ABCs of Taxation

Updated: Feb 19

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.