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A

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Ability to Pay / Ability-to-Pay Principle

Definition:
A tax principle stating that individuals and businesses should contribute taxes according to their financial capacity. Those with greater income or wealth generally have a greater ability to pay taxes.

Tax Context:
This principle supports progressive tax systems where higher-income taxpayers may pay a larger percentage of their income in taxes.

Above-the-Line Deduction

Definition:
A deduction that reduces gross income to calculate Adjusted Gross Income (AGI) on a federal tax return.

Tax Context:
Above-the-line deductions are available whether or not a taxpayer itemizes deductions.

Examples:

• Traditional IRA contributions (subject to rules)
• Student loan interest deduction
• Health savings account (HSA) contributions
• Self-employed retirement contributions

Abatement

Definition:
The reduction, removal, or cancellation of a tax, penalty, interest charge, or assessment.

Tax Context:
The IRS may grant penalty abatement when a taxpayer demonstrates reasonable cause, such as a natural disaster, serious illness, or reliance on incorrect IRS guidance.

Accelerated Depreciation

Definition:
A depreciation method that allows larger deductions during the earlier years of an asset’s useful life.

Tax Context:
Accelerated depreciation provides faster recovery of business investment costs.

Examples:

• Modified Accelerated Cost Recovery System (MACRS)
• Bonus depreciation

Accountable Plan

Definition:
An employer reimbursement arrangement that allows employees to receive tax-free reimbursements for business expenses when IRS requirements are met.

Requirements generally include:

• Expenses must have a business connection
• Employees must properly document expenses
• Excess reimbursements must be returned

Accounts Payable

Definition:
Amounts a business owes to suppliers, vendors, or creditors for goods or services received but not yet paid.

Tax Context:
Accounts payable are generally recorded as liabilities on financial statements and may affect deductions under accrual accounting.

Accounts Receivable

Definition:
Money owed to a business by customers or clients for goods or services already provided.

Tax Context:
Under accrual accounting, income may be recognized when receivables are earned rather than when payment is received.

Accrual Accounting

Definition:
An accounting method that records income when earned and expenses when incurred, regardless of when cash is received or paid.

Tax Context:
Many larger businesses use accrual accounting for tax reporting.

Accrued Interest

Definition:
Interest that has accumulated but has not yet been paid.

Tax Context:
Accrued interest may be taxable income to the recipient or deductible expense to the payer depending on circumstances.

Acquisition Cost

Definition:
The total cost of obtaining an asset, including purchase price and certain related expenses.

Tax Context:
Acquisition costs are generally included in an asset’s tax basis.

Active Income

Definition:
Income earned through active participation in work or business activities.

Examples:

• Wages
• Salaries
• Business income from active operations

Tax Context:
Active income differs from passive income and portfolio income.

Active Participation

Definition:
A taxpayer’s involvement in managing or operating an activity, especially a rental activity.

Tax Context:
Active participation may allow certain taxpayers to deduct rental real estate losses against other income, subject to IRS limitations.

Adjusted Basis

Definition:
The original tax basis of property modified by certain increases and decreases over time.

Formula:

Original Cost + Improvements − Depreciation − Other Adjustments = Adjusted Basis

Tax Context:
Adjusted basis is used to calculate taxable gain or loss when property is sold.

Adjusted Gross Income (AGI)

Definition:
A taxpayer’s gross income reduced by allowable above-the-line deductions.

Tax Context:
AGI is used to determine eligibility for many tax benefits.

Examples affected by AGI:

• Tax credits
• IRA deductions
• Medical expense deduction limits
• Student loan interest deduction

Adjustment to Income

Definition:
A deduction that reduces gross income before calculating AGI.

Examples:

• IRA deductions
• HSA deductions
• Educator expenses
• Self-employed health insurance deductions

Ad Valorem Tax

Definition:
A tax based on the value of property or goods.

Meaning:
“Ad valorem” means “according to value.”

Examples:

• Property taxes
• Vehicle registration taxes
• Real estate taxes

Advance Child Tax Credit

Definition:
A historical program that allowed eligible taxpayers to receive portions of the Child Tax Credit before filing their annual tax return.

Tax Context:
Advance payments were issued during 2021 under temporary federal legislation and reconciled on tax returns.

After-Tax Income

Definition:
Income remaining after taxes have been deducted.

Formula:

Gross Income − Taxes = After-Tax Income

Tax Context:
Used in budgeting, financial planning, and investment comparisons.

Alternative Minimum Tax (AMT)

Definition:
A separate federal tax calculation designed to ensure certain taxpayers pay a minimum amount of tax.

Tax Context:
AMT limits or eliminates some deductions and credits when a taxpayer’s income exceeds certain thresholds.

Amended Return

Definition:
A corrected tax return filed to change information from an originally filed return.

Common reasons:

• Incorrect income reporting
• Missing deductions
• Incorrect filing status
• Claimed credits requiring correction

Federal Form:
IRS Form 1040-X

Amortization

Definition:
The gradual deduction or repayment of a cost over a fixed period.

Tax Context:
Certain intangible assets and expenses are amortized rather than depreciated.

Examples:

• Patents
• Purchased goodwill (under certain rules)
• Loan costs

Annual Exclusion (Gift Tax)

Definition:
The amount an individual may give another person each year without using lifetime gift tax exemption.

Tax Context:
Gifts exceeding the annual exclusion may require reporting on a federal gift tax return.

Applicable Federal Rate (AFR)

Definition:
The minimum interest rate published by the IRS for certain loans and transactions.

Tax Context:
AFRs prevent taxpayers from avoiding tax through artificially low-interest loans.

Assessment

Definition:
The official recording of a tax liability by a taxing authority.

Tax Context:
An IRS assessment establishes the amount of tax, penalties, and interest owed.

Asset

Definition:
A resource owned by an individual or business that has economic value.

Examples:

• Cash
• Real estate
• Equipment
• Investments
• Intellectual property

Tax Context:
Assets may create taxable income, depreciation deductions, or capital gains.

At-Risk Rules

Definition:
IRS rules limiting the amount of certain losses a taxpayer may deduct to the amount they have financially at risk.

Tax Context:
Commonly applies to:

• Business activities
• Partnerships
• S corporations
• Rental activities

Audit

Definition:
An IRS examination of a tax return to verify accuracy and compliance with tax laws.

Types:

• Correspondence audit
• Office audit
• Field audit

Audit Defense

Definition:
Assistance provided to a taxpayer during an IRS or state tax audit.

Services may include:

• Preparing documentation
• Communicating with tax authorities
• Representing the taxpayer during proceedings

Authorized IRS e-File Provider

Definition:
A tax professional or organization approved by the IRS to electronically submit tax returns.

Tax Context:
Authorized providers must meet IRS requirements for electronic filing participation.

Avoidance

Definition:
The lawful arrangement of financial affairs to reduce tax liability within the boundaries of tax law.

Tax Context:
Tax avoidance is legal when it follows applicable rules.

Different from:
Tax evasion, which involves illegal acts such as hiding income or falsifying information.

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B

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Backup Withholding

Definition:
A federal income tax withholding requirement applied to certain payments when a taxpayer fails to provide a correct taxpayer identification number or fails to meet reporting requirements.

Tax Context:
Payers generally withhold a percentage of payments and send it to the IRS.

Common situations:

• Missing or incorrect Form W-9 information
• Certain interest, dividends, and contractor payments

Bad Debt Deduction

Definition:
A tax deduction allowed when a taxpayer can prove that money owed to them has become worthless.

Types:

• Business bad debt
• Nonbusiness bad debt

Tax Context:
Businesses may deduct qualifying unpaid customer accounts or loans.

Balance Due / Amount Due

Definition:
The amount of tax a taxpayer still owes after accounting for payments, withholding, and credits.

Formula:

Total Tax Liability − Payments and Credits = Balance Due

Back Taxes

Definition:
Taxes that remain unpaid after the original due date.

Tax Context:
Back taxes may result in:

• Interest charges
• Penalties
• Collection actions

Basis

Definition:
The taxpayer’s investment in property for tax purposes.

General Formula:

Purchase Price + Improvements + Certain Costs − Adjustments = Tax Basis

Tax Context:
Basis determines depreciation deductions and taxable gain or loss when property is sold.

Beneficiary

Definition:
A person or entity entitled to receive benefits, income, or assets from a trust, retirement account, insurance policy, or estate.

Tax Context:
Beneficiaries may have tax obligations depending on the type of asset received.

Book Income

Definition:
Income reported according to financial accounting rules rather than tax rules.

Tax Context:
Book income may differ from taxable income because tax law has different timing rules and deductions.

Bonus

Definition:
Additional compensation paid to an employee beyond regular wages.

Tax Context:
Bonuses are generally taxable wages and subject to payroll withholding.

Bonus Depreciation

Definition:
A tax provision allowing businesses to immediately deduct a percentage of qualifying asset costs instead of recovering the costs over time.

Tax Context:
Often applies to certain business equipment, machinery, and property.

Business

Definition:
An activity conducted with the intent of earning profit.

Tax Context:
A business may deduct ordinary and necessary expenses related to operations.

Business Expense

Definition:
A cost incurred in operating a trade or business.

Requirements:

• Ordinary
• Necessary
• Related to business activity

Examples:

• Rent
• Supplies
• Advertising
• Employee wages

Business Income

Definition:
Income earned from operating a trade or business.

Examples:

• Sales revenue
• Service fees
• Professional income

Business Interest Expense

Definition:
Interest paid or accrued on debt related to business operations.

Tax Context:
Deductibility may be limited under IRS rules.

Business Tax Credit

Definition:
A tax credit available to businesses that reduces tax liability directly.

Examples:

• Research credit
• Work Opportunity Tax Credit
• Energy-related credits

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C

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C Corporation

Definition:
A corporation taxed separately from its owners under Subchapter C of the Internal Revenue Code.

Tax Context:
A C corporation may pay corporate income tax, and shareholders may also pay tax on dividends, creating potential double taxation.

Canceled Debt / Cancellation of Debt

Definition:
A situation where a lender forgives or cancels a debt owed by a taxpayer.

Tax Context:
Canceled debt is generally taxable income unless an exception applies.

Common exceptions:

• Bankruptcy
• Insolvency
• Certain student loan forgiveness programs

Capital Asset

Definition:
Property owned for investment or personal purposes.

Examples:

• Stocks
• Bonds
• Real estate
• Personal-use property

Capital Gain

Definition:
Profit from selling a capital asset for more than its adjusted basis.

Formula:

Selling Price − Adjusted Basis = Capital Gain

Capital Improvements

Definition:
Permanent improvements that increase a property’s value, extend its useful life, or adapt it to a new use.

Examples:

• Adding a room
• Installing a new roof
• Major renovations

Tax Context:
Capital improvements generally increase the property’s basis.

Capital Loss

Definition:
A loss resulting from selling a capital asset for less than its adjusted basis.

Tax Context:
Capital losses may offset capital gains and, subject to limits, other income.

Capital Loss Carryforward

Definition:
A tax rule allowing unused capital losses to be carried into future tax years.

Tax Context:
Individuals may generally carry forward excess capital losses indefinitely.

Capitalization

Definition:
Recording a cost as part of an asset rather than deducting it immediately.

Tax Context:
Capitalized costs are generally recovered through depreciation, amortization, or other recovery methods.

Carryback

Definition:
A tax rule allowing certain losses or credits to be applied to prior tax years.

Tax Context:
Carrybacks may generate refunds from previously paid taxes.

Carryforward

Definition:
A tax rule allowing unused deductions, credits, or losses to be applied to future tax years.

Examples:

• Capital losses
• Net operating losses
• Certain credits

Cash Accounting Method

Definition:
An accounting method recognizing income when received and expenses when paid.

Tax Context:
Commonly used by individuals and many small businesses.

Cash Basis Taxpayer

Definition:
A taxpayer who reports income and expenses using the cash method of accounting.

Casualty Loss

Definition:
A loss caused by sudden, unexpected events such as storms, fires, theft, or disasters.

Tax Context:
Deductibility depends on current tax law and whether the loss involves federally declared disasters or business property.

Charitable Contribution

Definition:
A donation made to a qualified charitable organization.

Tax Context:
Eligible taxpayers may deduct qualifying charitable contributions subject to IRS limitations.

Child Support

Definition:
Payments made by one parent for the financial support of a child.

Tax Context:
Child support payments are generally not deductible by the payer and are not taxable income to the recipient.

Child Tax Credit (CTC)

Definition:
A federal tax credit available to eligible taxpayers with qualifying children.

Tax Context:
The credit amount and refundability depend on current tax law and income limits.

Citizen or Resident Test

Definition:
A test used to determine whether an individual qualifies as a U.S. citizen or resident for certain tax purposes.

Tax Context:
Used in determining filing obligations and eligibility for tax benefits.

Claim for Refund

Definition:
A formal request asking a tax authority to return taxes paid in excess.

Tax Context:
May involve amended returns or specific refund procedures.

Closing Costs

Definition:
Expenses paid when purchasing or refinancing real estate.

Examples:

• Loan fees
• Recording fees
• Certain taxes
• Title expenses

Tax Context:
Some closing costs affect basis or may be deductible.

Code (Internal Revenue Code)

Definition:
The body of federal tax laws enacted by Congress.

Tax Context:
The Internal Revenue Code provides the rules governing federal taxation.

Collection Due Process (CDP)

Definition:
A taxpayer right allowing review of certain IRS collection actions before or after a levy or federal tax lien.

Tax Context:
Taxpayers may request a CDP hearing with the IRS Independent Office of Appeals.

Common-Law Employee

Definition:
A worker who is classified as an employee based on the degree of control and independence between worker and employer.

Tax Context:
Employers generally must withhold payroll taxes for common-law employees.

Commission

Definition:
Compensation based on sales, performance, or completed transactions.

Tax Context:
Commissions are generally taxable wages or business income depending on the worker’s classification.

Compulsory Payroll Tax

Definition:
A required payroll tax withheld from wages by law.

Examples:

• Social Security tax
• Medicare tax
• Federal income tax withholding

Constructive Receipt

Definition:
A tax concept stating that income is taxable when it is available to the taxpayer, even if not physically received.

Example:
A check received but not cashed may still be taxable income.

Consumer Use Tax

Definition:
A tax imposed on goods purchased outside a taxing jurisdiction but used within that jurisdiction.

Example:
Buying goods online from another state where sales tax was not charged.

Cost Basis

Definition:
The original value assigned to property for tax purposes, generally including purchase price and certain acquisition costs.

Cost Recovery

Definition:
The process of recovering the cost of an asset through depreciation, amortization, or deductions.

Cost of Goods Sold (COGS)

Definition:
The direct costs associated with producing or purchasing goods sold by a business.

Examples:

• Materials
• Inventory costs
• Direct labor

Credit

Definition:
A dollar-for-dollar reduction of tax liability.

Tax Context:
Credits generally provide greater tax savings than deductions of the same amount.

Credit Carryforward

Definition:
The ability to apply unused tax credits to future tax years.

Cryptocurrency / Virtual Currency

Definition:
Digital assets that use blockchain technology or similar systems.

Tax Context:
The IRS generally treats cryptocurrency as property for federal tax purposes.

Current Tax Liability

Definition:
The amount of tax owed for the current tax period before considering certain payments, credits, or prior-year amounts.

Custodian

Definition:
A person or institution responsible for holding and managing assets for another person.

Tax Context:
Common in retirement accounts, custodial accounts, and trusts.

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D

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De Minimis Benefit

Definition:
A small, infrequent benefit provided by an employer that has such minimal value that accounting for it would be unreasonable or impractical.

Examples:

• Occasional employee snacks
• Small holiday gifts
• Occasional personal use of office equipment

Tax Context:
Certain de minimis benefits may be excluded from an employee’s taxable wages.

Decedent

Definition:
A person who has died.

Tax Context:
Tax rules may apply to the decedent’s final income tax return, estate, beneficiaries, and inherited property.

Debt Cancellation

Definition:
The forgiveness or elimination of a debt obligation.

Tax Context:
Canceled debt is generally treated as taxable income unless a tax exception applies.

Deductible Expense

Definition:
A business or personal expense that qualifies for a tax deduction under applicable tax rules.

Requirements may include:

• Allowed by law
• Properly documented
• Related to income-producing activity

Deduction

Definition:
An amount that reduces taxable income.

Examples:

• Standard deduction
• Itemized deductions
• Business expense deductions

Tax Context:
Deductions reduce the income subject to tax, unlike credits, which reduce tax directly.

Deferred Compensation

Definition:
An arrangement where income is earned currently but paid at a later date.

Examples:

• Employer retirement plans
• Deferred compensation plans

Tax Context:
Tax treatment depends on whether the arrangement meets specific IRS requirements.

Deferred Tax Asset

Definition:
A future tax benefit created by temporary differences between accounting income and taxable income.

Examples:

• Net operating losses
• Tax credit carryforwards

Deferred Tax Liability

Definition:
A future tax obligation resulting from temporary differences where taxes will be paid later.

Example:
Depreciation differences between financial reporting and tax reporting.

Deficiency

Definition:
The additional amount of tax the IRS determines is owed after reviewing a tax return.

Tax Context:
A deficiency may result from an audit or examination.

Delinquent Return

Definition:
A tax return filed after the required due date.

Tax Context:
Late filing may result in penalties and interest.

Delinquent Taxes

Definition:
Taxes that remain unpaid after their due date.

Depletion

Definition:
A tax deduction allowing owners of natural resources to recover the cost of extracting resources.

Examples:

• Oil
• Gas
• Minerals
• Timber

Dependency Exemption

Definition:
A former tax benefit allowing taxpayers to reduce taxable income for qualifying dependents.

Tax Context:
The personal exemption was suspended under the Tax Cuts and Jobs Act for certain years, but dependency rules remain important for credits and filing status.

Dependent

Definition:
A person who qualifies to be claimed on another taxpayer’s tax return.

Types:

• Qualifying child
• Qualifying relative

Depreciable Property

Definition:
Property used in a trade or business or held for income production that loses value over time.

Examples:

• Equipment
• Buildings
• Vehicles

Depreciation

Definition:
The process of deducting the cost of a business asset over its useful life.

Tax Methods Include:

• MACRS depreciation
• Straight-line depreciation
• Bonus depreciation

Direct Deposit

Definition:
Electronic transfer of a tax refund or payment directly into a taxpayer’s bank account.

Tax Context:
The IRS commonly uses direct deposit for refunds.

Direct Pay

Definition:
An IRS online payment option allowing taxpayers to pay federal taxes directly from a bank account.

Direct Tax

Definition:
A tax imposed directly on an individual or entity.

Examples:

• Federal income tax
• Property tax
• Estate tax

Disability Income

Definition:
Income received because of disability or inability to work.

Tax Context:
Taxability depends on factors such as who paid the premiums and the type of policy.

Disaster Loss

Definition:
A loss resulting from a federally recognized disaster or qualifying catastrophic event.

Examples:

• Hurricanes
• Floods
• Wildfires

Disallowed Deduction

Definition:
A deduction claimed by a taxpayer but rejected because it does not meet tax requirements.

Disallowed Loss

Definition:
A loss that cannot currently be deducted because of tax limitations.

Examples:

• Suspended passive losses
• Wash sale losses

Disregarded Entity

Definition:
A business entity ignored as separate from its owner for federal tax purposes.

Example:
A single-member LLC often treated as a disregarded entity unless it elects another classification.

Distribution

Definition:
A payment or transfer of money or property from an account, corporation, trust, partnership, or retirement plan.

Tax Context:
Tax treatment depends on the source and type of distribution.

Dividend

Definition:
A payment made by a corporation to shareholders from profits or earnings.

Tax Context:
Dividends may be classified as ordinary or qualified.

Dividend Income

Definition:
Income received from ownership of shares in a corporation or certain investment funds.

Double Taxation

Definition:
Taxation of the same income twice.

Example:
A C corporation may pay corporate income tax, and shareholders may pay tax on dividends.

Due Diligence

Definition:
The required effort by a tax preparer to verify taxpayer information before claiming certain credits or filing positions.

Common Areas:

• Earned Income Tax Credit
• Child Tax Credit
• American Opportunity Credit
• Head of Household filing status

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E

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Earned Income

Definition:
Income received from work or active services.

Examples:

• Wages
• Salaries
• Tips
• Net self-employment income

Earned Income Credit (EIC) / Earned Income Tax Credit (EITC)

Definition:
A refundable federal tax credit designed to assist eligible low- and moderate-income workers.

Tax Context:
Eligibility depends on income, filing status, and qualifying child requirements.

Economic Substance Doctrine

Definition:
A legal doctrine allowing the IRS and courts to deny tax benefits from transactions lacking a genuine economic purpose beyond tax savings.

Education Credit

Definition:
A tax credit for qualifying education expenses.

Examples:

• American Opportunity Tax Credit
• Lifetime Learning Credit

EIN (Employer Identification Number)

Definition:
A federal identification number assigned by the IRS to businesses, estates, trusts, and certain organizations.

Tax Context:
Used for:

• Payroll reporting
• Business tax returns
• Banking purposes

Electronic Filing (E-file)

Definition:
The electronic submission of tax returns to the IRS or state tax authorities.

Benefits:

• Faster processing
• Reduced errors
• Electronic confirmation

Electronic Preparation

Definition:
Preparing a tax return using computer software or electronic systems before filing.

Electronic Return Originator (ERO)

Definition:
An authorized tax professional or organization that originates electronic tax return submissions.

Employee

Definition:
A worker whose employer controls the work performed and is responsible for employment tax reporting.

Tax Context:
Employers generally withhold payroll taxes from employee wages.

Employer Identification Number (EIN)

Definition:
A unique nine-digit number assigned by the IRS to identify businesses and certain entities.

Example Format:

XX-XXXXXXX

Employment Tax

Definition:
Taxes related to employee wages and payroll.

Includes:

• Social Security tax
• Medicare tax
• Federal income tax withholding
• Federal unemployment tax

Enrolled Agent (EA)

Definition:
A federally authorized tax professional who has authority to represent taxpayers before the IRS.

Entity

Definition:
A legally recognized organization or individual structure for tax purposes.

Examples:

• Individual
• Corporation
• Partnership
• Trust
• LLC

Estate

Definition:
The property, assets, and obligations left by a deceased person.

Tax Context:
An estate may have income tax and estate tax filing requirements.

Estate Tax

Definition:
A federal tax imposed on the transfer of property after death when the estate exceeds applicable exemption amounts.

Estimated Tax

Definition:
Periodic tax payments made during the year by taxpayers who do not have enough withholding.

Common taxpayers:

• Self-employed individuals
• Investors
• Business owners

Estimated Tax Penalty

Definition:
A penalty that may apply when taxpayers fail to pay enough tax throughout the year.

Excess Contribution

Definition:
An amount contributed to a retirement account or tax-advantaged account beyond IRS limits.

Tax Context:
Excess contributions may result in penalties unless corrected.

Excess Business Loss

Definition:
A limitation on certain business losses that exceed allowable thresholds.

Tax Context:
Affected taxpayers may have to carry excess losses forward.

Exchange

Definition:
A transfer of property or assets between parties.

Tax Context:
Some exchanges may qualify for nonrecognition treatment, such as certain like-kind exchanges.

Exclusion

Definition:
An amount of income or transaction removed from taxation under tax law.

Examples:

• Certain employer benefits
• Some foreign income exclusions

Exempt Income

Definition:
Income not subject to federal income tax.

Examples:

• Certain municipal bond interest
• Certain qualifying benefits

Exemption

Definition:
A provision that removes certain income, people, property, or transactions from taxation.

Excise Tax

Definition:
A tax imposed on specific goods, services, or activities.

Examples:

• Fuel taxes
• Tobacco taxes
• Certain luxury taxes

Executor

Definition:
A person appointed to manage the estate of a deceased individual.

Tax Responsibilities May Include:

• Filing final tax returns
• Paying estate taxes
• Distributing assets

Extension of Time to File

Definition:
Additional time granted to submit a tax return.

Tax Context:
An extension generally provides more time to file but does not extend the deadline for paying taxes owed.

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F

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Fair Market Value (FMV)

Definition:
The price that property would sell for on the open market between a willing buyer and willing seller who are both knowledgeable and not under pressure to complete the transaction.

Tax Context:
FMV is used for:

• Charitable contributions
• Gift tax calculations
• Property valuation
• Depreciation and basis calculations

Federal Income Tax

Definition:
A tax imposed by the federal government on individuals, businesses, estates, trusts, and certain other entities based on taxable income.

Tax Context:
Federal income tax is administered by the IRS.

Federal Insurance Contributions Act (FICA)

Definition:
A federal law requiring payroll taxes to fund Social Security and Medicare programs.

Components:

• Social Security tax
• Medicare tax

Tax Context:
FICA taxes are generally withheld from employee wages and matched by employers.

Federal Tax

Definition:
Any tax imposed by the federal government.

Examples:

• Income tax
• Estate tax
• Excise tax
• Payroll taxes

Fellowship

Definition:
A payment, grant, or award provided to support education, research, or professional development.

Tax Context:
Some fellowship payments may be taxable depending on their use and whether the recipient is a degree candidate.

Fiduciary

Definition:
A person or organization responsible for managing assets or property for the benefit of another party.

Examples:

• Trustee
• Executor
• Personal representative

Fiduciary Return

Definition:
A tax return filed by a fiduciary for an estate or trust.

Federal Form:
IRS Form 1041

Filing Requirement

Definition:
The legal requirement to submit a tax return based on income level, filing status, age, residency, or other factors.

Filing Status

Definition:
A taxpayer classification used to determine tax rates, deductions, and eligibility for certain benefits.

Common federal statuses:

• Single
• Married Filing Jointly
• Married Filing Separately
• Head of Household
• Qualifying Surviving Spouse

Financial Institution

Definition:
An organization that provides financial services, including holding, lending, investing, or transferring money.

Examples:

• Banks
• Credit unions
• Brokerage firms

Financial Records

Definition:
Documents used to support income, deductions, credits, expenses, and tax positions.

Examples:

• Receipts
• Bank statements
• Invoices
• Payroll records

Fiscal Year

Definition:
A 12-month accounting period used for financial reporting and tax purposes that does not necessarily follow the calendar year.

Fixed Income

Definition:
Income received in a predictable or predetermined amount.

Examples:

• Pension payments
• Certain bonds
• Annuities

Flat Tax

Definition:
A tax system applying the same tax rate to all taxpayers regardless of income level.

Flow-Through Entity

Definition:
A business structure where income passes through to owners and is generally taxed at the owner level rather than at the entity level.

Examples:

• Partnerships
• S corporations
• Certain LLCs

Foreign Corporation

Definition:
A corporation organized under the laws of a country other than the United States.

Tax Context:
Foreign corporations may have U.S. tax obligations if they conduct business or earn U.S.-source income.

Foreign Earned Income

Definition:
Income earned by a U.S. taxpayer while working outside the United States.

Examples:

• Foreign wages
• Salary from overseas employment
• Self-employment income earned abroad

Foreign Earned Income Exclusion (FEIE)

Definition:
A tax provision allowing qualifying U.S. taxpayers living and working abroad to exclude certain foreign earned income from U.S. taxation.

Foreign Tax Credit

Definition:
A credit allowing taxpayers to reduce U.S. tax liability for qualifying foreign taxes paid on foreign income.

Foreign Trust

Definition:
A trust that does not meet U.S. requirements for classification as a domestic trust.

Tax Context:
Foreign trusts may have additional reporting requirements.

Form 1040

Definition:
The primary federal individual income tax return form used by most U.S. taxpayers.

Download Form 1040

Form 1040-ES

Definition:
A form used to calculate and pay estimated federal income taxes.

Common Users:

• Self-employed individuals
• Independent contractors
• Investors

Download Form 1040-ES

Form 1098 – Mortgage Interest Statement

IRS Form 1098, known as the Mortgage Interest Statement, is generally provided by mortgage lenders to report qualifying mortgage interest and certain other amounts paid by a borrower during the year.

The information reported on Form 1098 may be relevant when determining whether a taxpayer can claim a qualifying mortgage interest deduction on a federal income tax return. The form is also provided to the IRS as part of federal tax information reporting requirements.

Form 1098-C – Contributions of Motor Vehicles, Boats, and Airplanes

IRS Form 1098-C is associated with charitable contributions of qualifying motor vehicles, boats, and airplanes.

A qualified organization generally uses Form 1098-C to provide information about the donated vehicle and the contribution to the donor and the IRS. Taxpayers who donate qualifying property should retain the documentation because it may be needed to support a charitable contribution deduction.

Form 1098-E – Student Loan Interest Statement

IRS Form 1098-E is used by certain student loan lenders to report qualifying student loan interest paid during the tax year.

The information on this form may help a taxpayer determine whether they qualify for the student loan interest deduction when filing their federal income tax return.

Form 1098-T – Tuition Statement

IRS Form 1098-T, known as the Tuition Statement, is generally furnished by eligible educational institutions to students who meet the applicable reporting requirements.

The form provides information about qualifying tuition and related payments and may be useful when determining eligibility for certain education tax credits, including the American Opportunity Credit and Lifetime Learning Credit.

Form 1099-A – Acquisition or Abandonment of Secured Property

IRS Form 1099-A reports certain transactions involving the acquisition or abandonment of property that secures a debt.

A lender may issue Form 1099-A when secured property is acquired or abandoned in circumstances covered by the federal information-reporting rules. This can occur in connection with certain foreclosures, repossessions, or other transfers of secured property.

Form 1099-A can be especially important because a foreclosure or abandonment of property may have federal tax consequences. Depending on the circumstances, taxpayers may need to consider both the disposition of the property and the treatment of any related debt.

The IRS currently provides a Form 1099-A for this purpose.

Form 1099-B – Proceeds From Broker and Barter Exchange Transactions

IRS Form 1099-B reports certain proceeds from transactions involving securities, investments, and barter exchanges.

Brokerage firms may issue Form 1099-B when an account holder sells stocks, bonds, securities, or other covered investments. The information can be used when calculating capital gains and capital losses for a federal income tax return.

Taxpayers should compare the information on Form 1099-B with their own investment records, particularly when determining the correct cost basis and holding period for an asset.

The IRS currently provides Form 1099-B for reporting applicable broker and barter exchange transactions.

Form 1099-C – Cancellation of Debt

IRS Form 1099-C is used to report certain canceled, forgiven, or discharged debt.

Cancellation of debt can have significant federal income tax consequences. Depending on the circumstances, canceled debt may be treated as taxable income, although various exclusions and exceptions may apply.

This form can be particularly important for taxpayers dealing with foreclosure, repossession, credit-card debt settlement, loan forgiveness, or other debt cancellation. Receiving a Form 1099-C does not necessarily mean that the entire amount shown is taxable, so taxpayers should carefully review their circumstances and the applicable IRS rules.

Form 1099-DIV – Dividends and Distributions

IRS Form 1099-DIV is generally issued by financial institutions and other payers to report qualifying dividends and certain distributions paid to taxpayers.

The information reported on Form 1099-DIV may include ordinary dividends, qualified dividends, capital gain distributions, and other applicable amounts. Taxpayers generally use this information when preparing their federal income tax returns.

Form 1099-G – Certain Government Payments

IRS Form 1099-G is used to report certain payments made by federal, state, or local governments. Common examples include unemployment compensation and certain state or local income tax refunds, credits, or offsets.

If you receive Form 1099-G, the information may need to be reported on your federal income tax return. The tax treatment depends on the type of payment reported and the taxpayer’s individual circumstances.

For taxpayers dealing with an IRS tax notice or federal tax problem, it is important to compare information reported on Form 1099-G with the amounts included on the tax return.

Form 1099-INT – Interest Income

IRS Form 1099-INT reports certain interest income paid during the tax year.

Banks, financial institutions, and other applicable payers may issue Form 1099-INT when reporting requirements are met. Taxpayers should compare the information on the form with their financial records and report applicable interest income on their federal tax return.

Form 1099-K – Payment Card and Third Party Network Transactions

IRS Form 1099-K reports certain payments received through payment cards and qualifying third-party payment networks.

You may receive a Form 1099-K when you receive payments for goods or services through platforms or payment processors that are required to report those transactions to the IRS. The amount shown on the form represents reported payment transactions and does not necessarily equal your taxable profit.

Taxpayers should carefully compare Form 1099-K information with their business records, expenses, refunds, and other documentation when preparing a federal tax return.

This form can be particularly relevant to small business owners, online sellers, independent contractors, freelancers, and people accepting electronic payments. The IRS has updated Form 1099-K and its instructions, so taxpayers should use the current version applicable to the tax year involved.

Form 1099-MISC – Miscellaneous Information

IRS Form 1099-MISC is used to report certain types of miscellaneous payments and income.

Depending on the circumstances, Form 1099-MISC may report items such as rents, royalties, prizes, awards, medical and health care payments, and certain other reportable payments.

It is important to distinguish Form 1099-MISC from Form 1099-NEC, which is generally used to report qualifying nonemployee compensation.

Form 1099-NEC – Nonemployee Compensation

IRS Form 1099-NEC is used to report qualifying payments for services performed by someone who is not treated as an employee.

This form is commonly associated with independent contractors, freelancers, consultants, and self-employed individuals. Businesses that make qualifying payments for services may have reporting obligations, while recipients generally need to account for the reported income on their federal tax returns.

The IRS confirms that Form 1099-NEC is used for nonemployee compensation and has separate reporting requirements from Form 1099-MISC.

Form 1099-OID – Original Issue Discount

IRS Form 1099-OID reports certain amounts of original issue discount (OID) associated with debt instruments.

Original issue discount generally represents a form of interest that arises when a debt instrument is issued for less than its stated redemption price at maturity. Depending on the circumstances, taxpayers may need to include OID in taxable income even though they have not actually received a separate cash payment.

Form 1099-OID can apply to certain bonds, notes, certificates of deposit, and other debt instruments. Taxpayers should review the information reported on the form and the applicable IRS instructions when preparing their federal income tax return.

The IRS currently maintains Form 1099-OID in its official forms directory.

Form 1099-Q – Payments From Qualified Education Programs

IRS Form 1099-Q reports certain distributions from qualified education programs, including qualifying 529 plans and Coverdell Education Savings Accounts.

The form generally provides information about distributions made from the education savings account or program during the tax year. A Form 1099-Q does not automatically mean that the entire amount reported is taxable.

Tax treatment can depend on how the distribution was used and whether it was applied toward qualified education expenses. Taxpayers should retain records showing how education-related distributions were spent in case the information is needed to support the tax treatment. The IRS currently provides Form 1099-Q for reporting applicable payments from qualified education programs

Form 1099-R – Distributions From Pensions, Annuities, Retirement Plans, IRAs, and Other Contracts

IRS Form 1099-R reports certain distributions from pensions, annuities, retirement or profit-sharing plans, IRAs, insurance contracts, and other qualifying arrangements.

A taxpayer may receive Form 1099-R after taking a distribution from a retirement account or receiving another type of reportable payment. Depending on the nature of the distribution, the amount may be taxable and may have additional tax consequences.

The form can be especially important when reviewing IRA distributions, pension income, retirement withdrawals, rollovers, or early retirement distributions. The IRS’s current information-return guidance identifies Form 1099-R for distributions from pensions, annuities, retirement and profit-sharing plans, IRAs, and insurance contracts.

Form 1099-S – Proceeds From Real Estate Transactions

IRS Form 1099-S is used to report certain proceeds from real estate transactions.

A taxpayer may receive Form 1099-S after selling or otherwise transferring qualifying real estate. The information reported can be important when determining whether the transaction must be reported on a federal income tax return and whether there is a taxable gain or loss.

Because the tax treatment of a real estate transaction can depend on factors such as the property’s cost basis, improvements, ownership history, and use of the property, taxpayers should retain supporting documentation.

The IRS’s current form directory lists a 2026 Form 1099-S.

Form 1120 – U.S. Corporation Income Tax Return

IRS Form 1120 is generally used by domestic corporations to report business income, gains, losses, deductions, credits, and federal income tax liability. Corporations may need to file additional schedules depending on their circumstances.

Form 1310 – Statement of Person Claiming Refund Due a Deceased Taxpayer

IRS Form 1310 is used in certain circumstances when someone is claiming a federal tax refund that was due to a deceased taxpayer. The form identifies the person claiming the refund and provides information required by the IRS.

Form 2159 – Payroll Deduction Agreement

IRS Form 2159 is used to establish a payroll deduction arrangement in which an employer deducts specified federal tax payments from an employee’s wages. This may be relevant in certain IRS tax payment arrangements.

Form 2210 – Underpayment of Estimated Tax by Individuals, Estates and Trusts

IRS Form 2210 helps individuals, estates, and trusts determine whether they owe a penalty because estimated tax payments were insufficient or were made late. When applicable, the form can also be used to calculate the amount of the underpayment penalty.

Form 2441 – Child and Dependent Care Expenses

IRS Form 2441 is used to calculate the federal tax credit related to qualifying child and dependent care expenses. Eligibility depends on the taxpayer’s circumstances and applicable tax rules.

Form 2848 – Power of Attorney and Declaration of Representative

IRS Form 2848 allows a taxpayer to authorize an eligible individual to represent them before the IRS and, within the scope of the authorization, receive and inspect confidential tax information.

For taxpayers dealing with an IRS audit, collection matter, tax debt, or other federal tax issue, Form 2848 may be an important authorization document.

Form 3903 – Moving Expenses

IRS Form 3903 is used to calculate qualifying moving expenses when a taxpayer meets the requirements for claiming the applicable federal deduction. Special rules and limitations can apply, so taxpayers should review the current IRS instructions before claiming moving expenses.

Form 3911 – Taxpayer Statement Regarding Refund

IRS Form 3911 can be used when a taxpayer needs assistance with a federal tax refund that was not received, was lost, stolen, or destroyed. The form provides the IRS with information needed to research the refund.

Form 4029 – Application for Exemption From Social Security and Medicare Taxes and Waiver of Benefits

IRS Form 4029 is used by certain members of recognized religious groups to apply for exemption from Social Security and Medicare taxes and to waive related benefits when they meet the applicable requirements.

Form 4137 – Social Security and Medicare Tax on Unreported Tip Income

IRS Form 4137 is used to calculate Social Security and Medicare taxes that may be owed on qualifying tip income that was not reported to an employer.

Form 433-A – Collection Information Statement for Wage Earners and Self-Employed Individuals

IRS Form 433-A provides the IRS with detailed financial information about an individual taxpayer’s income, expenses, assets, liabilities, and ability to pay. The IRS may use this information when evaluating certain federal tax collection matters, including payment arrangements and collection alternatives. The current IRS form was revised in June 2026.

Form 433-A (OIC) – Collection Information Statement for Wage Earners and Self-Employed Individuals

IRS Form 433-A (OIC) is a financial disclosure form used by individuals who are submitting an Offer in Compromise based on applicable IRS requirements. It provides financial information the IRS uses when evaluating an OIC request.

Form 433-B – Collection Information Statement for Businesses

IRS Form 433-B is used to provide the IRS with financial information about a business that has federal tax liabilities. The information may include business assets, income, expenses, accounts, and liabilities and can be relevant when the IRS evaluates collection options. The current IRS form was revised in June 2026.

Form 433-B (OIC) – Collection Information Statement for Businesses

IRS Form 433-B (OIC) is designed for businesses submitting an Offer in Compromise. It provides financial information that the IRS considers when evaluating whether a business qualifies for an OIC.

Form 433-D – Installment Agreement

IRS Form 433-D is used to establish certain IRS installment agreements. An installment agreement allows an eligible taxpayer to make scheduled payments toward federal tax debt rather than paying the entire balance at once. The current IRS version is dated July 2024.

Form 433-F – Collection Information Statement

IRS Form 433-F is a financial information statement that the IRS may use when evaluating a taxpayer’s ability to pay delinquent federal taxes. It can be associated with collection matters involving payment arrangements or other collection determinations.

Form 433-H – Installment Agreement Request and Collection Information Statement

IRS Form 433-H combines an installment agreement request with financial information used by the IRS when evaluating certain taxpayers who have significant federal tax liabilities or payment circumstances requiring additional financial documentation. The current IRS version was revised in March 2025.

Form 4361 – Application for Exemption From Self-Employment Tax

IRS Form 4361 is used by certain ministers, members of religious orders, and Christian Science practitioners who seek exemption from self-employment tax on qualifying ministerial earnings. Specific eligibility requirements apply.

Form 4506 – Request for Copy of Tax Return

IRS Form 4506 allows eligible taxpayers to request a copy of a previously filed tax return from the IRS. The form can also be used in certain circumstances to authorize a third party to receive the requested return.

Form 4562 – Depreciation and Amortization

IRS Form 4562 is used by qualifying taxpayers and businesses to report depreciation and amortization and to calculate certain deductions involving business or investment property.

Form 4852 – Substitute for Form W-2 or Form 1099-R

IRS Form 4852 may be used as a substitute for Form W-2 or Form 1099-R when a taxpayer has not received the applicable form or believes the information provided on it is incorrect and the taxpayer has followed the required procedures.

Form 4868 – Application for Automatic Extension of Time to File

IRS Form 4868 allows eligible individual taxpayers to request an automatic extension of time to file their federal income tax return. An extension to file does not automatically extend the time to pay taxes owed.

Form 656 – Offer in Compromise

IRS Form 656 is used as part of an Offer in Compromise (OIC) application. An OIC is an agreement with the IRS that may allow an eligible taxpayer to settle certain federal tax liabilities for less than the full amount owed.

Because an Offer in Compromise involves detailed financial information and specific IRS eligibility requirements, taxpayers should carefully review the applicable IRS instructions before submitting an application.

Form 656-B – Offer in Compromise Booklet

IRS Form 656-B is the IRS Offer in Compromise booklet. It contains Form 656 and related forms and instructions used for certain OIC applications, including the financial disclosure forms applicable to individuals and businesses.

Form 656-PPV – Offer in Compromise – Periodic Payment Voucher

IRS Form 656-PPV is associated with periodic payments for certain Offer in Compromise applications. Taxpayers using this process must follow the payment requirements and instructions established by the IRS.

Form 720 – Quarterly Federal Excise Tax Return

IRS Form 720 is used by businesses to report and pay federal excise taxes on specific goods, services, and activities subject to federal excise tax.

Form 8283 – Noncash Charitable Contributions

IRS Form 8283 is generally used by taxpayers who claim deductions for qualifying noncash charitable contributions when the applicable reporting requirements are met.

Form 8379 – Injured Spouse Allocation

IRS Form 8379 may help a spouse recover their share of a federal tax refund when a joint refund is applied to certain debts or obligations attributable to the other spouse. This is commonly known as an injured spouse claim.

Form 8396 – Mortgage Interest Credit

IRS Form 8396 is used by eligible taxpayers who have a qualifying Mortgage Credit Certificate issued by a state or local government agency. The form is used to calculate the applicable mortgage interest credit.

Form 843 – Claim for Refund and Request for Abatement

IRS Form 843 is used to request a refund or abatement of certain qualifying taxes, penalties, interest, fees, or additions to tax. It is important to use Form 843 only for situations covered by the form and IRS instructions; it is not a general-purpose form for amending an income tax return.

Form 8615 – Tax for Certain Children With Unearned Income

IRS Form 8615 is used to calculate federal income tax that may apply to certain children who have qualifying unearned income. The applicable rules and income thresholds can change, so taxpayers should use the instructions for the relevant tax year.

Form 8821 – Tax Information Authorization

IRS Form 8821 authorizes a designated individual or organization to receive and inspect certain confidential tax information from the IRS. Unlike Form 2848, Form 8821 generally does not authorize the designated person to represent the taxpayer before the IRS.

Form 8822 – Change of Address

IRS Form 8822 is used to notify the IRS of a change in a taxpayer’s mailing address. Keeping your address current can help ensure that important IRS notices and correspondence reach you.

Form 8829 – Expenses for Business Use of Your Home

IRS Form 8829 is used by eligible taxpayers to calculate certain expenses associated with qualifying business use of a home. The resulting information may be used in determining allowable deductions.

Form 8839 – Qualified Adoption Expenses

IRS Form 8839 is used to calculate the federal adoption credit and determine certain employer-provided adoption benefits that may qualify for exclusion from income.

Form 8863 – Education Credits

IRS Form 8863 is used by eligible taxpayers to calculate and claim qualifying education tax credits, including the American Opportunity Credit and Lifetime Learning Credit, when the applicable requirements are satisfied.

Form 8888 – Allocation of Refund

IRS Form 8888 allows eligible taxpayers to provide instructions for allocating a federal tax refund among qualifying financial accounts and, when applicable, to purchase eligible U.S. savings bonds.

Form 8889 – Health Savings Accounts

IRS Form 8889 is used by taxpayers with qualifying Health Savings Accounts (HSAs) to report HSA contributions, calculate applicable deductions, and report distributions.

Form 8917 – Tuition and Fees Deduction

IRS Form 8917 is associated with the federal tuition and fees deduction for tax years in which the deduction is available. Taxpayers should verify the applicable tax-year rules before using this form.

Form 921 – Consent to Extend the Time to Assess Income Tax

IRS Form 921 is used in certain circumstances to provide consent to extend the period in which the IRS may assess federal income tax. Because the form concerns tax assessment periods and limitations, taxpayers should carefully review the applicable IRS instructions and circumstances before signing.

The IRS currently lists Form 921 as a July 2001 revision, so it is particularly important to verify that it applies to your specific situation before using it.

Form 940 – Employer’s Annual Federal Unemployment (FUTA) Tax Return

IRS Form 940 is used by employers to report their annual federal unemployment tax liability under the Federal Unemployment Tax Act (FUTA).

Form 941 – Employer’s Quarterly Federal Tax Return

IRS Form 941 is generally used by employers to report federal income tax withheld from employees’ wages, Social Security and Medicare taxes, and the employer’s share of applicable Social Security and Medicare taxes.

Form 9423 – Collection Appeal Request

IRS Form 9423 can be used to request an appeal of certain IRS collection actions. Depending on the circumstances, this may involve issues such as a federal tax levy, seizure, federal tax lien-related action, or termination of an installment agreement.

Form 944 – Employer’s Annual Federal Tax Return

IRS Form 944 is an annual federal employment tax return available to certain small employers that have been notified by the IRS that they qualify to file annually rather than quarterly.

Form 945 – Annual Return of Withheld Federal Income Tax

IRS Form 945 is used to report federal income tax withheld from certain nonpayroll payments. Examples can include withholding from pensions, annuities, gambling winnings, and other applicable payments.

Form 9465 – Installment Agreement Request

IRS Form 9465 is used by eligible taxpayers to request an IRS installment agreement when they cannot pay their federal tax balance in full by the applicable deadline.

An installment agreement may allow a taxpayer to make monthly payments toward an outstanding IRS tax debt, subject to IRS eligibility requirements and collection procedures.

Form W-2 – Wage and Tax Statement

IRS Form W-2, known as the Wage and Tax Statement, reports an employee’s wages and certain taxes withheld from those wages during the year.

Employers generally provide Form W-2 to employees and report the information to the IRS and applicable state tax authorities. Taxpayers use the information from their W-2 when preparing their federal and state income tax returns.

A W-2 typically includes information such as:

Wages, tips, and other compensation
Federal income tax withheld
Social Security wages and tax withheld
Medicare wages and tax withheld
State wages and state income tax withheld, when applicable
Certain employer-provided benefits and other compensation information

If the information on a W-2 is incorrect, missing, or inconsistent with a taxpayer’s records, it is important to address the discrepancy. An incorrect W-2 can potentially affect the amount of tax reported on a federal tax return.

Form W-2G – Certain Gambling Winnings

IRS Form W-2G is used to report certain gambling winnings and, when applicable, federal income tax withheld from gambling proceeds.

A taxpayer may receive Form W-2G after receiving qualifying gambling winnings from activities such as casino games, lotteries, raffles, horse racing, bingo, keno, or other wagering activities.

The reporting requirements and thresholds depend on the type of gambling activity and applicable IRS rules. Because gambling reporting requirements can change, taxpayers should refer to the current IRS instructions rather than relying on an outdated dollar amount.

Gambling winnings are generally taxable income and may need to be reported on a federal income tax return even when a taxpayer does not receive a Form W-2G.

Form W-4 – Employee’s Withholding Certificate

IRS Form W-4, known as the Employee’s Withholding Certificate, is completed by employees so their employer can determine the appropriate amount of federal income tax to withhold from their paychecks.

The information provided on Form W-4 can take into account factors such as:

Filing status
Multiple jobs or a working spouse
Dependents
Other income
Expected deductions
Additional federal income tax withholding

Employees may generally submit an updated W-4 to their employer when their personal or financial circumstances change.

Properly completing Form W-4 can help taxpayers avoid having significantly too much or too little federal income tax withheld throughout the year. If insufficient tax is withheld, a taxpayer could face a balance due when filing their federal income tax return and, in some circumstances, an estimated tax penalty.

Form W-9 – Request for Taxpayer Identification Number and Certification

IRS Form W-9 is used to provide a taxpayer identification number and certain certification information to a person or business that may need to report payments to the IRS.

Form W-9 is commonly used in business relationships involving independent contractors, freelancers, self-employed individuals, vendors, and other payees.

Information generally requested on Form W-9 includes the taxpayer’s:

Legal name
Business name, when applicable
Federal tax classification
Address
Taxpayer Identification Number (TIN)

The information provided on a W-9 may subsequently be used by the payer to prepare an information return such as Form 1099-NEC or another applicable 1099 form.

Unlike Form W-4, which is generally associated with employees and payroll withholding, Form W-9 is commonly associated with independent contractors and other payees whose income may be subject to information reporting.

Franchise Tax

Definition:
A tax imposed by some states on businesses for the privilege of operating within the state.

Tax Context:
Despite the name, it is generally not related to owning a franchise business.

Fraud Penalty

Definition:
A penalty imposed when a taxpayer intentionally provides false information or attempts to evade taxes.

Fringe Benefit

Definition:
A benefit provided by an employer in addition to wages or salary.

Examples:

• Health insurance
• Employer-provided vehicles
• Certain education benefits

Full-Time Employee

Definition:
An employee who meets IRS or employer-defined requirements for full-time work.

Tax Context:
Relevant for certain employer tax provisions, including health care reporting.

FUTA (Federal Unemployment Tax Act)

Definition:
A federal payroll tax used to fund unemployment compensation programs.

Tax Context:
Generally paid by employers, not withheld from employee wages.

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G

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Gain

Definition:
The amount realized from selling or disposing of property that exceeds the property’s adjusted basis.

Formula:

Amount Realized − Adjusted Basis = Gain

General Business Credit

Definition:
A group of federal business tax credits combined into one credit calculation.

Examples:

• Research credit
• Work Opportunity Tax Credit
• Energy credits

Generation-Skipping Transfer (GST)

Definition:
A transfer of property to someone who is at least two generations below the transferor.

Example:

• Grandparent transferring assets directly to grandchildren

Generation-Skipping Transfer Tax (GST Tax)

Definition:
A federal tax imposed on certain transfers that skip a generation.

Gift

Definition:
A transfer of money or property where the recipient does not provide equal value in return.

Gift Tax

Definition:
A federal tax on certain transfers of property or money during a person’s lifetime.

Gift Splitting

Definition:
An election allowing a married couple to treat gifts made by one spouse as if made equally by both spouses.

Goodwill

Definition:
An intangible business asset representing the value of a business’s reputation, customer relationships, or brand.

Tax Context:
Certain purchased goodwill may be amortized.

Government Pension

Definition:
Retirement income provided by a government employer.

Tax Context:
Tax treatment depends on the jurisdiction and type of pension.

Grantor

Definition:
A person who creates or transfers assets into a trust.

Grantor Trust

Definition:
A trust where the grantor retains certain powers causing the trust income to be taxed to the grantor.

Gross Estate

Definition:
The total value of property and assets owned or controlled by a person at death before deductions.

Gross Income

Definition:
All income received from taxable sources before deductions or adjustments.

Examples:

• Wages
• Business income
• Interest
• Dividends
• Rental income

Gross Receipts

Definition:
The total amount received by a business before subtracting expenses.

Group-Term Life Insurance

Definition:
Employer-provided life insurance coverage offered to a group of employees.

Tax Context:
Certain amounts of employer-provided coverage may be excluded from taxable income.

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H

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Head of Household (HOH)

Definition:
A filing status available to certain unmarried taxpayers who pay more than half the cost of maintaining a home for a qualifying person.

Tax Context:
Generally provides more favorable tax rates and a larger standard deduction than Single filing status.

Health Savings Account (HSA)

Definition:
A tax-advantaged account used to pay qualified medical expenses.

Tax Benefits:

• Contributions may be deductible
• Growth may be tax-free
• Qualified withdrawals may be tax-free

Hobby

Definition:
An activity conducted primarily for recreation or personal enjoyment rather than profit.

Tax Context:
Income from hobbies is generally taxable, but deductions are limited.

Hobby Loss Rules

Definition:
IRS rules determining whether an activity is treated as a business or hobby.

Tax Context:
Loss deductions may be restricted if an activity is not conducted for profit.

Home Office

Definition:
A portion of a taxpayer’s residence used regularly and exclusively for business purposes.

Home Office Deduction

Definition:
A tax deduction available to qualifying taxpayers for business use of part of their home.

Methods:

• Simplified method
• Regular expense method

Household Employee

Definition:
A person who performs household work for an individual employer.

Examples:

• Nanny
• Housekeeper
• Caregiver

Household Employment Taxes

Definition:
Employment taxes that may apply when a taxpayer hires household workers.

May Include:

• Social Security and Medicare taxes
• Federal unemployment tax
• Income tax withholding

Horizontal Equity

Definition:
A tax principle stating that taxpayers with similar financial circumstances should pay similar amounts of tax.

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Identity Protection PIN (IP PIN)

Definition:
A six-digit number issued by the IRS to eligible taxpayers to help prevent someone else from filing a fraudulent federal tax return using their Social Security number.

Tax Context:
The IP PIN must be included on certain federal tax filings to verify the taxpayer’s identity.

Imputed Income

Definition:
Income assigned to a taxpayer even though no direct payment was received.

Examples:

• Certain employer-provided benefits
• Personal use of employer property

Tax Context:
Some imputed income must be reported as taxable wages.

Income

Definition:
Money, compensation, profits, or other economic benefits received by a taxpayer.

Examples:

• Wages
• Interest
• Dividends
• Business earnings
• Rental income

Income Tax

Definition:
A tax imposed on taxable income earned by individuals, businesses, estates, and trusts.

Income Tax Bracket

Definition:
A range of taxable income subject to a specific tax rate.

Tax Context:
The United States uses a progressive income tax system where different portions of income may be taxed at different rates.

Income Tax Return

Definition:
A form submitted to a tax authority reporting income, deductions, credits, and tax liability.

Examples:

• Individual income tax returns
• Business tax returns
• Fiduciary returns

Independent Contractor

Definition:
A self-employed worker who provides services but is not treated as an employee of the payer.

Tax Responsibilities May Include:

• Paying self-employment tax
• Making estimated tax payments
• Reporting business income

Indexed Amount

Definition:
A dollar amount adjusted periodically for inflation.

Tax Context:
Many tax provisions, including tax brackets, deductions, and credits, are indexed annually.

Individual Retirement Arrangement (IRA)

Definition:
A tax-advantaged retirement savings account allowing individuals to save for retirement.

Types:

• Traditional IRA
• Roth IRA

Individual Taxpayer Identification Number (ITIN)

Definition:
A tax processing number issued by the IRS to individuals who are required to file taxes but are not eligible for a Social Security number.

Information Return

Definition:
A tax document used to report payments, income, or transactions to the IRS and taxpayers.

Examples:

• Forms 1099
• Form W-2

Inheritance

Definition:
Money, property, or assets received from a deceased person.

Tax Context:
Inherited property may receive special basis treatment, such as a step-up in basis.

Inherited IRA

Definition:
An IRA inherited by a beneficiary after the account owner’s death.

Tax Context:
Distribution rules depend on beneficiary type and applicable IRS requirements.

Innocent Spouse Relief

Definition:
A tax relief provision that may protect a spouse from responsibility for certain unpaid taxes caused by errors or omissions on a joint return.

Innocent Spouse Relief Requirements generally involve:

• Incorrect tax reporting
• Lack of knowledge
• Fairness considerations

Installment Agreement

Definition:
An IRS-approved payment arrangement allowing taxpayers to pay tax debt over time.

Tax Context:
The taxpayer remains responsible for interest and applicable penalties.

Installment Sale

Definition:
A sale where payments are received over multiple tax years.

Tax Context:
Certain qualifying gains may be reported as payments are received rather than entirely in the year of sale.

Intangible Asset

Definition:
A nonphysical asset with economic value.

Examples:

• Patents
• Trademarks
• Copyrights
• Goodwill

Interest

Definition:
A charge for borrowing money or income earned from lending or investing money.

Tax Context:
Interest may be:

• Taxable
• Deductible
• Tax-exempt

Interest Income

Definition:
Income earned from interest-producing investments or accounts.

Examples:

• Bank accounts
• Bonds
• Certificates of deposit

Internal Revenue Code (IRC)

Definition:
The collection of federal tax laws enacted by Congress.

Tax Context:
The IRC provides the legal foundation for federal taxation.

Internal Revenue Service (IRS)

Definition:
The federal agency responsible for administering and enforcing U.S. tax laws.

Responsibilities Include:

• Processing tax returns
• Collecting taxes
• Issuing refunds
• Conducting audits
• Providing taxpayer guidance

Inventory

Definition:
Goods held by a business for sale or production.

Tax Context:
Businesses generally account for inventory costs when calculating cost of goods sold.

Investment Income

Definition:
Income generated from investments.

Examples:

• Interest
• Dividends
• Capital gains
• Rental income

Investment Interest Expense

Definition:
Interest paid on debt used to purchase investment property.

Tax Context:
Deductibility may be limited by IRS rules.

Investment Tax Credit

Definition:
A tax credit available for certain qualifying investments, often related to energy or business assets.

Involuntary Conversion

Definition:
The forced replacement or disposal of property due to events such as destruction, theft, condemnation, or government action.

Tax Context:
Certain involuntary conversions may qualify for deferred gain treatment.

Itemized Deductions

Definition:
Specific eligible expenses taxpayers may deduct instead of taking the standard deduction.

Examples:

• Mortgage interest
• State and local taxes (subject to limits)
• Charitable contributions
• Medical expenses above applicable thresholds

IRS Notice

Definition:
A written communication from the IRS explaining tax issues, requests, balances, adjustments, or actions.

Examples:

• Payment notices
• Audit notices
• Correction notices

IRS Transcript

Definition:
An official record of tax return information maintained by the IRS.

Types Include:

• Tax return transcript
• Account transcript
• Wage and income transcript

Issuer

Definition:
The organization or entity that creates and distributes a financial instrument.

Examples:

• Corporation issuing stock
• Government issuing bonds

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J

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Jock Tax

Definition:
A nickname for income taxes imposed on professional athletes and entertainers who earn income in multiple jurisdictions.

Tax Context:
Athletes may owe taxes in states or cities where games or events occur.

Joint and Several Liability

Definition:
A rule stating that each spouse filing a joint return may be responsible for the entire tax liability.

Tax Context:
One spouse may be held responsible even if the other spouse caused the tax problem.

Joint Return

Definition:
A tax return filed jointly by two married taxpayers reporting combined income and deductions.

Federal Filing Status:
Married Filing Jointly (MFJ)

Joint Venture

Definition:
A business arrangement where two or more parties agree to share ownership, profits, losses, or control.

Tax Context:
Tax treatment depends on the legal structure and agreements.

Judicial Review

Definition:
Review of a tax dispute by a court.

Jurat

Definition:
A written declaration on a document confirming that statements are made under penalty of perjury.

Tax Context:
Tax forms often include jurat language requiring taxpayer certification.

Justice Department Tax Division

Definition:
A division of the U.S. Department of Justice responsible for representing the government in certain tax-related legal matters.

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Keogh Plan (HR-10 Plan)

Definition:
A retirement plan available to certain self-employed individuals and unincorporated business owners.

Tax Context:
Contributions may receive tax advantages subject to IRS limits.

Kiddie Tax

Definition:
A tax rule applying special tax rates to certain children’s unearned income.

Purpose:
Prevents shifting investment income to children to obtain lower tax rates.

K-1 (Schedule K-1)

Definition:
A tax document reporting a taxpayer’s share of income, deductions, credits, and other items from certain pass-through entities.

Common Sources:

• Partnerships
• S corporations
• Trusts and estates

Key Employee

Definition:
An employee who meets IRS criteria based on ownership, compensation, or authority within an organization.

Tax Context:
Relevant for retirement plan nondiscrimination rules.

Key Person Insurance

Definition:
Life insurance purchased by a business on an important employee, owner, or executive.

Purpose:

• Protect against financial loss after death of a key individual

Knowledge Test

Definition:
A requirement used in certain tax rules to determine whether a taxpayer has sufficient understanding or information regarding a claim or transaction.

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Land Improvement

Definition:
An improvement made to land that has a determinable useful life.

Examples:

• Landscaping
• Fences
• Parking areas

Tax Context:
Certain land improvements may be depreciable.

Lease

Definition:
A contractual agreement allowing one party to use property owned by another party for payment.

Tax Context:
Lease payments may be deductible depending on business or personal use.

Leasehold Improvement

Definition:
A modification made by a tenant to leased property.

Examples:

• Office renovations
• Built-in fixtures

Legal Residence

Definition:
The location considered a taxpayer’s permanent home for legal purposes.

Tax Context:
Residence can affect state tax obligations.

Levy

Definition:
A legal seizure of property or assets by a taxing authority to collect unpaid taxes.

Examples:

• Bank account levy
• Wage levy

Liability

Definition:
A financial obligation or debt owed by an individual or business.

Tax Context:
Tax liabilities represent amounts owed to tax authorities.

Like-Kind Exchange

Definition:
An exchange of similar investment or business property that may qualify for deferred gain treatment.

Federal Rule:
Most commonly applies to real property exchanges under Section 1031.

Limited Liability Company (LLC)

Definition:
A legal business structure providing limited liability protection to owners.

Tax Treatment:
An LLC may generally elect taxation as:

• Sole proprietorship
• Partnership
• S corporation
• Corporation

Limited Partner

Definition:
An owner in a partnership whose liability and participation in management are limited.

Liquidating Distribution

Definition:
A payment made to owners when a business entity is being dissolved.

Liquidation

Definition:
The process of converting assets into cash and settling obligations.

Listed Property

Definition:
Property requiring special tax documentation because it may have both business and personal uses.

Examples:

• Certain vehicles
• Computers
• Cameras

Long-Term Capital Gain

Definition:
Gain from selling a capital asset held for more than the required long-term holding period.

Tax Context:
Long-term capital gains may receive preferential tax rates.

Long-Term Capital Loss

Definition:
A loss from selling a capital asset held for the long-term period.

Loss Carryback

Definition:
Applying certain losses to prior tax years to reduce previously reported taxable income.

Loss Carryforward

Definition:
Applying unused losses to future tax years.

Examples:

• Capital losses
• Net operating losses

Lump-Sum Distribution

Definition:
A payment of an entire balance from a retirement plan or account in one transaction.

Luxury Tax

Definition:
A tax imposed on high-cost goods or services considered nonessential or luxury items.

Examples:

• Certain vehicles
• High-value goods

Lifetime Estate and Gift Tax Exemption

Definition:
The total amount an individual may transfer during life and at death before federal estate or gift tax applies.

Local Income Tax

Definition:
An income tax imposed by a city, county, or local government.

Local Property Tax

Definition:
A tax imposed by local governments based on property value.

Look-Back Rule

Definition:
A tax rule requiring a review of prior periods to determine tax treatment or obligations.

Examples:

• Certain installment sales
• Retirement plan rules

Low-Income Housing Tax Credit (LIHTC)

Definition:
A federal tax credit designed to encourage investment in affordable rental housing.

Lobbying Expenses

Definition:
Costs related to attempting to influence legislation or government decisions.

Tax Context:
Many lobbying expenses are not deductible.

Loan Origination Fee

Definition:
A fee charged by a lender for processing and establishing a loan.

Tax Context:
Treatment depends on the type of loan and taxpayer circumstances.

Loan Forgiveness

Definition:
Cancellation of a borrower’s obligation to repay a loan.

Tax Context:
Forgiven debt may create taxable income unless an exception applies.

Long-Term Disability Benefits

Definition:
Payments received due to a qualifying disability lasting an extended period.

Tax Context:
Taxability depends on how premiums were paid and the nature of the benefit.

Long-Term Care Insurance

Definition:
Insurance designed to cover extended medical or personal care services.

Tax Context:
Certain premiums may qualify for tax benefits.

Long-Term Care Expenses

Definition:
Costs associated with qualifying long-term medical or personal care services.

Loss Limitation Rules

Definition:
Tax rules restricting the amount of losses that may be deducted in a tax year.

Examples:

• At-risk rules
• Passive activity loss rules
• Excess business loss limitations

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Marginal Tax Rate

Definition:
The tax rate applied to the next dollar of taxable income earned.

Tax Context:
In a progressive tax system, taxpayers may have multiple marginal tax rates because different portions of income fall into different tax brackets.

Market Value

Definition:
The estimated price an asset would receive in an open and competitive market.

Married Filing Jointly (MFJ)

Definition:
A filing status used by married taxpayers who combine their income, deductions, and credits on one tax return.

Tax Context:
MFJ often provides lower tax rates and access to more tax benefits than separate filing.

Married Filing Separately (MFS)

Definition:
A filing status where married taxpayers file separate tax returns.

Tax Context:
Certain deductions and credits may be limited or unavailable under MFS status.

Material Participation

Definition:
A taxpayer’s substantial involvement in a business or activity.

Tax Context:
Material participation determines whether income or losses are treated as active or passive.

Medical Expense Deduction

Definition:
A deduction for certain qualified medical expenses exceeding the applicable percentage of adjusted gross income.

Examples:

• Doctor visits
• Prescription medications
• Certain medical equipment

Medicare Tax

Definition:
A payroll tax used to fund the Medicare program.

Tax Context:
Employees and employers generally pay Medicare tax on wages.

Merchant Processing Fees

Definition:
Fees charged by payment processors for handling credit card, debit card, or electronic payments.

Tax Context:
Generally deductible business expenses.

Mileage Rate

Definition:
The IRS-approved per-mile rate used to calculate certain vehicle deductions.

Tax Context:
May apply to business, medical, moving, or charitable mileage when allowed.

Mineral Rights

Definition:
Legal rights to extract minerals or natural resources from land.

Tax Context:
Income from mineral rights may involve depletion deductions.

Minimum Tax

Definition:
A tax system designed to ensure certain taxpayers pay at least a minimum amount of tax.

Example:

• Alternative Minimum Tax (AMT)

Miscellaneous Income

Definition:
Income received from sources not classified under common income categories.

Examples:

• Prizes
• Awards
• Certain payments reported on Form 1099

Miscellaneous Itemized Deductions

Definition:
Certain itemized deductions historically allowed for specific expenses.

Tax Context:
Many miscellaneous itemized deductions were suspended under federal law for certain tax years

Modified Adjusted Gross Income (MAGI)

Definition:
A taxpayer’s adjusted gross income modified by adding back certain amounts for specific tax purposes.

Tax Context:
MAGI is used for determining eligibility for:

• IRA contributions
• Education benefits
• Health-related tax benefits

Modified Cash Basis

Definition:
An accounting method combining elements of cash and accrual accounting.

Money Market Account

Definition:
A deposit or investment account that typically earns interest and may provide limited transaction features.

Tax Context:
Interest earned is generally taxable unless specifically exempt.

Mortgage

Definition:
A loan secured by real property.

Tax Context:
Mortgage-related costs may have tax implications, including interest deductions for qualifying taxpayers.

Mortgage Interest

Definition:
Interest paid on a mortgage loan.

Tax Context:
Certain mortgage interest may be deductible if IRS requirements are met.

Mortgage Interest Deduction

Definition:
A tax deduction allowing eligible taxpayers to deduct qualifying mortgage interest.

Moving Expenses

Definition:
Costs related to relocating from one residence to another.

Tax Context:
Federal deductions for moving expenses are generally limited, with certain exceptions such as qualifying military moves.

Municipal Bond

Definition:
A bond issued by a state or local government.

Tax Context:
Interest from qualifying municipal bonds is often exempt from federal income tax.

Mutual Fund

Definition:
An investment fund pooling money from multiple investors to purchase securities.

Tax Context:
Investors may receive taxable dividends, interest, and capital gains distributions.

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Net Capital Gain

Definition:
Capital gains remaining after subtracting capital losses.

Net Capital Loss

Definition:
Capital losses exceeding capital gains.

Tax Context:
Individuals may deduct limited amounts of net capital loss against ordinary income, with remaining losses carried forward.

Net Earnings From Self-Employment

Definition:
Income from self-employment after allowable business deductions.

Tax Context:
Used to calculate self-employment tax.

Net Income

Definition:
Income remaining after subtracting allowable expenses.

Formula:

Gross Income − Expenses = Net Income

Net Investment Income

Definition:
Income from investments after applicable deductions.

Examples:

• Interest
• Dividends
• Capital gains
• Rental income

Net Investment Income Tax (NIIT)

Definition:
A 3.8% federal tax imposed on certain net investment income of taxpayers above applicable income thresholds.

Net Operating Loss (NOL)

Definition:
A business loss occurring when allowable deductions exceed taxable income.

Tax Context:
NOLs may generally be carried forward to offset future taxable income.

Net Worth

Definition:
The value of assets minus liabilities.

Formula:

Assets − Debts = Net Worth

Noncash Charitable Contribution

Definition:
A donation of property or goods rather than money.

Examples:

• Clothing
• Vehicles
• Securities

Nongrantor Trust

Definition:
A trust that is treated as a separate taxpayer from the grantor.

Nonqualified Deferred Compensation

Definition:
A compensation arrangement that allows employees to defer receiving income until a future date but does not meet qualified retirement plan rules.

Nonresident

Definition:
A person who does not meet the residency requirements of a particular jurisdiction.

Nonresident Alien

Definition:
A foreign individual who is not a U.S. citizen and does not meet the requirements to be treated as a U.S. resident for tax purposes.

Nonrefundable Credit

Definition:
A tax credit that can reduce tax liability to zero but generally cannot create a refund beyond taxes owed.

Not Collectible / Currently Not Collectible (CNC)

Definition:
An IRS status indicating that collection of unpaid taxes is temporarily suspended because payment would create financial hardship.

Not-for-Profit Organization

Definition:
An organization operated for purposes other than generating profits for owners.

Examples:

• Charities
• Educational organizations

Notice of Deficiency

Definition:
An official IRS notice proposing an increase in tax owed.

Tax Context:
The taxpayer generally has a limited period to challenge the proposed deficiency in Tax Court.

Notice of Federal Tax Lien

Definition:
A public filing indicating the government’s legal claim against a taxpayer’s property due to unpaid taxes.

Nexus

Definition:
A connection between a taxpayer or business and a state or jurisdiction that creates tax obligations.

Examples:

• Physical presence
• Employees
• Sales activity

Nominee

Definition:
A person or entity holding property or receiving income on behalf of another person.

Tax Context:
Nominees may have reporting obligations.

Nontaxable Income

Definition:
Income excluded from taxation under federal or state law.

Examples:

• Certain life insurance proceeds
• Certain municipal bond interest

Normal Retirement Age

Definition:
The age established under retirement plan rules when a participant may receive full retirement benefits.

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Offer in Compromise (OIC)

Definition:
An agreement allowing a taxpayer to settle tax debt for less than the full amount owed when certain IRS requirements are satisfied.

Factors Considered:

• Ability to pay
• Income
• Expenses
• Asset equity

Office in Home

Definition:
A portion of a taxpayer’s residence used for business purposes.

Tax Context:
May qualify for the home office deduction if IRS requirements are met.

Ordinary and Necessary Business Expense

Definition:
A business expense that is common, accepted, helpful, and appropriate for a trade or business.

Ordinary Dividend

Definition:
A dividend taxed as ordinary income rather than at qualified dividend rates.

Ordinary Income

Definition:
Income taxed at ordinary income tax rates.

Examples:

• Wages
• Interest
• Business income

Original Issue Discount (OID)

Definition:
The difference between the stated redemption price of a debt instrument and its original issue price.

Tax Context:
OID may be treated as taxable interest income over the life of the instrument.

Overpayment

Definition:
A situation where a taxpayer pays more tax than required.

Tax Treatment:

• Refund
• Credit toward future taxes

Overpayment Interest

Definition:
Interest paid by a tax authority on certain tax refunds issued late.

Overseas Income

Definition:
Income earned from sources outside the taxpayer’s home country.

Tax Context:
U.S. taxpayers generally must report worldwide income.

Ownership Interest

Definition:
A person’s legal or economic stake in an entity or property.

Opportunity Zone

Definition:
A designated economically distressed area where certain investments may receive tax benefits.

Opportunity Zone Fund

Definition:
An investment vehicle organized to invest in qualified opportunity zones.

Operating Expense

Definition:
A routine cost of running a business.

Examples:

• Rent
• Utilities
• Payroll
• Supplies

Operating Loss

Definition:
A loss resulting when operating expenses exceed operating revenue.

Organizational Costs

Definition:
Costs associated with forming a business entity.

Examples:

• Legal fees
• Incorporation fees

Out-of-State Income

Definition:
Income earned from sources outside a taxpayer’s resident state.

Offset

Definition:
The application of one amount against another amount.

Tax Context:
The IRS may offset refunds to pay certain outstanding debts.

Occupational Tax

Definition:
A tax imposed on individuals or businesses for engaging in a particular occupation or activity.

Omitted Income

Definition:
Income that a taxpayer failed to report on a tax return.

Offshore Account

Definition:
A financial account maintained outside the taxpayer’s country of residence.

Tax Context:
Certain foreign accounts require reporting.

Option

Definition:
A financial contract giving the holder the right, but not the obligation, to buy or sell an asset.

Option Premium

Definition:
The amount paid to purchase an option contract.

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Paid Preparer

Definition:
A person who prepares tax returns for compensation.

Partnership

Definition:
A business relationship where two or more persons carry on a trade or business together.

Tax Treatment:
Generally a pass-through entity.

Partnership Agreement

Definition:
A legal document describing ownership, responsibilities, profit sharing, and obligations of partners.

Partnership Return

Definition:
A tax return filed by a partnership reporting income, deductions, and allocations.

Federal Form:
IRS Form 1065

Pass-Through Entity

Definition:
A business entity where income passes through to owners and is taxed on their individual returns.

Examples:

• Partnerships
• S corporations
• Certain LLCs

Passive Activity

Definition:
A business or rental activity in which the taxpayer does not materially participate.

Passive Activity Loss (PAL)

Definition:
A loss generated from passive activities.

Tax Context:
Passive losses are generally limited and may be carried forward.

Passive Income

Definition:
Income earned from activities in which the taxpayer does not materially participate.

Examples:

• Certain rentals
• Limited partnerships

Pay-As-You-Go Tax System

Definition:
A tax payment system requiring taxes to be paid throughout the year as income is earned.

Methods:

• Withholding
• Estimated tax payments

Payroll Tax

Definition:
Taxes imposed on wages and employment.

Examples:

• Social Security tax
• Medicare tax
• FUTA tax

Penalty

Definition:
A financial charge imposed for failing to comply with tax requirements.

Examples:

• Late filing penalty
• Late payment penalty
• Accuracy-related penalty

Penalty Abatement

Definition:
Removal or reduction of tax penalties when requirements are met.

Common Reason:

• Reasonable cause

Pension

Definition:
A retirement arrangement providing periodic payments after retirement.

Per Diem

Definition:
A daily allowance for certain travel-related expenses.

Tax Context:
Businesses may use IRS-approved per diem rates.

Permanent Establishment

Definition:
A fixed place of business that may create tax obligations in another jurisdiction.

Personal Exemption

Definition:
A former deduction allowing taxpayers to reduce taxable income for themselves and dependents.

Personal Property Tax

Definition:
A tax imposed on movable property.

Examples:

• Vehicles
• Equipment

Portfolio Income

Definition:
Income earned from investments.

Examples:

• Interest
• Dividends
• Capital gains

Preparer Tax Identification Number (PTIN)

Definition:
A number issued by the IRS identifying individuals who prepare federal tax returns for compensation.

Pretax Contribution

Definition:
A contribution made before income taxes are calculated.

Examples:

• Traditional IRA contributions
• Certain retirement plan contributions

Principal Residence

Definition:
A taxpayer’s main home.

Tax Context:
Important for:

• Mortgage deductions
• Home sale exclusions

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Qualified Business Income (QBI)

Definition:
Income earned from a qualified trade or business that may qualify for a federal deduction under Section 199A.

Tax Context:
Eligible taxpayers may deduct a percentage of qualified business income subject to limitations.

Qualified Business Income Deduction (QBID)

Definition:
A deduction available to eligible owners of pass-through businesses that allows a deduction for qualified business income.

Applies To:

• Sole proprietorships
• Partnerships
• S corporations
• Certain LLCs

Qualified Charitable Distribution (QCD)

Definition:
A distribution from an IRA directly paid to a qualified charity.

Tax Context:
Eligible taxpayers may exclude qualifying QCD amounts from taxable income.

Qualified Dividend

Definition:
A dividend that meets IRS requirements for taxation at preferential long-term capital gain rates.

Requirements Generally Include:

• Holding period requirements
• Eligible corporation requirements

Qualified Improvement Property (QIP)

Definition:
Certain improvements made to the interior portion of nonresidential buildings after the building is placed in service.

Tax Context:
May qualify for accelerated depreciation treatment.

Qualified Plan

Definition:
A retirement plan that meets IRS requirements under the Internal Revenue Code.

Examples:

• 401(k) plans
• Profit-sharing plans
• Pension plans

Qualified Small Business Stock (QSBS)

Definition:
Stock issued by certain qualified small businesses that may receive favorable tax treatment if holding and eligibility requirements are met.

Qualified Tuition Program (529 Plan)

Definition:
A tax-advantaged savings program designed to help pay qualified education expenses.

Tax Benefits:

• Tax-deferred growth
• Tax-free qualified withdrawals

Qualifying Child

Definition:
A person who meets IRS relationship, age, residency, and support requirements for certain tax benefits.

Examples:

• Child
• Stepchild
• Foster child
• Sibling in certain circumstances

Qualifying Relative

Definition:
A person who meets IRS relationship, income, and support requirements to qualify as a dependent.

Qualifying Surviving Spouse

Definition:
A filing status available to certain widowed taxpayers who meet IRS requirements.

Tax Context:
Provides benefits similar to Married Filing Jointly for a limited period.

Quarterly Estimated Tax

Definition:
Periodic tax payments generally made four times per year by taxpayers who do not have sufficient withholding.

Quasi-Community Property

Definition:
Property acquired while living in a non-community-property state that may receive community-property treatment under certain state laws.

Quick Refund

Definition:
An accelerated refund process available in certain tax situations.

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Real Estate Professional

Definition:
A taxpayer who meets IRS requirements for material participation in real property trades or businesses.

Tax Context:
May affect treatment of rental real estate losses.

Real Estate Tax

Definition:
A tax imposed on real property, usually by state or local governments.

Realized Gain

Definition:
A gain recognized when a taxpayer sells, exchanges, or otherwise disposes of property.

Realized Loss

Definition:
A loss recognized when property is disposed of for less than its adjusted basis.

Reasonable Cause

Definition:
A legitimate reason for failing to meet a tax requirement that may justify penalty relief.

Examples:

• Serious illness
• Natural disaster
• Incorrect professional advice

Recapture

Definition:
A tax rule requiring previously claimed deductions, credits, or benefits to be included as taxable income under certain circumstances.

Examples:

• Depreciation recapture
• Investment credit recapture

Refund

Definition:
Money returned to a taxpayer when payments exceed tax liability.

Common Causes:

• Excess withholding
• Tax credits
• Overpayment

Refundable Credit

Definition:
A tax credit that may create a refund even when the taxpayer has no remaining tax liability.

Examples:

• Earned Income Tax Credit
• Certain portions of education credits

Registered Tax Return Preparer (Historical)

Definition:
A former IRS designation for certain tax return preparers.

Tax Context:
The program was discontinued as an IRS credential category.

Related Party

Definition:
A person or entity with a close relationship to another taxpayer.

Examples:

• Family members
• Controlled corporations
• Certain business relationships

Rental Income

Definition:
Income received from renting property to another party.

Rental Property

Definition:
Real estate held to generate rental income.

Tax Context:
Rental owners may deduct qualifying expenses and depreciation.

Required Minimum Distribution (RMD)

Definition:
A minimum amount certain retirement account owners must withdraw annually after reaching a required age.

Applies To:

• Traditional IRAs
• Certain employer retirement plans

Research and Development (R&D) Credit

Definition:
A business tax credit for qualifying research activities.

Tax Context:
Encourages innovation and development.

Residence

Definition:
A place where an individual lives or maintains a permanent connection.

Tax Context:
Residence affects state tax obligations and filing requirements.

Resident Alien

Definition:
A non-U.S. citizen who meets IRS residency requirements for tax purposes.

Tests Include:

• Green card test
• Substantial presence test

Retirement Plan

Definition:
A program designed to provide income during retirement.

Examples:

• IRA
• 401(k)
• Pension

Return of Capital

Definition:
A payment received from an investment that represents a return of the taxpayer’s original investment rather than income.

Tax Context:
Generally reduces basis.

Revenue

Definition:
Income received by a business or government.

Revocable Trust

Definition:
A trust that can be changed or revoked by the grantor.

Tax Context:
Income is generally reported by the grantor.

Rollforward

Definition:
The process of carrying a balance, amount, or tax attribute from one period into another.

Rollover

Definition:
A transfer of retirement assets from one retirement account to another without immediate taxation when IRS requirements are met.

Roth IRA

Definition:
A retirement account funded with after-tax contributions.

Tax Benefits:

• Qualified withdrawals are generally tax-free
• No tax deduction for contributions

Roth Conversion

Definition:
The transfer of funds from a traditional retirement account into a Roth IRA.

Tax Context:
The converted amount is generally taxable as income.

Royalty Income

Definition:
Income received for allowing others to use intellectual property, natural resources, or other assets.

Examples:

• Patents
• Copyrights
• Mineral rights

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S Corporation (S Corp)

Definition:
A corporation that elects pass-through taxation under Subchapter S of the Internal Revenue Code.

Tax Context:
Income generally passes through to shareholders rather than being taxed at the corporate level.

Salary

Definition:
Fixed compensation paid to an employee for services performed.

Tax Context:
Salary is generally taxable wage income.

Sales Tax

Definition:
A tax imposed on the sale of goods and certain services.

Tax Context:
Usually collected by sellers and remitted to state or local governments.

Salvage Value

Definition:
The estimated value of an asset at the end of its useful life.

Tax Context:
May affect depreciation calculations.

Schedule A

Definition:
A tax form used to report itemized deductions on an individual federal income tax return.

Examples:

• Medical expenses
• Taxes
• Interest
• Charitable contributions

Schedule B

Definition:
A tax schedule used to report certain interest and dividend income.

Schedule C

Definition:
A tax schedule used by sole proprietors to report business income and expenses.

Schedule D

Definition:
A tax schedule used to report capital gains and losses.

Schedule E

Definition:
A tax schedule used to report supplemental income.

Examples:

• Rental income
• Partnership income
• S corporation income

Schedule F

Definition:
A tax schedule used by farmers to report farming income and expenses.

Schedule H

Definition:
A tax schedule used to report household employment taxes.

Schedule K-1

Definition:
A tax form reporting a taxpayer’s share of income, deductions, credits, and other items from pass-through entities.

Schedule SE

Definition:
A tax schedule used to calculate self-employment tax.

Section 1031 Exchange

Definition:
A tax provision allowing qualifying real property exchanges to defer recognition of gain.

Section 179 Deduction

Definition:
A deduction allowing businesses to expense certain qualifying property costs instead of depreciating them over time.

Self-Assessment

Definition:
A tax system where taxpayers calculate and report their own tax obligations.

Self-Employed Individual

Definition:
A person who operates a business or earns income independently rather than as an employee.

Self-Employment Income

Definition:
Income earned from operating a trade or business as a self-employed person.

Self-Employment Tax

Definition:
A tax paid by self-employed individuals to cover Social Security and Medicare contributions.

Self-Rental Rule

Definition:
A tax rule affecting rental income or losses when a taxpayer rents property to a business they own or control.

Separate Return

Definition:
A tax return filed separately by a taxpayer rather than jointly with a spouse.

Severance Pay

Definition:
Compensation paid to an employee after termination or separation from employment.

Tax Context:
Generally taxable as wages.

Shareholder

Definition:
A person or entity that owns shares of stock in a corporation.

Short Sale

Definition:
A sale of property for less than the amount owed on the debt secured by the property.

Tax Context:
May create taxable gain, loss, or cancellation-of-debt income.

Short-Term Capital Gain

Definition:
Gain from selling a capital asset held for a short-term period.

Tax Context:
Generally taxed as ordinary income.

Short-Term Capital Loss

Definition:
Loss from selling a capital asset held for a short-term period.

Simple Trust

Definition:
A trust required to distribute all income annually and that generally cannot distribute principal except under limited circumstances.

Simplified Employee Pension (SEP IRA)

Definition:
A retirement plan allowing employers and self-employed individuals to make contributions to employee retirement accounts.

SIMPLE IRA

Definition:
A retirement savings plan designed for small businesses.

Meaning:
Savings Incentive Match Plan for Employees

Single Filing Status

Definition:
A filing status for unmarried taxpayers who do not qualify for another status.

Social Security Benefits

Definition:
Retirement, disability, or survivor benefits paid under the Social Security program.

Tax Context:
Some benefits may be taxable depending on income.

Social Security Tax

Definition:
A payroll tax funding Social Security benefits.

Sole Proprietorship

Definition:
A business owned and operated by one individual.

Tax Treatment:
Business income and expenses are reported on the owner’s tax return.

Source of Income

Definition:
The location or origin used to determine where income is considered earned for tax purposes.

Standard Deduction

Definition:
A fixed deduction amount available to taxpayers who do not itemize deductions.

Standard Mileage Rate

Definition:
The IRS-approved mileage amount used to calculate vehicle deductions.

State Income Tax

Definition:
A tax imposed by a state government on income earned by individuals or businesses.

State Tax Credit

Definition:
A credit offered by a state that reduces state tax liability.

Statute of Limitations

Definition:
The legal time period during which a tax authority may assess taxes, audit returns, or taxpayers may claim refunds.

Step Transaction Doctrine

Definition:
A legal doctrine allowing tax authorities to treat a series of connected transactions as one transaction when arranged mainly to avoid tax.

Step-Up in Basis

Definition:
An increase in the tax basis of inherited property to its fair market value at the date of death.

Stock Dividend

Definition:
A dividend paid to shareholders in additional shares of stock rather than cash.

Stock Option

Definition:
A right to buy or sell stock at a specified price.

Straight-Line Depreciation

Definition:
A depreciation method that deducts an equal amount each year over an asset’s useful life.

Student Loan Interest Deduction

Definition:
A deduction for qualifying interest paid on student loans.

Subchapter S

Definition:
A section of the Internal Revenue Code governing S corporations.

Substantial Presence Test

Definition:
An IRS test used to determine whether a foreign individual is treated as a U.S. resident for tax purposes.

Substitute for Return (SFR)

Definition:
A tax return prepared by the IRS when a taxpayer fails to file a required return.

Successor Liability

Definition:
A legal responsibility transferred to a successor entity for certain tax obligations.

Supplemental Wage

Definition:
Compensation paid in addition to regular wages.

Examples:

• Bonuses
• Commissions
• Severance pay

Supporting Organization

Definition:
A charitable organization that supports another public charity.