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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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F

Term Definition
Fair market value

What a willing buyer would pay to a willing seller when neither is under any compulsion to buy or sell.

Fiduciary

A person or corporation such as a trustee, executor, or guardian who manages property for another person.

Financial Statements

Records that outline the financial activities of a business, an individual or any other entity. Financial statements are meant to present the financial information of the entity in question as clearly and concisely as possible for both the entity and for readers. Financial statements for businesses usually include: income statements, balance sheet, statements of retained earnings and cash flows, as well as other possible statements.

First-year expensing (or Section 179 ded

A deduction of the cost of business equipment in the year placed in service.

Fiscal year

A 12-month period ending on the last day of any month other than December. Partnerships, S corporations, and personal service corporations are limited in their choice of fiscal years and face special restrictions.

Fixed asset

A long-term, tangible asset held for business use and not expected to be converted to cash in the current or upcoming fiscal year. An asset is recorded on the balance sheet and can include vehicles, equipment, furniture, and real estate.

Flexible spending arrangement

A salary reduction plan that allows employees to pay for enhanced medical coverage or dependent care expenses on a tax-free basis.

Foreign earned income exclusion

In 2007, up to $85,700 of foreign earned income is exempt from tax if a foreign residence or physical presence test is met.

Foreign tax credit

A credit for income taxes paid to a foreign country or U.S. possession. 401(k) plan. A deferred pay plan, authorized by Section 401(k) of the Internal Revenue Code, under which a percentage of an employee's salary is withheld and placed in a savings account or the company's profit-sharing plan. Income accumulates on the deferred amount until withdrawn by the employee at age 59½ or when the employee retires or leaves the company.

Form 1040

The standard Internal Revenue Service (IRS) form that individuals use to file their annual income tax returns. The form contains sections that require taxpayers to disclose their financial income status for the year in order to ascertain whether additional taxes are owed or whether the taxpayer is due for a tax refund. 1040 forms need to be filed with the IRS by April 15.

Form 945

Form to report income tax withheld from non-payroll payments including; pensions, annuities, IRA's, military retirement, gambling winnings, voluntary withholding on certain government payments, and backup withholding.