401(k) Plan — A qualified retirement plan to which contributions from salary are made from pre-tax dollars.

Accelerated Depreciation — Computation of depreciation to provide greater deductions in earlier years of equipment and other business or investment property.

Accounting Method — Rules applied in determining when and how to report income and expenses on tax returns.

Accrual Method — Method of accounting that reports income when it is earned, disregarding when it may be received, and expense when incurred, disregarding when it is actually paid.

Acquisition Debt — Mortgage taken to buy, hold, or substantially improve main or second home that serves as security.

Active Participation — Rental real estate activity involving property management at a level that permits deduction of losses.

Adjusted Basis — Basis in property increased by some expenses (for example, by capital improvements) or decreased by some tax benefit (for example, by depreciation).

Adjusted Gross Income (AGI) — Gross income minus above-the-line deductions (such as deductions other than itemized deductions, the standard deduction, and personal and dependency exemptions).

Alimony — Payments for the support or maintenance of one's spouse pursuant to a judicial decree or written agreement related to divorce or separation.

Alternative Minimum Tax (AMT) — System comparing the tax results with and without the benefit of tax preference items for the purpose of preventing tax avoidance.

Amortization — Write-off of an intangible asset's cost over a number of years.

Applicable Federal Rate (AFR) — An interest rate determined by reference to the average market yield on U.S. government obligations. Used in Sec. 7872 to determine the treatment of loans with below-market interest rates.

At-Risk Rules — Limits on tax losses to business activities in which an individual taxpayer has an economic stake.

Backup Withholding — Withholding for federal taxes on certain types of income (such as interest or dividend payments) by a payor that has not received required taxpayer identification number (TIN) information.

Bad Debt — Uncollectible debt deductible as an ordinary loss if associated with a business and otherwise deductible as short-term capital loss.

Basis — Amount determined by a taxpayer's investment in property for purposes of determining gain or loss on the sale of property or in computing depreciation.

Cafeteria Plan — Written plan allowing employees to choose among two or more benefits (consisting of cash and qualified benefits) and to pay for the benefits with pretax dollars. Must conform to Sec. 125 requirements.

Capital Asset — Investments (such as stocks, bonds, and mutual funds) and personal property (such as home).

Capital Gain/Loss — Profit (net of losses) on the sale or exchange of a capital asset or Sec. 1231 property, subject to favorable tax rates, and loss on such sales or exchanges (net of gains) deductible against $3,000 of ordinary income.

Capitalization — Addition of cost or expense to the basis of property.

Carryovers (Carryforwards) and Carrybacks — Tax deductions and credits not fully used in one year are chargeable against prior or future tax years to reduce taxable income or taxes payable.

Conservation Reserve Program (CRP) — A voluntary program for soil, water, and wildlife conservation, wetland establishment and restoration and reforestation, administered by the U.S. Department of Agriculture.

Credit — Amount subtracted from income tax liability.

Deduction — Expense subtracted in computing adjusted gross income.

Defined Benefit Plan — Qualified retirement plan basing annual contributions on targeted benefit amounts.

Defined Contribution Plan — Qualified retirement plan with annual contributions based on a percentage of compensation.

Depletion — Deduction for the extent a natural resource is used.

Depreciation — Proportionate deduction based on the cost of business or investment property with a useful life (or recovery period) greater than one year.

Earned Income — Wages, bonuses, vacation pay, and other remuneration, including self-employment income, for services rendered.

Earned Income Credit — Refundable credit available to low-income individuals.

Employee Stock Ownership Plan (ESOP) — Defined contribution plan that is a stock bonus plan or a combined stock bonus and money purchase plan designed to invest primarily in qualifying employer securities.

Estimated Tax — Quarterly payments of income tax liability by individuals, corporations, trusts, and estates.

Exemption — A deduction against net income based on taxpayer status (such as single, head of household, married filing jointly or separately, trusts, and estates).

Fair Market Value — The price that would be agreed upon by a willing seller and willing buyer, established by markets for publicly-traded stocks, or determined by appraisal.

Fiscal Year — A 12-month taxable period ending on any date other than December 31.

Foreign Tax — Income tax paid to a foreign country and deductible or creditable, at the taxpayer's election, against U.S. income tax.

Gift — Transfer of money or property without expectation of anything in return, and excludable from income by the recipient. A gift may still be affected by the unified estate and gift transfer tax applicable to the gift's maker.

Goodwill — A business asset, intangible in nature, adding a value beyond the business's tangible assets.

Gross Income — Income from any and all sources, after any exclusions and before any deductions are taken into consideration.

Half-Year Convention — A depreciation rule assuming property other than real estate is placed in service in the middle of the tax year.

Head-of-Household — An unmarried individual who provides and maintains a household for a qualifying dependent and therefore is subject to distinct tax rates.

Health Savings Account (HSA) — A trust operated exclusively for purposes of paying qualified medical expenses of the account beneficiary and thus providing for deductible contributions, tax-deferred earnings, and exclusion of tax on any monies withdrawn for medical purposes.

Holding Period — The period of time a taxpayer holds onto property, therefore affecting tax treatment on its disposition.

Imputed Interest — Income deemed attributable to deferred-payment transfers, such as below-market loans, for which no interest or unrealistically low interest is charged.

Incentive Stock Option (ISO) — An option to purchase stock in connection with an individual's employment, which defers tax liability until all of the stock acquired by means of the option is sold or exchanged.

Income in Respect of a Decedent (IRD) — Income earned by a person, but not paid until after his or her death.

Independent Contractor — A self-employed individual whose work method or time is not controlled by an employer.

Indexing — Adjustments in deductions, credits, exemptions and exclusions, plan contributions, AGI limits, and so on, to reflect annual inflation figures.

Individual Retirement Account (IRA) — Tax-exempt trust created or organized in the U.S. for the exclusive benefit of an individual or the individual's beneficiaries.

Information Returns — Statements of income and other items recognizable for tax purposes provided to the IRS and the taxpayer. Form W-2 and forms in the 1099 series, as well as Schedules K-1, are the prominent examples.

Installment Method — Tax accounting method for reporting gain on a sale over the period of tax years during which payments are made, such as, over the payment period specified in an installment sale agreement.

Intangible Property — Items such as patents, copyrights, and goodwill.

Inventory — Goods held for sale to customers, including materials used in the production of those goods.

Involuntary Conversion — A forced disposition (for example, casualty, theft, condemnation) for which deferral of gain may be available.

Jeopardy — For tax purposes, a determination that payment of a tax deficiency may be assessed immediately as the most viable means of ensuring its payment.

Keogh Plan — A qualified retirement plan available to self-employed persons.

Key Employee — Officers, employees, and officers defined by the Internal Revenue Code for purposes of determining whether a plan is “top heavy.”

Kiddie Tax — Application of parents' maximum tax rate to unearned income of their child under age 19.Full-time students under 24 are also subject to the kiddie tax.

Lien — A charge upon property after a tax assessment has been made and until tax liability is satisfied.

Like-Kind Exchange — Tax-free exchange of business or investment property for property that is similar or related in service or use.

Listed Property — Items subject to special restrictions on depreciation (for example, cars, computers, cell phones).

Lump-Sum Distribution — Distribution of an individual's entire interest in a qualified reti rement plan within one tax year.

Marginal Tax Rate — The highest tax bracket applicable to an individual's income.

Material Participation — The measurement of an individual's involvement in business operations for purposes of the passive activity loss rules.

Mid-month Convention — Assumption, for purposes of computing depreciation, that all real property is placed in service in the middle of the month.

Mid-quarter Convention — Assumption, for purposes of computing depreciation, that all property other than real property is placed in service in the middle of the quarter, when the basis of property placed in service in the final quarter exceeds a statutory percentage of the basis of all property placed in service during the year.

Minimum Distribution — A retirement plan distribution, based on life expectancies, that an individual must take after age 70 ½ in order to avoid tax penalties.

Minimum Funding Requirements — Associated with defined benefit plans and certain other plans, such as money purchase plans, assuring the plan has enough assets to satisfy its current and anticipated liabilities.

Miscellaneous Itemized Deduction — Deductions for certain expenses (for example, unreimbursed employee expenses) limited to only the amount by which they exceed 2% of adjusted gross income.

Money Purchase Plan — Defined contribution plan in which the contributions by the employer are mandatory and established other than by reference to the employer's profits.

Net Operating Loss (NOL) — A business or casualty loss for which amounts exceeding the allowable deduction in the current tax year may be carried back two years to reduce previous tax liability and forward 20 years to cover any remaining unused loss deduction.

Nonresident Alien — An individual who is neither a citizen nor a resident of the United States. Nonresidents are taxed on U.S. source income.

Original Issue Discount (OID) — The excess of face value over issue price set by a purchase agreement.

Passive Activity Loss (PAL) — Losses allowable only to the extent of income derived each year (such as by means of carryover) from rental property or business activities in which the taxpayer does not materially participate.

Passive Foreign Investment Company (PFIC) — A foreign based corporation subject to strict tax rules which covers the treatment of investments in Sections 1291 through 1297.

Pass-Through Entities — Partnerships, LLCs, LLPs, S corporations, and trusts and estates whose income or loss is reported by the partner, member, shareholder, or beneficiary.

Personal Holding Company (PHC) — A corporation, usually closely-held, that exists to hold investments such as stocks, bonds, or personal service contracts and to time distributions of income in a manner that limits the owner(s) tax liability.

Qualified Subchapter S Trust (QSST) — A trust that qualifies specific requirements for eligibility as an S corporation shareholder.

Real Estate Investment Trust (REIT) — A form of investment in which a trust holds real estate or mortgages and distributes income, in whole or in part, to the beneficiaries (such as investors).

Real Estate Mortgage Investment Conduit (REMIC) — Treated as a partnership, investors purchase interests in this entity which holds a fixed pool of mortgages.

Realized Gain or Loss — The difference between property's basis and the amount received upon its sale or exchange.

Recapture — The amount of a prior deduction or credit recognized as income or affecting its characterization (capital gain vs. ordinary income) when the property giving rise to the deduction or credit is disposed of.

Recognized Gain or Loss — The amount of realized gain or loss that must be included in taxable income.

Regulated Investment Company (RIC) — A corporation serving as a mutual fund that acts as investment agents for shareholders and customarily dealing in government and corporate securities.

Reorganization — Restructuring of corporations under specific Internal Revenue Code rules so as to result in nonrecognition of gain.

Resident Alien — An individual who is a permanent resident, has substantial presence, or, under specific election rules is taxed as a U.S. citizen.

Roth IRA — Form of individual retirement account that produces, subject to holding period requirements, nontaxable earnings.

S Corporation — A corporation that, upon satisfying requirements concerning its ownership, may elect to act as a pass-through entity.

Saver's Credit —Term commonly used to describe Sec. 25B credit for qualified contributions to a retirement plan or via elective deferrals.

Sec. 1231 Property — Depreciable business property eligible for capital gains treatment.

Sec. 1244 Stock — Closely held stock whose sale may produce an ordinary, rather than capital, loss (subject to caps).

Split-Dollar Life Insurance — Arrangement between an employer and employee under which the life insurance policy benefits are contractually split, and the costs (premiums) are also split.

Statutory Employee — An insurance agent or other specified worker who is subject to social security taxes on wages but eligible to claim deductions available to the self-employed.

Stock Bonus Plan — A plan established and maintained to provide benefits similar to those of a profit-sharing plan, except the benefits must be distributable in stock of the employer company.

Tax Preference Items — Tax benefits deemed includable for purposes of the alternative minimum tax.

Tax Shelter — A tax-favored investment, typically in the form of a partnership or joint venture, that is subject to scrutiny as tax-avoidance device.

Tentative Tax — Income tax liability before taking into account certain credits, and AMT liability over the regular tax liability.

Transportation Expense — The cost of transportation from one point to another.

Travel Expense — Transportation, meals, and lodging costs incurred away from home and for trade or business purposes.

Unearned Income — Income from investments (such as interest, dividends, and capital gains).

Uniform Capitalization Rules (UNICAP) — Rules requiring capitalization of property used in a business or income-producing activity (such as items used in producing inventory) and to certain property acquired for resale.

Unrelated Business Income (UBIT) — Exempt organization income produced by activities beyond the organization's exempt purposes and therefore taxable.

Wash Sale — Sale of securities preceded or followed within 30 days by a purchase of substantially identical securities. Recognition of any loss on the sale is disallowed.