Glossary of Tax Terms

Backup Withholding

Tax withheld from investment income, such as interest and dividends, to ensure that tax is collected on the income. Banks and other organizations are required to report to the IRS all interest and dividend payments made to you, along with your social security number or other taxpayer identification number. If they do not have adequate reporting information for you, they are required to withhold 31 percent of your investment income. The IRS may also require the bank or other organization to withhold tax if the IRS determines you have underreported your investment income. Your Form 1099-INT or Form 1099-DIV will show any backup withholding as ""Federal income tax withheld.""

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Balloon Payment

A final loan payment that is considerably higher than prior regular payments, in order to pay off the loan. You may have a balloon payment for a short-term loan that you anticipate refinancing.

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Bargain Sale to a Charitable Organization

The sale of property to a charitable organization at a price below fair market value. If the property has appreciated in value, you must allocate your basis between the portion of property sold and the portion of property donated. You then pay tax on any gain on the portion of property sold, and you deduct the remaining portion as a charitable contribution, subject to charitable contribution rules.

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Basis

1. The amount you paid for an asset plus other costs, such as sales tax, shipping, and installation, less depreciation taken. This amount is then used to figure your gain or loss when you sell the asset.

2. The amount you contributed to your Individual Retirement Arrangement (IRA) on which you already paid tax. If you filed Form 8606 in a prior year, you can get the basis from the prior year's form. If this is the first time you have had to prepare Form 8606, your basis will be the total nondeductible contributions to your IRA.

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Blind

For tax purposes, you are considered blind if your vision with corrective lenses is no better than 20/200 in your best eye, or if you have a visual field not greater than 20 degrees.

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Bona Fide Foreign Resident

An individual who lives in a foreign country the entire tax year, meets certain criteria, and qualifies for the foreign earned income exclusion.

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Bond

A type of debt owed by federal and municipal governments and corporations. If you invest in bonds, you will usually receive interest twice a year.

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Boot

Cash or other property used in an exchange to make the values of property traded equal. For instance, if you trade in a delivery truck on a new model, the cash you pay in addition to your old truck is boot.

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Business Asset

An item you own for your business that you expect to last several years, such as a car, computer equipment, or office furniture. It can also include a rental house of improvements you make to business property you are leasing.

Purchases such as office supplies, small hand tools, and general supplies are not business assets, and you deduct them as business expenses for the year in which you purchase them.

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Business Interest Expense

Interest incurred in the operation of your business. It is deductible as a business expense.

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