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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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E

Term Definition
Earned income

Compensation for performing personal services. You must have earned income for a deductible IRA or to claim the earned income credit.

Earned income credit (EIC)

A credit allowed to taxpayers with earned income or adjusted gross income (AGI) below certain thresholds.

Earnings Before Interest, Taxes, Depreci

EBITDA is essentially Net Income with interest, taxes, depreciation, and amortization added back to it. EBITDA can be used to analyze and compare profitability between companies and industries because it eliminates the effects of financing and accounting decisions.

Education IRA

See Coverdell Education Savings Account.

Electronic Federal Tax Payment System (E

An online and phone tax payment system available 24 hours a day. For enrollment information, go to www.eftps.gov.

Equity

Refers to the total interest of ownership in the company or corporation. It also refers to total assets minus total liabilities. Equity is recorded on the balance sheet and can include stock, retained earnings, and profit or loss from the current year.

Estimated tax

Advance payment of current tax liability based either on wage withholdings or installment payments of your estimated tax liability. To avoid penalties, you generally must pay to the IRS either 90% of your final tax liability, or either 100% or 110% of the prior year's tax liability, depending on your adjusted gross income.

Exemption

A fixed deduction allowed to every taxpayer, except those who may be claimed as a dependent by another person. Extra exemption deductions are allowed for a spouse on a joint return and for each qualifying dependent. A deduction of $3,400 is allowed for each exemption claimed on 2007 returns, but the deduction is phased out for certain high income individuals.