Compiled By: Romer Yadao
Barrista Solutions lists key concepts in Taxation. This will help you memorize important terms in the subject.
1. ACCOUNTING PERIOD
A regular span of time used for accounting purposes especially a period used by a taxpayer in determining income and related tax liability.
2. ACCRUAL BASIS
An accounting method that records entries of debits and credits when the revenue or liability arises rather than when the income is received or an expense is paid.
3. ACCUMULATED EARNINGS TAX
A penalty tax imposed on a corporation that has retained its earnings in an effort to avoid the income tax liability arising once the earnings are distributed to shareholders as dividends.
4. ACCUMULATED INCOME
Income that is retained in an account especially income that has not yet been reinvested or distributed by the trustee.
5. AD VALOREM TAX
A tax imposed proportionally on the value of something especially real property, rather than its quantity or some other measure.
6. ADMISSION TAX
A tax imposed as part of the price of being admitted to a particular event.
7. AMENDED RETURN
A return filed after the original return, usually to correct an error in the original.
8. AMORTIZATION
The act or result of apportioning the initial cost of a usually intangible assent, such as a patent, over the asset’s useful life.
9. AMUSEMENT TAX
A tax on a ticket to a concert, sporting event or the like.
10. APPROPRIATED RETAINED EARNINGS
Retained earnings that a company’s board designates for a distinct use and that are therefore unavailable to pay dividends or for other uses.
11. ARBITRAGE
The simultaneous buying and selling of identical securities in different markets, with the hope of profiting from the price difference between those markets.
12. ARM’S LENGTH TRANSACTION
A transaction between two unrelated and unaffiliated parties.
13. ASSESSMENT
Determination of the rate or amount of something, such as a tax or damages.
14. AUDIT
A formal examination of an individual’s or organization’s accounting records, financial situation, or compliance with some other set of standards.
15. BAD DEBT
A debt that is uncollectible and that may be deductible for tax purposes.
16. BALANCE SHEET
A statement of an entity’s current financial position, disclosing the value of the entity’s assets, liabilities and owner’s equity. Also termed statement of financial condition.
17. BENEFICIAL OWNERSHIP
A beneficiary’s interest in trust property.
18. CAPITAL GAIN
The profit realized when a capital asset is sold or exchanged.
19. CAPITAL GAINS TAX
A tax on income derived from the sale of a capital asset.
20. CLOSED TRANSACTION
A transaction in which an amount realized on a sale or exchange can be established for the purpose of stating a gain or loss.
21. DEFERRED INCOME
Money received at a time later that when it was earned, such as a check received in January for commissions earned in November.
22. DEFICIENCY
A lack, shortage or insufficiency. A shortfall in paying taxes; the amount by which the tax
property due exceeds the sum of the amount of the tax shown on a taxpayer’s return.
23. DEFICIENCY ASSESSMENT
An assessment after administrative review and tax-court adjudication – of additional tax owed by a taxpayer who underpaid.
24. DEPLETION RESERVE
A charge to income reflecting the decrease in the value of a wasting asset, such as an oil reserve.
25. DEPRECIATION METHOD
A set formula used in estimating an asset’s use, wear or obsolescence over the asset’s useful life or some portion thereof. This method is useful in calculating the allowable annual tax deduction for depreciation.
26. DIRECT TAX
A tax that is imposed on property as distinguished from a tax on a right or privilege.
27. DISPOSABLE INCOME
Income that may be spent or invested after payment of taxes and other obligations.
28. DIVIDEND INCOME
The income resulting from a dividend distribution and subject to tax.
29. DONOR’S TAX
A tax imposed when property is voluntarily and gratuitously transferred.
30. DOUBLE TAXATION
The imposition of two taxes on the same property during the same period and for the same taxing purpose.
31. EARNINGS
Revenue gained from labor or services, from the investment of capital or from assets.
32. EARNINGS BEFORE INTEREST AND TAXES
A company’s income calculated without deductions for interest expenses and taxes, used as a measure of the company’s ability to generate cash flow from ongoing operations.
33. EARNINGS BEFORE INTEREST, TAXES AND DEPRECIATION
A company’s income without deductions for interest expenses, taxes, depreciation expenses, or amortization expenses used as an indicator of a company’s profitability and ability to service its debt.
34. EARNINGS PER SHARE
A measure of corporate value by which the corporation’s net income is divided by the number of outstanding shares of common stock. Investors benefit from calculating a corporation’s earnings per share because it helps the investors determine the fair market value of the corporation’s stock.
35. EQUAL AND UNIFORM TAXATION
A tax system in which no person or class of persons in the taxing district- whether it be a state, city or county- is taxed at a different rate from others in the same district on the same value or thing.
36. ESTATE TAX
A tax imposed on the transfer of property by will or by intestate succession.
37. EXEMPT INCOME
Income that is not subject to income tax.
38. FAIR MARKET VALUE
The price that a seller is willing to accept and a buyer is willing to pay on the open market and in an arm’s length transaction; the point at which supply and demand intersect.
39. GOING CONCERN VALUE
The value of a commercial enterprise’s assets or of the enterprise itself as an active business with future earning power, as opposed to the liquidation value of the business or of its assets. Going concern value includes, for example, goodwill.
40. GROSS INCOME
Total income from all sources before deductions, exemptions or other tax deductions.
41. GROSS RECEIPTS
The total amount of money or other consideration received by a business taxpayer for goods sold or services performed in a taxable year before deductions.
42. HEDGE
To use two compensating or offsetting transactions to ensure a position of breaking even especially to make advance arrangements to safeguard oneself from loss on an investment, speculation, or bet as to when a buyer of commodities insures against unfavorable price changes by buying in advance at a fixed rate for later delivery.
43. HISTORICAL COST
An asset’s net price; the original cost of an asset. It is also termed acquisition cost.
44. INCOME
The money or other form of payment that one receives usually periodically, from employment, business, investments, royalties, gifts and the like.
45. INCOME TAX
A tax on an individual or entity’s net income.
46. INCOME STATEMENT
A statement of all the revenues, expenses, gains, and losses that a business incurred during a given period.
47. INDIRECT TAX
A tax on a right or privilege.
48. JEOPARDY ASSESSMENT
An assessment without the usual review procedures – of additional tax owed by a taxpayer who underpaid, based on the belief that collection of the deficiency would be jeopardized by delay.
49. LOCAL ASSESSMENT
A tax to pay for improvements (such as sewers and sidewalks) in a designated area levied on property owners who will benefit from the improvements.
50. NET INCOME
Total income from all sources minus deductions, exemptions and other tax reductions. Income tax is computed on net income.
51. NET OPERATING INCOME
Income derived from operating a business after subtracting operating costs.
52. OPTIMAL USE VALUE
The highest and best use of a thing from an economic standpoint. If a farm would be worth more as a shopping center than as a farm, the shopping center value will control even if the transferee (that is, a done or heir) continues to use the property as a farm.
53. ORDINARY INCOME
For business tax purposes, earnings from the normal operations, or activities of a business.
54. PASSIVE INCOME
Income derived from a business, rental, or other income-producing activity that the earner does not directly participate in or has no immediate control over.
55. PROGRESSIVE TAX
A tax structured so that the effective tax rate increases more than proportionately as the tax base increases or so that an exemption remains flat or diminishes.
56. PROPERTY TAX
A tax levied on the owner of the property usually based on the property’s value.
57. REGRESSIVE TAX
A tax structured so that the effective tax rate decreases as the tax base increases.
58. SPECIAL ASSESSMENT
The assessment of a tax on property that benefits in some important way from a public improvement.
59. STRAIGHT-LINE DEPRECIATION METHOD
A depreciation method that writes off the cost or other basis of the asset by deducting the expected salvage value from the initial cost of the capital asset and dividing the difference by the asset’s estimated useful life.
60. SUM OF THE YEAR’S DIGITS DEPRECIATION METHOD
A method of calculating the annual depreciation allowance by multiplying the depreciable cost basis (cost minus salvage value) by a constantly decreasing fraction which is represented by the remaining years of useful life at the beginning of each ear divided by the total number of years of useful life at the time of acquisition. Sometimes shortened to SYD method.
61. TAXABLE INCOME
Gross income minus all allowable deductions and exemptions.
62. TAX AVOIDANCE
The act of taking advantage of legally available tax-planning opportunities in order to minimize one’s tax liability.
63. TAX BASE
The total property, income or wealth subject to taxation in a given jurisdiction; the aggregate value of the property being taxed by a particular tax.
64. TAX BENEFIT RULE
The principle that if a taxpayer recovers a loss or expense that was deducted in a previous year, the recovery must be included in the current year’s gross income to the extent that it was previously deducted.
65. TAX BRACKET
A categorized level of income subject to a particular tax rate.
66. TAX CREDIT
An amount subtracted directly from one’s total tax liability as opposed to a deduction from gross income.
67. TAX EVASION
The willful attempt to defeat or circumvent the tax law in order to illegally reduce one’s tax liability.
68. TAX EXEMPT
By law, not subject to taxation.
69. TAX FREE EXCHANGE
A transfer of property for which the tax law specifically defers (or possibly exempts) income tax consequences.
70. TAX INCENTIVE
A governmental enticement, through a tax benefit, to engage in a particular activity, such as the contribution of money or property to a qualified charity.
71. TAX LIABILITY
The amount that a taxpayer legally owes after calculating the applicable tax.
72. TAX PROTEST
A taxpayer’s formal, usually written, statement that he or she does not acknowledge a legal or just basis for the tax or a duty to pay it.
73. TAX REFUND
An income tax form on which a person or entity reports income, deductions and exemptions and on which tax liability is calculated.
74. TAX SHELTER
A financial operation or investment strategy (such as partnership or real estate investment trust) that is created primarily for the purpose of reducing or deferring income tax payments.
75. TAX SITUS
A state or other jurisdiction that has a substantial connection with assets that are subject to taxation.
76. TAX WRITE OFF
A deduction of depreciation, loss or expense from taxable income.
77. VALUE ADDED TAX
A tax assessed at each step in the production of a commodity, based on the value added at each step by the difference between the commodity’s production cost and its selling price.
78. WITHHOLDING TAX
A portion of income tax that is subtracted from salary, wages, dividends or other income before the earner receives payment.
Source: Bryan A. Garner, Blacks Law Dictionary (USA: West Publishing Co, 2004)
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