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1040-ES

The form used by individuals to calculate and pay estimated quarterly taxes on income that is not subject to withholding (such as self-employment, interest, dividends, or rental income).

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1099 Form

A family of IRS forms used to report various types of non-wage income, such as contractor pay, interest, dividends, rents, and miscellaneous income.

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1099-INT

A 1099 form used by banks and financial institutions to report interest income paid to you during the year.

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1099-MISC

A 1099 form used to report certain types of miscellaneous income, such as rents, prizes, awards, and some other payments.

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1099-NEC

A 1099 form used to report nonemployee compensation, typically paid to independent contractors and freelancers.

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A

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Adjusted Gross Income (AGI)

Your total income from all sources, minus certain allowed adjustments. AGI is used to determine eligibility for many credits and deductions.

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Amended Return

A corrected tax return (often filed on Form 1040-X) used to change income, filing status, deductions, or credits after a return has already been filed.

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Audit

A review or examination of your tax return by the IRS or a state tax agency to verify that income, deductions, and credits are reported correctly.

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Audit Reconsideration

A process where the IRS reopens and reviews a prior audit assessment when you provide new information or believe the IRS made a mistake.

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Automatic Filing Extension (6-Month Extension)

Additional time, usually up to six months, to file a tax return. Individuals generally request this with Form 4868 and many businesses use Form 7004. An extension gives more time to file, but not more time to pay the tax owed.

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B

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Bad Debt

A receivable that has become uncollectible. In certain situations, it may be deductible for business or investment purposes.

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Backup Withholding

A percentage the payer must withhold from payments (like interest or contractor pay) if the payee does not provide a correct taxpayer identification number or is otherwise subject to withholding.

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Basis (Cost Basis)

Generally, what you paid for an asset, adjusted for items like improvements, depreciation, or certain fees. Basis is used to determine gain or loss when the asset is sold.

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Business Entity / Business Entity Type

The legal form under which a business operates, such as sole proprietorship, partnership, corporation, or LLC. The entity type affects liability protection, tax treatment, and filing requirements.

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Business Expenses

Ordinary and necessary costs of operating a trade or business (rent, supplies, payroll, insurance, professional fees, etc.) that may be deductible.

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Business Expenses – Basic IRS Rules

The IRS requires that deductible business expenses be both:

• Ordinary – common and accepted in your trade or business.

• Necessary – helpful and appropriate for your business (not necessarily indispensable).

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Business Vehicle Expense Deduction

A deduction for the business use of a vehicle. Taxpayers can generally choose between deducting actual expenses (gas, repairs, insurance, etc.) or using the IRS standard mileage rate, subject to IRS rules and recordkeeping requirements.

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C

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Cafeteria Plan (Section 125 Plan)

An employer-sponsored benefit plan that allows employees to choose from a variety of pre-tax benefits, such as health insurance or flexible spending accounts.

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Capital Gain / Capital Loss

The profit or loss from selling an investment or asset, such as stocks or real estate. Gains and losses may be short-term or long-term and are taxed differently than regular income.

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Carryforward (Loss Carryforward)

A tax rule that allows certain unused deductions or losses (such as capital losses or net operating losses) to be used in future tax years.

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Child Tax Credit

A tax credit that may reduce your federal income tax if you have qualifying dependent children.

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Corporate Return (Form 1120 / 1120-S)

The annual income tax return filed by C corporations (Form 1120) and S corporations (Form 1120-S).

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Cost of Goods Sold (COGS)

The direct costs of producing or purchasing the goods a business sells (such as materials and direct labor). COGS reduces gross receipts to arrive at gross profit.

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D

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Deduction

An amount you subtract from your income to reduce the amount of income that is subject to tax.

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Dependent

A qualifying child or qualifying relative you support financially, which may allow you to claim certain credits or deductions.

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Dependent Care Credit

A tax credit for a portion of qualifying childcare or dependent care expenses you pay so you can work or look for work.

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Depreciation

A method of recovering the cost of certain business property over time by deducting a portion of the cost each year.

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Depreciation Recapture

Income you may have to report when you sell property for more than its depreciated value. The IRS “recaptures” some or all of the depreciation deductions previously taken, and this recaptured amount is generally taxed as ordinary income up to certain limits.

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Direct Deposit

An electronic method of receiving your tax refund directly into your bank account, usually faster and more secure than a paper check.

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Disregarded Entity

A business entity (such as a single-member LLC) that is separate from its owner legally, but

ignored for tax purposes, so its income is reported on the owner’s tax return.

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Domicile

Your permanent, primary home—the place you intend to return to and remain. Domicile can affect your state tax residency and which state may tax your income.

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E

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Earned Income

Income you receive for work performed, such as wages, salaries, tips, and net earnings from self-employment.

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Earned Income Tax Credit (EITC)

A refundable tax credit for eligible workers with low to moderate income that can reduce tax owed and may result in a refund.

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Early Withdrawal Penalty (IRAs and Other Retirement Accounts)

A penalty, usually 10%, that may apply when you withdraw money from an IRA or certain other retirement accounts before age 59½, unless an exception applies.

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Electronic Filing (E-file)

Submitting your tax return electronically rather than by mail; generally faster, more secure, and less prone to errors.

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Employee vs. Independent Contractor

A classification that determines how a worker is treated for tax and payroll purposes. Employees have taxes withheld and receive a W-2; independent contractors generally receive Form 1099 and pay their own self-employment tax. The IRS looks at behavioral, financial, and relationship factors to decide status.

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Estimated Tax Payments

Quarterly tax payments made during the year to cover income that is not subject to withholding, such as self-employment, rental, or investment income.

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Estimated Tax Penalty

A penalty charged when a taxpayer does not pay enough tax during the year through a combination of withholding and estimated payments.

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Excise Tax

A tax imposed on specific goods or activities, such as fuel, certain products, or specific business activities.

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Exemption (Personal / Dependent)

A former reduction in taxable income allowed for yourself and qualifying dependents. Personal and dependent exemptions are currently suspended but still appear in older materials.

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Extension of Time to File

Additional time (typically six months) to file your tax return. An extension gives you more time to file, but not more time to pay.

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F

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FICA (Federal Insurance Contributions Act)

The law requiring Social Security and Medicare taxes to be withheld from wages and paid by employers.

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Filing Status

Your tax category (such as Single, Married Filing Jointly, Married Filing Separately, Head of Household, or Qualifying Surviving Spouse) that affects your tax rate, standard deduction, and eligibility for certain credits.

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Form 1040

The main individual income tax return form filed with the IRS by most U.S. taxpayers.

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Form 1099 Series

A group of information forms (such as 1099-NEC, 1099-MISC, 1099-INT, 1099-DIV, etc.) used to report various types of non-wage income to the IRS and taxpayers.

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Form 8857, Request for Innocent Spouse Relief

An IRS form used to request relief from tax, interest, and penalties when your spouse or former spouse improperly reported (or failed to report) items on a joint return.

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Form 9465, Installment Agreement Request

An IRS form used to request a monthly payment plan (installment agreement) if you cannot pay your tax balance in full.

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Form SSA-1099

A form issued by the Social Security Administration reporting the total Social Security benefits you received during the year.

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FSA (Flexible Spending Account)

An employer-sponsored account that lets you set aside pre-tax dollars for qualified medical or dependent care expenses.

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FUTA (Federal Unemployment Tax Act)

A federal employer-paid tax that funds unemployment compensation programs.

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G

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Ghost Preparer

An unregistered or unethical tax return preparer who completes a tax return for a fee but does not sign it or include a Preparer Tax Identification Number (PTIN), which is required by the IRS.

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Gig Economy

Work arrangements where individuals earn income through digital platforms or short-term jobs (for example, rideshare driving or food delivery). Income from gig work is generally taxable and may require estimated tax payments.

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Gross Income

All income you receive in the form of money, goods, property, and services that is not exempt from tax.

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Gross Profit

Sales or gross receipts minus the cost of goods sold (COGS). It shows how much a business earns from its core products or services before operating expenses.

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Gross Receipts

Total revenue received by a business from all sources before any expenses or deductions.

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Gross Revenue

Another term for total revenue or gross receipts; the full amount a business earns before expenses are subtracted.

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H

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Head of Household

A filing status for certain unmarried taxpayers who pay more than half the cost of maintaining a home for themselves and a qualifying person.

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Health Savings Account (HSA)

A tax-advantaged savings account used to pay qualified medical expenses, available to eligible individuals covered under high-deductible health plans. Contributions may be deductible, and qualified withdrawals are tax-free.

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Household Employee

Someone who performs household work in or around your home, such as a nanny, housekeeper, or caregiver, and is considered your employee rather than an independent contractor under IRS rules.

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Household Employment Taxes (“Nanny Tax”)

Employment taxes (such as Social Security, Medicare, and possibly unemployment tax) that may

be owed when you hire a household employee, often referred to as the “nanny tax.”

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I

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Income Tax

A tax on earned and unearned income imposed by the federal government and, in many cases, state and local governments.

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Independent Contractor

A self-employed individual who provides services to a business or client but is not treated as an employee. Independent contractors generally receive Form 1099, pay their own self-employment tax, and control how and when the work is done, subject to contract terms.

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Information Returns

Documents such as Forms W-2 and 1099 that report income and other tax-related information to the IRS and taxpayers, but do not themselves calculate tax.

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Innocent Spouse / Innocent Spouse Relief

Relief that may be available when your spouse or former spouse improperly reported (or failed to report) items on a joint return and you did not know, and had no reason to know, about the error. Requested using Form 8857.

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Installment Agreement

A payment plan with the IRS that allows a taxpayer to pay an outstanding tax balance over time, often requested using Form 9465 or through an online payment agreement.

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Internal Revenue Service (IRS)

The federal agency responsible for administering and enforcing U.S. tax laws, processing tax returns, and issuing refunds.

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IRA Contribution Limit

The maximum amount you can contribute to an Individual Retirement Arrangement (IRA) each year, subject to IRS limits and eligibility rules based on income and plan coverage.

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Individual Taxpayer Identification Number (ITIN)

A tax processing number issued by the IRS to individuals who must have a U.S. taxpayer identification number but are not eligible for a Social Security number.

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Itemized Deductions

Specific deductible expenses, such as medical expenses, state and local taxes, mortgage interest, and charitable contributions, that you list instead of taking the standard deduction.

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J

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Joint Return

A single tax return filed by a married couple that combines their income, deductions, credits, and tax liability.

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K

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K-1 (Schedule K-1)

A form issued to partners in a partnership and shareholders in an S corporation that reports

each owner’s share of income, deductions, credits, and other items.

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L

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Levy

A legal seizure of property or assets (such as bank accounts or wages) by the IRS to collect unpaid taxes.

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Lien

A legal claim by the government against a taxpayer’s property when they neglect or fail to pay a

tax debt.

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Limited Liability Company (LLC)

A business structure providing limited liability protection to owners (members). An LLC can be taxed as a disregarded entity, partnership, or corporation.

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M

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MACRS (for Depreciation Deductions)

The Modified Accelerated Cost Recovery System, the primary method of calculating depreciation for most business property for federal tax purposes. MACRS allows faster write-offs in the early years of an asset’s life.

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Marginal Tax Rate

The tax rate applied to your last dollar of income, based on the tax bracket you fall into.

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Married Filing Jointly (MFJ)

A filing status for married couples who combine their income, deductions, and credits on one tax return. Often provides more favorable tax rates and a higher standard deduction than filing separately.

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Married Filing Separately (MFS)

A filing status for married taxpayers who each file their own return, reporting their own income, deductions, and credits. This status can limit eligibility for certain credits and deductions.

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Medical Expense Deduction

An itemized deduction for certain unreimbursed medical and dental expenses that exceed a specified percentage of your AGI.

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Mileage Deduction

A deduction allowed for business use of a vehicle, either based on actual expenses or the IRS standard mileage rate.

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N

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Net Income (Net Profit)

Income remaining after subtracting all expenses, deductions, and costs from total revenue.

Often referred to as “the bottom line.”

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Net Profit

See Net Income. The amount left after all business expenses are subtracted from gross income.

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Net Operating Loss (NOL)

Occurs when allowable business deductions exceed business income in a tax year. Some or all of the loss may be carried forward to offset taxable income in future years.

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Nontaxable Income

Income that is not subject to federal income tax, such as certain gifts, inheritances, life insurance proceeds, and some types of municipal bond interest, subject to IRS rules.

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Nonrefundable Credit

A tax credit that can reduce your tax liability to zero but cannot create a refund beyond the tax you owe.

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O

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Offer in Compromise (OIC)

An agreement between a taxpayer and the IRS that settles a tax debt for less than the full amount owed, based on ability to pay.

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Ordinary and Necessary Expense

An expense that is common, accepted, helpful, and appropriate for a particular trade or business and therefore may be deductible.

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Ordinary Dividends

Dividend income that does not qualify for lower long-term capital gain tax rates and is taxed as ordinary income.

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Ordinary Income

Income taxed at regular income tax rates, such as wages, self-employment income, interest, and non-qualified dividends.

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P

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Partnership Return (Form 1065)

The annual information return filed by a partnership to report income, deductions, credits, and other items. Income is passed through to partners on Schedule K-1.

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Passive Activity

A trade or business in which you do not materially participate, or certain rental activities. Income and losses from passive activities are subject to special IRS rules.

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Passive Activity Rule / Passive Activity Loss Rule / Passive Loss Rule

IRS rules that generally limit the ability to deduct losses from passive activities against non-passive income. Passive losses are usually deductible only against passive income, with unused losses carried forward.

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Passive Income

Income from passive activities, such as most rental income or business activities in which you do not materially participate.

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Payroll Tax

Taxes withheld from employee wages and paid by employers, including income tax withholding, Social Security, and Medicare.

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Penalty

An additional charge imposed by the IRS for late filing, late payment, underpayment of estimated taxes, or other noncompliance.

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Per Diem

A daily allowance for meals, lodging, and incidental expenses when traveling for business, used instead of tracking actual expenses.

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Q

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Qualified Business Income (QBI)

Certain income from a qualified trade or business that may be eligible for the Qualified Business Income Deduction, subject to income limits and IRS rules.

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Qualifying Child

A dependent who meets IRS tests for relationship, age, residency, support, and joint return requirements. A qualifying child may allow you to claim certain credits, such as the Child Tax Credit or EITC.

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Qualifying Dependent

A person who meets IRS tests (as a qualifying child or qualifying relative) and for whom you provide enough support to claim as a dependent on your tax return.

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Quarterly Filing / Quarterly Estimates

Paying estimated tax four times per year to cover tax on income that is not subject to withholding.

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R

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Reasonable Compensation

Compensation that a business owner, particularly an S corporation shareholder-employee, must pay themselves for services rendered, based on industry standards and the work performed.

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Record Retention

The practice of keeping tax and financial records for a required period. The IRS generally recommends keeping most records at least three to seven years, and property records as long as the asset is owned plus a period after sale.

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Refundable Credit

A tax credit that can reduce your tax liability below zero and result in a refund, even if you owe no tax.

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S

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S Corporation

A corporation that has elected to pass corporate income, losses, deductions, and credits through to shareholders for federal tax purposes.

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Safe Harbor

A set of rules that, if followed, protects a taxpayer from certain penalties. For example, paying a

certain percentage of last year’s tax can help avoid estimated tax penalties.

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Schedule C

The form used by sole proprietors and single-member LLCs to report income and expenses from a business.

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Schedule K-1

See K-1. Reports a partner’s or shareholder’s share of income, deductions, and credits from a

partnership or S corporation.

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Self-Employment / Self-Employment Income

Income earned from working for yourself rather than as an employee, such as freelance work or operating your own business. Self-employment income is subject to self-employment tax.

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Self-Employment Tax (SE Tax)

Social Security and Medicare taxes paid by individuals who work for themselves, in addition to regular income tax.

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Sole Proprietorship

An unincorporated business owned by one person. The owner reports business income and expenses on Schedule C of their individual tax return.

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Standard Deduction

A fixed dollar amount that reduces taxable income. The amount depends on your filing status, age, and other factors.

 

 

Straight-Line Method (of Depreciation)

A method of depreciation that spreads the cost of an asset evenly over its useful life, deducting the same amount each year.

 

 

Student (IRS definition)

Generally, a person enrolled full-time in a school for at least part of five calendar months during the year. The IRS student definition is used in several tax rules and credits.

 

 

Substantial Presence Test

An IRS test used to determine whether a non-U.S. citizen is considered a resident for tax purposes based on the number of days they are physically present in the United States over a three-year period.

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Support Test

An IRS test that looks at whether you provided more than half of a person’s total support during

the year, used to determine if you can claim someone as a dependent.

 

 

T

 

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Tax Bracket

A range of income that is taxed at a specific rate. As income increases, portions may be taxed at higher marginal rates.

 

 

Tax Credit

A dollar-for-dollar reduction in the amount of tax you owe. Some credits are refundable, and some are nonrefundable.

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Tax Deduction

An allowable expense that reduces your taxable income.

 

 

Tax ID Number (TIN)

A generic term for taxpayer identification numbers, including SSN, EIN, and ITIN, used by the IRS to identify taxpayers.

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Tax Lien

A legal claim by the government against your property when you neglect or fail to pay a tax debt.

 

 

Tax Levy

A legal seizure of property or assets by the IRS to satisfy a tax debt, such as garnishing wages or taking funds from a bank account.

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Taxable Income

The portion of your income that is subject to tax after all adjustments, deductions, and (where applicable) exemptions have been applied.

 

 

Transcript (IRS Tax Transcript)

An official summary from the IRS showing information from your tax return or your account history.

 

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U

 

 

Underpayment Penalty

A penalty assessed when you do not pay enough tax during the year through withholding and/or estimated tax payments.

 

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Unearned Income

Income from sources other than work, such as interest, dividends, capital gains, and certain retirement distributions.

 

 

V

 

 

Voluntary Compliance

The principle that the U.S. tax system relies on taxpayers to self-report income, calculate their tax liability, and file returns truthfully and on time.

 

 

W

 

 

W-2 (Wage and Tax Statement)

A form employers provide to employees that reports annual wages and the amount of taxes withheld.

 

 

W-4 (Employee’s Withholding Certificate)

The form employees give their employer to indicate how much federal income tax should be withheld from each paycheck.

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W-9 (Request for Taxpayer Identification Number and Certification)

A form used by businesses to request a taxpayer’s identification number and certification from a

vendor or independent contractor.

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Withholding

Amounts taken out of wages or other income by a payer and sent directly to the IRS and state agencies as prepayment of tax.

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Y

 

 

Year-End Tax Planning

Strategies implemented near the end of the year—such as timing income, deductions, and purchases—to help minimize overall tax liability.

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