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Tax Terms Glossary

A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

Ability to Pay
A borrower's capacity to pay debts as they become due.
Abusive Tax Shelter
A legal structure that violates the tax rules or regulations that reduces the tax liability for an entity or person.
Accelerated Depreciation
A method of depreciation where a taxpayer takes larger deductions in the early years of an asset's useful life, rather than spreading the deductions out evenly throughout the years. The most common example of accelerated depreciation is the modified accelerated cost recovery system (MACRS).
Accounting Records
The books, records, journals, ledgers, documents, and effects used in preparing a tax return. These items include, but are not limited to, bank statements, brokerage statements, mutual fund statements, sales slips, invoices, receipts, canceled checks, proofs of payment, and insurance records.
Account
An account is where assets or liabilities are recorded.
Account Balance
The amount of assets minus the liabilities in an account.
Accounting Method
A set of rules that a taxpayer uses to report gross sales, expenses, and profits to the taxing authorities. There are two authorized methods. They are cash basis and accrual basis accounting.
Accredited Investor
An accredited investor is any of the following: (1) A bank (2) An insurance company (3) An employee benefit plan (4) an entity with assets that exceed five million (5) A natural person whose net worth exceeds one million excluding their residence (5) a natural person whose income exceeded $200,000 ($300,000 if married) for the past two years and has no reason to expect it to stop. See 17 C.F.R. §230.501
Accrual Basis (Accounting Method)
An accounting method whereby gross income and expenses are accounted for when earned, rather than when cash is paid or received. This method allows taxpayers to record economic events, instead of the physical transfer of money.
Accounts Payable
Money that is owed from a business to its suppliers.
Accounts Receivable
The amount a business owes to its suppliers.
Acquisition
To obtain, or add, a tangible or intangible thing of value.
Acquisition Debt
Debt used to acquire, or make an improvement to, an asset. The term is often used in relation to the purchase or enhancement of real property.
Active Income
Income earned from activities in which a person materially participates.
Adjusted Basis
The taxpayer’s basis that is reduced from depreciation and increased by expenses.
Adjusted Gross Income (AGI)
A taxpayer's gross income from all sources with certain deductions.
Alimony
Alimony is court ordered payments to a former spouse after separation or divorce.
Alternative Minimum Tax (AMT)
An alternative tax that must be calculated and was designed to ensure that high income taxpayers who receive too many deductions pay a minimum tax.
Amended Tax Return
A tax return that is filed with a taxing authority after an original tax return was filed, indicating some kind of change from the original filing.
Amortization
The process of deducting a portion of a capital asset over its useful life. The amount deducted is reduced from gross income allowing a taxpayer to pay less tax.
Amount Realized
The proceeds from a sale of an asset.
Annualized Income Installment Method
A method used by the IRS to calculate estimated tax payments.
Annuity
A regularly scheduled stream of payments for a period of years, or a natural person's life.
Appreciate
For something to increase in its value.
Arbitrage
Arbitrage is where a trader profits from the price differential in two different markets by purchasing an asset in one market while selling it in another. If the two assets are different, then one of the assets must entitle the taxpayer to acquire the identical asset.
Arms Length Transaction
A transaction where each party is independent and acts in his or hers own best interest.
Association
A group of people organized for a joint purpose.
Asking Price
The price at which a Person is offering his or her asset for sale.
Assessment
An assessment is where a taxing authority records a taxpayer's liability. Once an assessment is made the tax becomes due and the taxing authority can begin collection by way of levy or court proceedings.
Asset
A tangible or intangible thing that can be used to create value.
Assignment (Option)
An option assignment occurs when a notice is sent to an option writer informing them that the purchaser has exercised their option and the seller must now fulfill their obligation.
Attribution Rules
Tax rules that effectively impose ownership of property to one party even though the property is owned by another. These rules are sometimes referred to as constructive ownership rules.
Audit (Tax)
A tax audit is where a government taxing authority reviews the books and records of a taxpayer to ensure compliance with the taxing statutes.