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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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P

Term Definition
Part Year Resident

A part year resident is an individual who was a resident of a particular state for only part of the tax year. This includes anyone who moved into a state with the intention of making their home there, or a resident of a state who moved out of their original state with the intention of making their home elsewhere any time during the income tax year.

Partnership

An unincorporated business or income-producing entity organized by two or more persons. A partnership is not subject to tax but passes through to the partners all income, deductions, and credits, according to the terms of the partnership agreement.

Passive activity loss rules

Rules that limit the deduction of losses from passive activities to income from other passive activities. Passive activities include investment rental operations or businesses in which you do not materially participate.

Patronage dividend

A taxable distribution made by a cooperative to its members or patrons.

Percentage depletion

A deduction method that applies a fixed percentage to the gross income generated by mineral property.

Personal interest

Tax term for interest on personal loans and consumer purchases. Such interest is not deductible.

Placed in service

The time when a depreciable asset is ready to be used. The date fixes the beginning of the depreciation period.

Points

Charges to the homeowner at the time of the loan. A point is equal to 1 percent. Depending on the type of loan, points may be currently deductible or amortized over the life of the loan.

Premature distributions

Withdrawals before age 59½ from qualified retirement plans are subject to penalties unless specific exceptions are met.

Principal residence

On a sale of a principal residence, you may avoid tax under the rules.

Private letter ruling

A written determination issued to a taxpayer by the IRS that interprets and applies the tax laws to the taxpayer's specific set of facts. A letter ruling advises the taxpayer regarding the tax treatment that can be expected from the IRS in the circumstances specified by the ruling. It may not be used or cited as precedent by another taxpayer.

Probate estate

Property held in a decedent's name passing by will.

Profit-sharing plan

A defined contribution plan under which the amount contributed to the employees' accounts is based on a percentage of the employer's profits.

Provisional income

If your provisional income exceeds a base amount, part of your Social Security benefits may be subject to tax.