS conduct and establishing taxpayer rights in dealing with the IRS. Details of this law can be found on IRS Publication 1.

Taxpayer Identification Number (TIN) – Number assigned by the IRS to track tax accounts. Sole proprietors without employees can use their Social Security number. Business entities has a 13-digit number called an Employer Identification Number (EIN).

Three-of-Five Test – A IRS presumption that a business venture that doesn’t make a profit in three out of five consecutive years of operation is a not business for tax purposes.

Trademark – A name, term, or symbol used to identify a business and its products.

Transaction – A financial event in the operation of a business.

Treasury Stock – Stock that a corporation has once issued and then reacquires.

Trust Fund Recovery Penalty – It is also known as the 100% penalty. A tax code procedure for shifting payroll tax obligations from a business (usually an insolvent corporation) to individuals associated with the business operation.

Unearned Income – Income derived from investments. For example: dividends, interest, capital gains, or income that is not compensation for services.

Unearned revenue – The Liability created by receiving revenue in advance.

Useful Life – The period of months or years the tax code directs to be used to write off a business asset.

Wages – Compensation paid to employees of a business.

Withholding – Money held from an employee’s wages to pay Social Security, Medicare and income taxes.

Working Capital – The excess of the current assets of a business over its current liabilities.

Write-Off – A tax deductible expense, usually referring to depreciating or taking a Section 179 expense for an asset used in business.

W-2 – Annual form used to report wages paid to employees. Employers file this form with the Social Security administration. A copy must be given to each employee by the end of January.