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Useful Tax Glossary and Definitions

As a courtesy to our clients, we have compiled a comprehensive list of common tax terms and definitions for quick reference.

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Glossary of Terms

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D

Term Definition
Declining balance method

A rapid depreciation method determined by a constant percentage based on useful life and applied to the adjusted basis of the property.

Deductions

Items directly reducing income. Personal deductions such as for mortgage interest, state and local taxes, and charitable contributions are allowed only if deductions are itemized on Schedule A, but deductions such as for alimony, capital losses, moving expenses to a new job location, business losses, student loan interest, and IRA and Keogh deductions are deducted from gross income even if itemized deductions are not claimed.

Deferred compensation

A portion of earnings withheld by an employer or put into a retirement plan for distribution to the employee at a later date. If certain legal requirements are met, the deferred amount is not taxable until actually paid, for example, after retirement.

Deficiency

The excess of the tax assessed by the IRS over the amount reported on your return.

Defined benefit plan

A retirement plan that pays fixed benefits based on actuarial projections.

Defined contribution plan

A retirement plan that pays benefits based on contributions to individual accounts, plus accumulated earnings. Contributions are generally based on a percentage of salary or earned income.

Dependent

A relative or household member for whom an exemption may be claimed.

Depletion

Deduction claimed for the use of mineral resources.

Depreciable property

A business or income-producing asset with a useful life exceeding one year.

Depreciation

Writing off the cost of depreciable property over a period of years, usually its class life or recovery period specified in the tax law.

Depreciation recapture

An amount of gain on the sale of certain depreciable property that is treated as ordinary income in the case of personal property. Recapture is computed on Form 4797.

Disaster losses

Casualty losses such as from a storm, in areas declared by the President to warrant federal assistance. An election may be made to deduct the loss in the year before the loss or the year of the loss.

Dividend

A distribution made by a corporation to its shareholders generally of company earnings or surplus. Most dividends are taxable taxable but there are exceptions.