Resources | Tax Glossary
A plain English tax glossary covering 170 terms across individual, business, retirement, real estate, international, and audit resolution categories. Definitions are written for taxpayers, not other tax professionals, and pull from IRS publications, Code section references, and current tax practice as of 2026. Each entry shows category and links to related concepts.
Definitions here are general guidance, not written tax advice on a specific situation. For advice on your facts, contact Amanda.
Deductions and exclusions added back when calculating Alternative Minimum Taxable Income, including ISO bargain element at exercise, tax exempt interest from private activity bonds, and accelerated depreciation in excess of straight line.
Total income from all sources minus specific above the line deductions like student loan interest, IRA contributions, HSA contributions, and educator expenses. AGI determines eligibility for many credits, deductions, and phase outs. Found on Form 1040 line 11.
A parallel tax system that limits certain deductions and preferences for higher income taxpayers. Most affected today are people exercising Incentive Stock Options. Calculated on Form 6251 and added if it exceeds regular tax.
A corrected version of a previously filed tax return, used to fix errors, claim missed deductions or credits, or report income reported after the original filing. Generally must be filed within three years of the original return or two years from the date the tax was paid, whichever is later.
The amount one person can give another in a calendar year without filing a gift tax return or using lifetime exemption. 19000 dollars per donee in 2026, doubled to 38000 if a married couple elects gift splitting.
An IRS examination of a tax return to verify that income, deductions, and credits are accurately reported. Three formats: correspondence audit by mail, office audit at a local IRS office, and field audit at the taxpayer's business or home.
A process to request the IRS reopen a closed audit when new information becomes available or the taxpayer disputes the result. Filed informally in writing with documentation supporting the reopened position.
A two step strategy for high earners who exceed Roth IRA income limits: contribute to a Traditional IRA non deductibly, then convert to Roth. The pro rata rule limits effectiveness when other pre tax IRA balances exist.
Mandatory 24 percent withholding on certain payments (interest, dividends, broker proceeds) when the payee fails to provide a valid TIN or fails to certify they are not subject to backup withholding on Form W-9.
The taxpayer's cost or investment in an asset, used to calculate gain or loss on sale, depreciation, or distribution. Adjusted basis includes original cost plus capital improvements minus depreciation taken.
A FinCEN filing required of most US business entities under the Corporate Transparency Act, identifying individuals who own 25 percent or more or exercise substantial control. New entities file within 90 days of formation. Penalties up to 591 dollars per day in 2026.
One of two tests for the Foreign Earned Income Exclusion. Requires being a resident of a foreign country for an uninterrupted period covering an entire tax year, with closer ties to that country than to the US.
An additional first year depreciation deduction for qualifying property. Phasing down: 60 percent in 2024, 40 percent in 2025, 20 percent in 2026, 0 percent in 2027 absent law change.
A corporation taxed separately from its owners under Subchapter C. Pays a flat 21 percent federal tax on profits, with shareholders paying additional tax on dividends (double taxation). Filed on Form 1120.
The first IRS bill sent for an unpaid balance due. Demands payment in full or arrangement within 21 days. Followed by CP501, CP503, CP504 if unpaid.
An IRS automated underreporter notice proposing changes to a return because income reported on third party forms (W-2, 1099) does not match what was reported on the return. Not a bill or audit; the taxpayer can agree, partially agree, or disagree with documentation.
Generally taxable income when a creditor forgives or cancels debt. Reported on Form 1099-C. Exclusions exist for bankruptcy, insolvency, qualified principal residence indebtedness, and certain student loans.
Profit from selling a capital asset (stock, real estate, art, business interest). Long term gains (held over one year) are taxed at preferential rates of 0, 15, or 20 percent. Short term gains are taxed at ordinary income rates.
Loss on a capital asset sale. Net capital losses offset capital gains; up to 3000 dollars (1500 MFS) of remaining loss offsets ordinary income annually, with the excess carried forward indefinitely.
An individual or entity authorized by the IRS to assist with ITIN applications by verifying foreign identity documents in person, allowing applicants to keep their passports rather than mailing them to the IRS.
A credit of up to 2000 dollars per qualifying child under 17, with up to 1700 dollars refundable through the Additional Child Tax Credit. Phases out at higher incomes. Requires qualifying child relationship, residency, and support tests.
Treasury regulations governing practice before the IRS by attorneys, CPAs, enrolled agents, enrolled actuaries, and enrolled retirement plan agents. Sets standards for competence, diligence, fees, conflicts of interest, and disclosure on advice bearing communications.
A taxpayer's right to an administrative hearing before the IRS levies property or files a Notice of Federal Tax Lien. Requested via Form 12153 within 30 days of receiving a Final Notice of Intent to Levy.
Income tax doctrine: income is taxed when made available without substantial restriction, even if not actually received. A check available December 30 but not cashed until January is taxable in the year available.
The original purchase price of an investment, adjusted for commissions, fees, dividend reinvestments, stock splits, and return of capital distributions. Reported by brokers on Form 1099-B for covered securities.
An engineering analysis that reclassifies components of a building into shorter depreciation lives (5, 7, or 15 years) instead of the standard 27.5 (residential) or 39 (commercial) year lives. Accelerates depreciation deductions for real estate investors.
An IRS designation pausing active collection because the taxpayer cannot pay basic living expenses if forced to pay. Penalties and interest still accrue, and the IRS reviews the financial situation periodically.
A qualifying child or qualifying relative who can be claimed on a tax return for credits and certain deductions. Must meet relationship, age, residency, support, and joint return tests. No personal exemption since 2018, but dependent status still affects credits and filing status.
The annual deduction allowed for the wear, tear, and obsolescence of business or income producing property over its useful life. Most assets use the Modified Accelerated Cost Recovery System (MACRS).
When depreciable property is sold for more than its adjusted basis, gain up to the amount of depreciation taken is taxed as ordinary income (Section 1245 personal property) or at a maximum 25 percent rate (Section 1250 real estate).
A charitable giving account where contributions earn an immediate tax deduction, and grants to charities can be made over time. Useful for bunching deductions in years that itemizing makes sense.
An Offer in Compromise basis: the IRS doubts the taxpayer can ever pay the full liability, so accepting less is in the IRS's interest. Most common OIC type. Calculated using the Reasonable Collection Potential formula.
An Offer in Compromise basis: a genuine dispute exists about whether the assessed tax is correct. Used when audit reconsideration is unavailable or unsuccessful. Form 656-L.
A free Treasury system for paying federal taxes online or by phone. Required for many business deposits (Form 941, 940, 1120). Enrollment can take 5 to 7 business days; plan ahead.
A refundable credit for low to moderate income workers. Amount depends on income, filing status, and number of qualifying children. Investment income above a threshold (11600 dollars in 2026) disqualifies the credit.
Income earned by a nonresident alien from a US trade or business, taxed at graduated rates. Distinguished from FDAP (Fixed, Determinable, Annual, Periodical) income, which is taxed at a flat 30 percent unless a treaty reduces it.
A federally licensed tax practitioner authorized to represent taxpayers before the IRS in all matters. Earned by passing a three part Special Enrollment Exam or through prior IRS work experience.
Quarterly tax payments owed by individuals and businesses with income not subject to withholding (self employment, investment, rental). Due April 15, June 15, September 15, and January 15. Underpayment can trigger Form 2210 penalties.
Avoids underpayment penalty by paying through withholding and estimates either 90 percent of the current year's tax or 100 percent of the prior year's tax (110 percent for AGI over 150000), whichever is less.
When a taxpayer has multiple employers and total Social Security tax withheld exceeds the annual maximum (10843.40 dollars in 2026 estimate), the excess is claimed as a credit on Form 1040 Schedule 3.
Foreign Account Tax Compliance Act reporting requirement for US persons holding specified foreign financial assets above thresholds (50000 dollars single in US, higher for joint and abroad). Reported with the tax return on Form 8938.
Foreign Bank Account Report required when aggregate foreign financial accounts exceed 10000 dollars at any point in the year. Filed separately from the tax return through FinCEN, due April 15 with automatic extension to October 15.
The category that determines tax brackets, standard deduction, and credit eligibility. Five options: Single, Married Filing Jointly, Married Filing Separately, Head of Household, and Qualifying Surviving Spouse.
Allows US citizens and residents working abroad to exclude foreign earned income up to a limit (130000 dollars in 2026) from US income tax. Requires meeting either the Bona Fide Residence Test or Physical Presence Test on Form 2555.
A credit against US tax for foreign income taxes paid on the same income, preventing double taxation. Election available between credit and itemized deduction; credit usually superior. Carryback one year, carryforward 10 years.
The standard US individual income tax return. Variants include 1040-SR for seniors, 1040-NR for nonresident aliens, and 1040-X for amendments. Lines aggregate income, deductions, credits, and tax.
Income tax return for estates and trusts. Due 3 months 15 days after year end (April 15 for calendar year). Issues K-1s to beneficiaries.
The annual return for partnerships and multi member LLCs taxed as partnerships. Due March 15 for calendar year; extension to September 15. Issues K-1s to partners.
Reports proceeds from broker and barter exchange transactions, including stock sales, options, futures, and crypto on platforms that issue it. Reports cost basis for covered securities (post 2011 stocks, post 2014 mutual funds).
Issued when a creditor cancels 600 dollars or more of debt. The cancellation is generally taxable but several exclusions exist (insolvency, bankruptcy, qualified principal residence indebtedness).
Reports dividends, capital gains distributions, exempt interest dividends, and foreign tax paid. Box 1a = ordinary dividends, 1b = qualified dividends, 2a = total capital gain distributions.
Reports payments from government, including unemployment compensation, state and local tax refunds, and certain agricultural payments.
Reports interest income paid to the recipient. Includes interest from banks, brokerages, federal agencies, and bond issuers. Box 1 = interest income, Box 8 = tax exempt interest.
Reports payments processed by third party settlement networks (PayPal, Venmo, Stripe, Etsy, Airbnb). Threshold has been phased: 5000 dollars in 2024, 2500 in 2025, 600 in 2026 and beyond unless changed.
Reports miscellaneous income such as rents (over 600 dollars), royalties (over 10 dollars), prizes, awards, attorney payments, and crop insurance proceeds. Different boxes for different categories.
Reports nonemployee compensation of 600 dollars or more paid to independent contractors. Replaced the 1099-MISC for nonemployee compensation in 2020. Due to recipient January 31, IRS January 31.
Reports distributions from retirement plans, IRAs, pensions, and insurance contracts. Box 7 distribution code matters: 1 (early), 2 (early exception), 7 (normal), G (rollover), and others.
The annual income tax return for C corporations. Due 4 months 15 days after year end (April 15 for calendar year filers); extension to October 15 with Form 7004.
The annual return for S corporations. Due March 15 for calendar year; extension to September 15 with Form 7004. Issues K-1s to shareholders.
Calculates the penalty for underpaying estimated tax. Safe harbor exceptions exist for 90 percent of current year, 100 (or 110) percent of prior year, or under 1000 owed.
The form a domestic eligible entity files to elect S corporation status. Generally must be filed within 2 months and 15 days of the start of the tax year the election takes effect, with late election relief available under Rev. Proc. 2013-30.
Requests an automatic six month extension to file Form 1040. Does not extend time to pay; estimated tax must accompany the extension to avoid late payment penalty.
Requests an automatic extension to file business returns (1120, 1120-S, 1065, 1041). Does not extend time to pay.
Tracks the basis of nondeductible Traditional IRA contributions, Roth IRA conversions, and Roth IRA distributions. Critical for backdoor Roth executions to avoid double taxation.
Calculates the home office deduction using actual expenses (utilities, insurance, depreciation prorated by business use percentage). Alternative is the Simplified Method (5 dollars per square foot, 300 square foot maximum).
Reports capital asset sales (stocks, crypto, real estate, collectibles) with cost basis, proceeds, and adjustments. Totals flow to Schedule D. Box A through F categorize how the broker reported basis.
Reports the federal unemployment tax (FUTA), 0.6 percent on the first 7000 dollars of each employee's wages after state credit. Annual; due January 31.
Reports federal income tax, Social Security, and Medicare withholding plus the employer's share. Due last day of month following quarter (April 30, July 31, October 31, January 31).
Issued by employers to report wages, tips, withholding, and benefits paid to an employee during the year. Filed by employer with SSA by January 31; copy to employee by January 31.
An employee's withholding certificate that tells the employer how much federal income tax to withhold. Updated 2020 with no allowances; uses dollar amounts and dependent counts directly.
The application for an Individual Taxpayer Identification Number for non US citizens not eligible for an SSN. Submitted with original or certified copies of foreign identity documents, or through a Certified Acceptance Agent.
Used by US persons to provide a taxpayer identification number to a payer. Required before issuing a 1099. Failure to provide a valid TIN can trigger 24 percent backup withholding.
A qualifying child for tax purposes if placed with the taxpayer by an authorized placement agency or by court order. Eligible for Child Tax Credit, EITC, and head of household status if other tests are met.
Up to 250000 dollars (single) or 500000 dollars (married filing jointly) of gain on the sale of a primary residence is excluded from income, provided the ownership and use tests are met (owned and used as primary residence for at least 2 of the last 5 years).
Reportable income whether or not the casino issued a W-2G. Losses are deductible up to the amount of winnings only if itemizing on Schedule A. Professional gamblers report on Schedule C.
Federal tax on transfers above the annual exclusion (19000 dollars in 2026 per donee, indexed). Donor pays. Lifetime exemption (13.99 million dollars in 2026) generally absorbs taxable gifts. Reported on Form 709.
All income from whatever source derived under Section 61, including wages, business profit, rents, royalties, dividends, interest, alimony (pre 2019 divorces), capital gains, pensions, and many others. The starting point for the tax calculation.
An early distribution from a 401(k) for an immediate and heavy financial need (medical, primary residence, tuition, eviction, funeral, repair). Subject to ordinary income tax plus 10 percent early withdrawal penalty if under 59.5.
A filing status for unmarried taxpayers who paid more than half the cost of keeping up a home for a qualifying person. Provides a larger standard deduction and wider tax brackets than Single status.
A triple tax advantaged account for those covered by a high deductible health plan: contributions deductible, growth tax free, and withdrawals tax free for qualified medical expenses. Annual limits in 2026 are 4400 (self) or 8800 (family), plus 1000 catch up at age 55.
Income from an activity not engaged in for profit. Reported as Other Income on Form 1040. Hobby expenses are not deductible since 2018 (TCJA repealed the misc itemized deduction). The IRS Section 183 hobby loss rules use a 9 factor test.
Allows business owners and qualifying employees to deduct expenses for the portion of the home used regularly and exclusively for business. Two methods: Simplified (5 dollars per square foot) or Actual (Form 8829 with prorated expenses).
A free electronic payment system at IRS.gov for individuals to pay tax bills, estimated taxes, or extensions directly from a checking or savings account without registration.
Pays awards (15 to 30 percent) to individuals who provide information leading to recovery of tax owed. Filed on Form 211. Requires substantial proceeds (over 2 million dollars in dispute) for the higher reward category.
An employee stock option that, if held long enough, is taxed at long term capital gains rates rather than ordinary income. Exercise can trigger AMT preference items; the bargain element (FMV minus strike) is added to AMT income.
A nine digit number issued by the IRS to individuals who are required to file taxes but are not eligible for a Social Security number. Applied for via Form W-7 with required documentation. Expires after three years of nonuse.
An IRA received as a beneficiary upon the original owner's death. Non spouse beneficiaries generally must distribute the entire account within 10 years (SECURE Act 2020); spouses may roll into their own IRA. Subject to RMD rules during the 10 year window for some beneficiaries.
Allows one spouse on a joint return to claim their portion of a refund when the other spouse owes federal debts (back taxes, child support, student loans) that would otherwise offset the refund.
Relieves a spouse from joint liability for tax owed when the other spouse failed to report income or claimed improper deductions, and the requesting spouse did not know and had no reason to know. Three types: traditional, separation of liability, and equitable relief.
An IRS payment plan for tax debt. Short term (180 days or less), Streamlined (under 50000 dollars in 72 months), and Partial Payment options available. Form 9465 or apply online via OPA.
Specific personal deductions claimed on Schedule A in lieu of the standard deduction: state and local taxes (capped at 10000), mortgage interest, charitable contributions, and medical expenses over 7.5 percent of AGI.
Each spouse on a joint return is individually responsible for the full tax owed, even if only one spouse caused the issue. Innocent Spouse Relief is the formal exception.
A rule taxing a child's unearned income above 2700 dollars (2026 threshold) at the parent's marginal rate. Applies to children under 19, or under 24 if full time students. Filed using Form 8615.
An IRS legal seizure of property to satisfy unpaid tax. Common forms: bank levy (one time grab of available funds), wage levy (continuous, until released), Social Security levy (15 percent), state tax refund offset.
Defers capital gains tax on the exchange of investment or business real estate for similar real estate. Limited to real property since 2018. Strict timelines: 45 days to identify replacement, 180 days to close.
A state created business entity offering liability protection. Default tax classification: single member LLC is a disregarded entity (Schedule C); multi member LLC is a partnership (1065). Can elect S corp or C corp status.
Gain on a capital asset held more than one year, taxed at preferential rates of 0, 15, or 20 percent depending on income, plus a possible 3.8 percent Net Investment Income Tax for higher earners.
A standard determining whether a taxpayer's involvement in a business or rental activity is regular, continuous, and substantial enough to treat losses as nonpassive. Seven IRS tests; the most common is 500 hours per year.
Itemized deduction for medical and dental expenses exceeding 7.5 percent of AGI. Includes premiums (limited rules), prescriptions, surgeries, dental, vision, mental health, and qualifying long term care. Reported on Schedule A.
Business use of a personal vehicle is deductible at the IRS standard rate (70 cents per mile in 2026 estimate) or by tracking actual expenses. Records of date, destination, business purpose, and miles driven are required.
Excludes from income the lesser of the housing allowance designated by the church board, actual housing expenses, or fair rental value of the home. Subject to self employment tax for ministers. Designated in advance, in writing.
The depreciation system used for most tangible business property since 1986. Assigns class lives (5, 7, 15, 27.5, 39 year). General Depreciation System uses declining balance; Alternative Depreciation System uses straight line.
AGI plus certain add backs (foreign earned income exclusion, tax exempt interest, excluded student loan forgiveness). Used to test eligibility for IRA contributions, Premium Tax Credit, IRMAA Medicare premiums, and education credits.
When income, residency, or business activity touches more than one state, requiring resident, nonresident, or part year resident filings. Credits for taxes paid to other states avoid double taxation in most cases.
A 3.8 percent surtax on investment income (dividends, interest, capital gains, rental net of nonpassive activity) for taxpayers above MAGI thresholds (200000 single, 250000 MFJ). Reported on Form 8960.
When business deductions exceed business income for the year. Post 2017 NOLs can be carried forward indefinitely but offset only 80 percent of future taxable income, with no carryback (except CARES Act 2018 to 2020 special rule).
An individual who is not a US citizen and does not pass the Green Card or Substantial Presence Test. Generally taxed only on US source income, with limited deductions and no standard deduction (with treaty exceptions).
An IRS program to settle tax debt for less than the full amount when the taxpayer cannot pay or it is unfair to require full payment. Three grounds: doubt as to collectibility, doubt as to liability, effective tax administration. Form 656.
Income taxed at the regular graduated tax brackets, including wages, interest, ordinary dividends, short term capital gains, rental net income, and self employment income. Contrast with qualified dividends and long term capital gains.
An unincorporated business with two or more owners. Files Form 1065 and issues K-1s to partners. Pass through taxation: partnership itself pays no federal income tax, partners report their share on personal returns.
Generally limit deduction of losses from passive activities (rental real estate, businesses in which the taxpayer does not materially participate) to passive income. Suspended losses carry forward and release on disposition of the activity.
The combined Social Security (6.2 percent employer + 6.2 percent employee, capped at the wage base of 176100 in 2026 estimate) and Medicare (1.45 percent each side, no cap, plus 0.9 percent additional Medicare over thresholds) imposed on wages.
Qualifies a taxpayer for the Foreign Earned Income Exclusion by being present in a foreign country for at least 330 full days during any consecutive 12 month period.
A refundable credit that helps eligible individuals and families afford health insurance purchased through the Marketplace. Reconciled at year end on Form 8962. Excess advance credit must be repaid (capped by income).
An identifier required for any tax preparer who prepares federal returns for compensation. Must be renewed annually. Distinct from credentials like CPA or EA.
The home where the taxpayer lives most of the year. Sale qualifies for up to 250000 (single) or 500000 (MFJ) gain exclusion if owned and used as primary residence at least 2 of the last 5 years.
Applies when a Traditional IRA holder has both pre tax and after tax (basis) money. Any conversion to Roth includes pre tax money proportionally, even if the converted dollars came from a recently funded nondeductible contribution.
Up to 20 percent deduction on qualifying pass through business income for individuals, trusts, and estates under Section 199A. Phases out for Specified Service Trades or Businesses (SSTBs) above income thresholds.
Allows taxpayers age 70.5 or older to direct up to 108000 dollars (2026 limit, indexed) per year from a Traditional IRA directly to a public charity, satisfying RMD requirements without recognizing income.
Allows IRA owners 70.5 or older to direct up to 108000 dollars per year (2026, indexed) from an IRA to a qualifying public charity. Counts toward RMDs and is excluded from income.
Dividends from US corporations and qualified foreign corporations held for the required period, taxed at long term capital gains rates (0, 15, or 20 percent) instead of ordinary income rates.
A dependent meeting four tests: relationship, age (under 19, or 24 if full time student, or any age if permanently disabled), residency (more than half the year with the taxpayer), and not providing more than half of own support.
A dependent who is not a qualifying child but meets four tests: not a qualifying child of another, relationship or member of household for entire year, gross income under threshold (5200 in 2026 estimate), and the taxpayer provides more than half of support.
Tax payments due April 15, June 15, September 15, and January 15 (next year) for income not subject to withholding. Safe harbor: pay 100 percent (110 percent if AGI over 150000) of prior year tax or 90 percent of current year.
Allows rental losses to be treated as nonpassive (deductible against ordinary income). Requires 750 hours and more than half of personal services in real property trades plus material participation in each rental.
S corporation owner employees must take a salary that reflects what comparable workers would earn for similar services, before taking remaining profit as a distribution. Underpaying salary is the most common audit issue for S corps.
A tax credit that can produce a refund beyond the tax owed. Examples: EITC, refundable portion of Child Tax Credit (ACTC), American Opportunity Credit (40 percent refundable), Premium Tax Credit.
Real estate generating rental income. Reported on Schedule E. Mortgage interest, property taxes, insurance, repairs, depreciation, and management fees are deductible against rental income; passive activity rules limit loss deduction.
Annual mandatory withdrawal from Traditional IRAs and most retirement plans starting at age 73 (SECURE 2.0). Calculated using IRS life expectancy tables. Penalty for missed RMDs is 25 percent (10 percent if corrected within 2 years).
A non US citizen who passes the Green Card Test or the Substantial Presence Test. Taxed on worldwide income like a US citizen, with full standard deduction and credits available.
Moving funds from a Traditional IRA, 401(k), or other pre tax retirement account to a Roth IRA, paying ordinary income tax on the converted amount. No income limit. Reported on Form 8606.
An individual retirement account where contributions are after tax, growth is tax free, and qualified distributions are tax free. Income limits apply to contributions; no RMDs during the original owner's lifetime. Form 8606 tracks basis.
A pass through entity electing taxation under Subchapter S. Files Form 1120-S, issues K-1s. Owner employees must take reasonable salary subject to payroll taxes; remaining profit avoids self employment tax.
Simplified Employee Pension. Allows employer contributions up to 25 percent of compensation or 70000 dollars in 2026 (estimate), whichever is less. Easy to set up; only employer contributes; coverage rules apply if the business has employees.
Savings Incentive Match Plan for Employees. For businesses with 100 or fewer employees. Lower contribution limits than 401(k) but simpler administration. Mandatory employer match (3 percent) or 2 percent nonelective.
Reports itemized deductions: state and local taxes (capped at 10000), home mortgage interest, charitable contributions, medical expenses over 7.5 percent of AGI, and casualty losses in federally declared disasters.
Required when interest or dividend income exceeds 1500 dollars, or when a foreign account exists, or when seller financed mortgage interest is received. Lists individual payers.
Reports income and expenses for sole proprietorships and single member LLCs. Net profit flows to Form 1040 and is subject to self employment tax via Schedule SE.
Aggregates Form 8949 capital asset sales into short term and long term totals. Net capital loss is limited to 3000 dollars (1500 MFS) per year against ordinary income, with the excess carried forward.
Reports rental real estate, royalties, K-1 partnership and S corp income, estate and trust income. Often paired with Form 4562 for rental property depreciation.
Reports farm income and expenses for farmers operating as sole proprietors. Allows special methods like income averaging (Schedule J) and crop insurance deferral.
Reports tax owed on wages paid to a household employee (nanny, housekeeper, eldercare). Triggered when wages reach 2700 dollars from any one employee in 2026 estimate.
Reports a partner's, S corporation shareholder's, or beneficiary's share of income, deductions, credits, and other items. Three flavors: 1065 (partnership), 1120-S (S corp), 1041 (estate or trust). Owners report items on their personal return.
A small nonrefundable credit for taxpayers 65 or older or permanently disabled. Income thresholds are low; few taxpayers benefit.
Calculates the 15.3 percent Social Security and Medicare tax on net self employment earnings (12.4 percent SS up to wage base + 2.9 percent Medicare on all + 0.9 percent additional Medicare over thresholds).
Allows immediate expensing of qualifying business property up to an annual limit (1.22 million dollars in 2026, phasing out above 3.05 million in qualifying purchases). Cannot create a loss; bonus depreciation can.
The 20 percent Qualified Business Income deduction enacted by TCJA. Effective rate reduction for pass through entities. Sunsets after 2025 absent legislative action.
The combined Social Security (12.4 percent) and Medicare (2.9 percent) tax owed by self employed individuals on net earnings, plus 0.9 percent additional Medicare above income thresholds. Half is deductible above the line.
Gain on a capital asset held one year or less, taxed at ordinary income tax rates (10 to 37 percent in 2026), plus the 3.8 percent NIIT for higher earners.
A 401(k) plan for a one owner business with no employees other than a spouse. Allows employee deferral plus employer contribution, often allowing higher savings than SEP IRA. Roth Solo 401(k) option available.
Service businesses (health, law, accounting, consulting, financial services, performing arts, athletics) where the QBI deduction phases out above income thresholds (251250 single / 502500 MFJ in 2026).
A flat dollar amount that reduces taxable income, varying by filing status and age. 2026 estimates: 15750 (single, MFS), 31500 (MFJ, QSS), 23625 (HoH). Increased for age 65+ and blind.
The IRS generally has 3 years from the original filing date (or due date, if later) to assess additional tax. Six years if income understated by more than 25 percent. Unlimited if no return filed or fraud.
Inherited property generally receives a basis equal to its fair market value on the date of death of the decedent. Eliminates capital gains tax on appreciation that occurred during the decedent's lifetime.
Determines US tax residency for non citizens. Met if present 31 days in current year and 183 days counting all current year days plus one third of prior year and one sixth of two years prior.
The marginal income tax rate applicable to each portion of taxable income. 2026 estimated brackets: 10, 12, 22, 24, 32, 35, 37 percent. The bracket only applies to income within that range.
A dollar for dollar reduction in tax owed. Refundable credits can produce a refund beyond tax owed; nonrefundable credits only reduce tax to zero. More valuable than deductions of equal amount.
An amount that reduces taxable income. Above the line deductions reduce AGI; below the line deductions (itemized or standard) reduce taxable income further. Saves tax at the marginal rate.
AGI minus the greater of the standard deduction or itemized deductions, minus the QBI deduction. The amount tax brackets are applied to. Form 1040 line 15.
A retirement account where contributions may be deductible (subject to income limits if covered by a workplace plan), growth is tax deferred, and distributions are taxed as ordinary income. RMDs begin at age 73.
Personal liability assessed against responsible persons (officers, owners, bookkeepers) who willfully failed to remit trust fund taxes (employee withholding for income, Social Security, Medicare). Equals 100 percent of unpaid trust fund portion.
Custodial accounts for minor children where assets become the child's at age of majority (typically 18 to 21 by state). Income may be subject to kiddie tax rules. Distributions used for the child's support do not relieve parent obligation.
Income from sources other than personal services: interest, dividends, capital gains, rental income, royalties, alimony, retirement distributions. Subject to special rules for kiddie tax and EITC.
A return that was required but not filed. The IRS may file a Substitute for Return (SFR) using third party data, typically without favorable adjustments. Filing a real return generally produces a better outcome and starts the statute of limitations.
An Article I federal court where taxpayers can dispute IRS deficiency notices without paying first. Petition must be filed within 90 days of the Notice of Deficiency. Small Tax Case option available for disputes under 50000 dollars.
An IRS program for taxpayers with willful tax noncompliance to come forward and avoid criminal prosecution by paying tax, interest, and a structured penalty. Distinct from streamlined procedures for non willful conduct.
All forms of pay received from an employer, including salary, wages, tips, bonuses, and certain fringe benefits. Reported on Form W-2 and subject to income tax, Social Security, and Medicare withholding.
Disallows a loss on the sale of a stock or security if substantially identical securities are bought within 30 days before or after the sale. The disallowed loss is added to the basis of the replacement security. Does not apply to crypto in 2026.
Tax taken from wages, retirement distributions, gambling winnings, and certain other payments and remitted to the IRS by the payer. Adjusted via Form W-4 (employees) or Form W-4P (retirees).
An ongoing relationship between taxpayer and tax professional providing planning, mid year adjustments, and notice handling rather than only seasonal return preparation. Common in membership and retainer models.
This glossary explains the terms. Applying them to your specific facts is what year round advisory is for. Book a call with Amanda.