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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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S

Term Definition
S corporation

A corporation that elects S status in order to receive tax treatment similar to that of a partnership.

Salvage value

The estimated value of an asset at the end of its useful life. Salvage value is ignored by ACRS and MACRS rules.

Schedule A

A U.S. income tax form used by taxpayers to report itemized deductions, which can help reduce an individual's federal tax liability. Expenses that can be itemized and claimed on the form include medical and dental expenses, amounts paid for particular taxes and interest expenses as well as specific losses due to theft.

Schedule D

A U.S. income tax form used by taxpayers to report their realized capital gains or losses. Investors are required to report their capital gains (and losses) from the sales of assets, which result in different cash values being received for them than what was originally paid, in order to affix some amount of taxation to the income and wealth that is generated through investment activities.

Section 1031

A section of the U.S. Internal Revenue Service Code that allows investors to defer capital gains taxes on any exchange of like-kind properties for business or investment purposes. Taxes on capital gains are not charged on the sale of a property if the money is being used to purchase another property - the payment of tax is deferred until property is sold with no re-investment.

Section 1041

A section of the Internal Revenue Code that mandates that any transfer of property from one spouse to another is income tax-free. No deductible loss or taxable gain can be declared. This section applies to transfers during marriage as well as in the divorce process. Section 1041 was enacted in order to simplify the consolidation of marital assets.

Section 1231 property

Depreciable property used in a trade or business and held for more than a year. All Section 1231 gains and losses are netted; a net gain is treated as capital gain, a net loss as an ordinary loss.

Section 179 deduction (or First-year exp

A deduction allowed for investments in depreciable business equipment in the year the property is placed in service.

Section 457 plan

Deferred compensation plan set up by a state or local government, or tax-exempt organization, which allows tax-free deferrals of salary.

Self-employed person

An individual who operates a business or profession as a proprietor or independent contractor and reports self-employment income on Schedule C.

Self-employment tax

Tax paid by self-employed persons to finance Social Security & Medicare coverage.

In 2010, there are two rates. A 12.4% rate applies to a taxable earnings base of $106,800 or less and a 2.9% rate applies to all net earnings.

2011: 10.4% on $106,800 Social Security limit. 2.9% Medicare unlimited.

2012: 10.4% on $110,100 Social Security limit. 2.9% Medicare unlimited.

Separate return

Return filed by a married person who does not file a joint return. Filing separately may save taxes where each spouse has separate deductions, but cost one tax payer if one taxpayer itemizes deduction because the other must then also itemize. Certain tax benefits require a joint return.

Shareholders' Equity

A firm's total assets minus its total liabilities. Equivalently, it is share capital plus retained earnings minus treasury shares. Shareholders' equity represents the amount by which a company is financed through common and preferred shares.

Short sale

Sale of borrowed securities made to freeze a paper profit or to gain from a declining market.

Short tax year

A tax year of less than 12 months. May occur with the startup of a business or change in accounting method.

Short-term capital gain or loss

Gain or loss on the sale or exchange of a capital asset held one year or less.

Simplified employee plan (SEP)

IRA-type plan set up by an employer, rather than the employee. Salary-reduction contributions may be allowed to plans of small employers set up before 1997.

Single

Generally applies to anyone who is unmarried, divorced or legally separated according to your state law.

Standard deduction

A base amount of income that is not subject to tax and that can be used to reduce a taxpayer's adjusted gross income (AGI). A standard deduction can only be used if the taxpayer does not choose the itemized deduction method of calculating taxable income. The amount of the standard deduction is based on a taxpayer's filing status, age and whether he or she is disabled or claimed as a dependent on someone else's tax return.

Standard mileage rate

A fixed rate allowed by the IRS for business auto expenses in place of deducting actual expenses.
Business Mileage
2009 = .555 per mile.
2010 = .50 per mile.
2011 = .51/.555 per mile
2012 - .555 per mile

Medical Mileage
2009 = .24 per mile.
2010 = .165 per mile
2011 = .19/.23 per mile
2012 = .23 per mile

Charity Mileage
2009 = .14 per mile.
2010 = .14 per mile.
2011 = .14 per mile
2012 = .14 per mile

Statutory employees

Certain employees, such as full-time life insurance salespersons, who may report income and deductions on Schedule C, rather than on Schedule A as miscellaneous itemized deductions.

Stock dividend

A distribution of additional shares of a corporation's stock to its shareholders.

Stock option

A right to buy stock at a fixed price.

Straddle

Taking an offsetting investment position to reduce the risk of loss in a similar investment.

Straight-line method

A method of depreciating the cost of a depreciable asset on a pro rata basis over its cost recovery period.