Glossary of Tax Terms
# 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
Calendar Quarter
Calendar Year
Cancellation of Debt
Capital
Capital Asset
Capital Expenditure
Capital Gain
Capital Gain Distribution
Capital Loss
Capital Loss Carryover
Capitalize
Carry Back
Carry Forward
Cash Liquidation Distribution
Cash Method
Cash Wages
Casualty and Theft Loss
CCC
Certificate of Deposit (CD)
Certified Public Accountant (CPA)
CFR
Charitable Contribution Deduction
Charitable Organization
Child
Child and Dependent Care Credit
Child Support
Citizenship Test
COBRA
Collectible
Combat Zone
Community Income
Commuting Expense
Condemnation
Construction Interest Expense
Constructive Receipt
Consumer Interest Expense
Corporation
Cost of Goods Sold
Cost-of-Living Allowance
Credit
Crop Method
A quarter that for tax purposes is January through March, April through June, July through September, or October through December.
A complete tax year for most taxpayers that runs from January 1st through December 31st.
When a creditor forgives a debt without payment. Cancellation of debt is taxable as income unless the creditor intended it as a gift or it meets certain exceptions relating to bankruptcy, insolvency, or farming.
An item that you own for investment or personal purposes, such as stocks, bonds, or stamp collections. The sale of a capital asset produces a capital gain or a capital loss. Assets you use in your business and inventory are not capital assets.
The cost of making an improvement to your property that increases its value or lengthens its useful life, as opposed to a repair that only maintains your property. Appliance service calls and fixing the front door for your rental property are repairs, whereas the costs of a new refrigerator and a new roof for your rental are capital expenditures. You must deduct the expense of a repair all at once, but you must depreciate a capital expenditure over its useful life.
Profit on the sale of a capital asset. Capital gains receive more favorable tax treatment than ordinary gains. Depending on your tax bracket and on how long you held a capital asset, you may pay about one-third to one-half less tax on a capital gain than you would have paid on the same amount of ordinary income.
1. Capital gain distributions from a mutual fund are distributions resulting from the sale of capital assets by the fund. The portion of dividends shown as a capital gain distribution is treated as a capital gain, not ordinary dividends, by the investor. It is important to separate capital gain distributions from ordinary dividends because capital gains receive more favorable tax treatment.
2. Capital gain distributions from a corporate liquidation. The difference between an investor's basis in stock and the amount distributed to the investor at liquidation is a capital gain.
Loss from the sale of a capital asset. You can offset ordinary income with capital losses by a maximum of $3,000 per year, and you can carry the excess capital losses forward indefinitely until they are used up.
The amount of capital loss not allowed as a deduction in the current year and carried over to the next year. You are limited to $3,000 of capital losses you may use to offset ordinary income in one year, but you may carry the excess losses forward indefinitely until they are used up.
To record an expenditure as an addition to an asset account, rather than treating it as a deductible expense in the current year. For instance, a major remodeling project on a rental property should be capitalized or added to the basis of the rental property rather than deducted in the current year.
To use deductions or credits that cannot be taken in the current year to reduce your tax liability for a prior year or years. Individuals may carry back net operating losses, general business credits, and foreign tax credits, but not capital losses. Amounts not carried back may be carried forward to later years.
Using deductions or credits that cannot be taken in the current year to reduce your tax liability in a later year or years.
A return of capital that you receive when a corporation is being partially or completely liquidated. If your Form 1099-DIV shows a cash liquidation distribution, it is not taxable unless the total amount of the distribution you receive exceeds your investment in the stock.
The form of accounting in which you report income in the year you actively or constructively receive it and you deduct expenses in the year paid. Most individuals use this method. Compare accrual method.
Cash wages include wages paid by check, cash, or money order. Cash wages do not include the value of food, lodging, clothing, or other noncash items you give to an employee.
A loss caused by a hurricane, earthquake, fire, flood, theft, or similar event that is sudden, unexpected, or unusual. You can deduct personal casualty or theft losses as an itemized deduction subject to a $100 reduction per event and to the extent your total losses during the tax year exceed 10 percent of your adjusted gross income.
A debt instrument from a bank or savings institution that has a set maturity date. CDs usually pay interest.
Certified Public Accountant (CPA)
A person who has met state requirements for education and work experience, passed a national exam, and met other licensing requirements. Certified Public Accountants in public accounting practice prepare tax returns, perform audits, do accounting, and give advice to their clients on financial matters.
For tax purposes, your child is your son, stepson, daughter, stepdaughter, legally adopted child, or a child placed with you for adoption by an authorized placement agency. A foster child who lived with you the entire year is also considered your child for tax purposes.
Payments designated for the support of a minor child under an agreement of divorce or separation. Child support is not deductible by the payer, nor is it taxable to the recipient.
One of the tests a person must meet to qualify as your dependent. To meet this test, the person must be a U.S. citizen, a resident of Canada or Mexico, or an alien child whom you have adopted and who lived with you for the entire year.
The Consolidated Omnibus Budget Reconciliation Act of 1985 is the law that added requirements for health care continuation coverage.
Property such as rare coins, artwork, and antiques that you collect as an investment. Gains from the sale of collectibles do not qualify for the same new capital gain maximum tax rates as other investments, such as stocks.
A geographical area designated by the President of the United States as a combat zone during a specified period. Members of the armed forces can exclude from taxable income military pay that they earn while working in a combat zone.
Income that is earned in states that adhere to community property laws. Community income is treated as belonging equally to husbands and wives.
The expense of traveling from your home to your principal place of work. Commuting expenses are not deductible with exceptions for temporary work locations and multiple work locations.
The taking of private property by a government agency for public use with compensation for its owner. You may be able to defer a gain that is the result of a property condemnation.
Interest incurred while a building is being built. If you pay construction interest expense on commercial or rental buildings, you do not deduct this interest when it is paid, but you add it to the basis of the building.
You have received income when it is available to you, regardless of whether you actually take possession of it. For instance, if you receive a check in December of 2002, but you deposit it in January 2003, you had constructive receipt of the amount in 2002.
Nondeductible interest from personal loans such as credit card debt and auto loans.
A legal business entity owned by shareholders with the ability to own property, incur debts, and sue or be sued.
Your cost of obtaining and producing the goods that you sell in your business. If you own a manufacturing business, this cost may include basic materials plus the costs of production, supplies, and labor and other costs.
An allowance paid by your employer for living expenses. Generally, you must include cost-of-living allowances in your taxable income unless you are a federal civilian employee or a federal court employee stationed in Alaska, Hawaii, or outside the United States.
When it relates to taxes, a credit is a direct dollar-for-dollar reduction of your income tax after it is computed on your taxable income.
A form of accounting for farmers who can deduct the entire cost of producing the crop, including the expense of seed and young plants, in the year they realize income from the crop.
