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Common Bookkeeping Terms
Balance Sheet Terms
Income Statement Terminology
A Glossary of Tax Jargon
A Glossary of Tax Jargon
- The cost of acquiring property after making appropriate allowances for increases such as capital expenditures and decreases such as depreciation. The amount collected upon resale less the adjusted basis shows whether any capital gain or loss was made on the disposition.
Adjusted gross income
- An intermediate computation between gross income and taxable income, once the individual has made certain adjustments, principally employee business expenses, I.R.A. contributions, alimony and the special allowance for working spouses. It determines the limit on allowable medical, charitable and casualty deductions.
Capital gain or loss
- The profit or loss on the sale or disposition of most property.
- Property loss resulting from some sudden, unexpected, or unusual cause, such as fire, storm, shipwreck or theft.
- A tax shelter device that accelerates deductions and postpones taxable income.
- The amount a taxpayer expects to owe in taxes after withholding. Installments must be paid quarterly to the I.R.S.
- An amount excluded from taxable income.
- An optional method of computing taxes in a year of unusually high income by averaging that year's income with the previous four years.
- Property that entitles its owners to certain rights, such as cash, notes, bonds and accounts receivable.
- A direct credit of up to 10 percent of the cost of tangible personal property used in one's business. The amount of the credit reduces the tax liability in the year of purchase. Any excess credit may be carried backward or forward subject to limitations.
- The repayment of deductions or credits if there is a profitable sale or disposition of depreciable property.
- An asset's estimated worth at the end of its useful life.
- Movable or detachable property such as vehicles, machinery, equipment and furnishings and certain structural improvements.
- A 100 percent offset against tax liability; a deduction provides a tax benefit equal only to the individual's tax rate times the deducted amount.
- The I.R.S. form for reporting the payment of interest, dividends and miscellaneous fees to individuals.
- The figure used to compute taxes before credits. Adjusted gross income reduced by personal exemptions and either reduced further by excess itemized deductions or in some unusual cases, increased by any unused zero bracket amount.
- The cost of a permanent improvement to property. Such expenses, such as adding central air conditioning or an addition to your home, increase the property's adjusted tax basis.
- If you receive a settlement in a damage suit that includes money for future medical expenses, the amount is not taxable. But you can't deduct those future medical expenses covered by the amount of the award allocated to medical care as an itemized deduction. Enter medical expenses that exceed the award in Deductions and Credits under Medical.
- Write-offs you are permitted to subtract from your gross income to calculate your taxable income. All taxpayers may claim a standard deduction, which is determined by the IRS. If your qualifying expenses exceed your standard deduction, you may claim the higher amount by itemizing your deductions. Although no records are needed to back up your right to the standard deduction, you must maintain records of qualifying expenditures if you itemize. For higher income taxpayers, the amount of their otherwise allowable itemized deductions will be reduced when adjusted gross income (AGI) exceeds a threshold amount. The reduction and threshold amounts can vary each year.
Earned income credit
- If your adjusted gross income is below a certain amount, you may be able to claim the earned income credit, which might wipe out your income tax bill and even result in a refund of any leftover credit. The exact credit amount depends on your income level, as well as how many qualifying children you have.
- You can claim a personal exemption for yourself. On joint returns a personal exemption is claimed for each spouse. You also get an exemption for each dependent you claim on your return. Each exemption reduces taxable income by a standard amount, which is partially phased out at higher income levels.
Home office expenses
- If you use part of your home regularly and exclusively as the principal place of your business or the place you meet with clients, patients or customers, you can qualify to deduct certain expenses that are otherwise nondeductible personal expenses. Examples include a portion of your utilities, homeowner's insurance premiums and depreciation (if you own your home) or part of your rent (if you are a renter).
- Interest you are considered to have earned—and therefore owe tax on—if you make a below-market-rate loan. The term is also used to refer to the interest income you must report on taxable zero-coupon bonds. Although the bonds pay no interest until maturity, you must report and pay tax on the interest as it accrues.
- You can ask the Social Security Administration to withhold taxes from your Social Security benefits. This could make sense if withholding allows you to avoid making quarterly estimated tax payments. To request voluntary withholding, file form W-4V with Social Security. You can also ask a retirement plan sponsor to withhold from payouts from IRA distributions.
- The amount held back from your wages each payday to pay your income and Social Security taxes for the year. The amount withheld is based on the size of your salary and the W-4 form you file with your employer.
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