Glossary of Tax Terms

Net Operating Loss

A net operating loss (NOL) occurs when your deductions are more than your income for the year. A loss from operating a business is the most common reason for an NOL. An NOL can be carried back to previous years and carried forward to future years to offset income.

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Nominee Dividends

Dividends that you receive on behalf of another person. For instance, if your name and taxpayer identification number are on a brokerage account, but all or part of the stock actually belongs to someone else, you must file a Form 1099-DIV and the other person must report the dividends on his or her own tax return. You then report a nominee dividend adjustment to reduce your taxable dividends.

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Nominee Interest

Interest that you receive on behalf of another person. For instance, if your name and taxpayer identification number are on a savings account, but all or part of the savings account actually belongs to someone else, you must file a Form 1099-INT and the other person must report the interest on his or her own tax return. You then report a nominee interest adjustment to reduce your taxable interest.

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Nonpassive Income

Active income, such as wages, tips, and profits from your business that you materially participate in, and portfolio income, such as interest and dividends. Generally, you cannot offset nonpassive income with passive losses.

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Nonperiodic Distributions

As it applies to the 20 percent rule for backup withholding, a nonperiodic distribution is a payment such as a lump-sum distribution that is paid to an employee from an employer retirement plan.

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Nonrecourse Financing

A type of debt for which a borrower is not personally liable. If you default on a nonrecourse loan, the lender must recover the amount you owe by foreclosing on the property by which the loan is secured. At-risk rules limit the amount of loss you can take from activities with nonrecourse financing.

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Nonresident Alien

A person who is not a permanent resident or a citizen of the United States, and who is generally taxed on income from U.S. sources.

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Nontaxable Distribution

A dividend you receive from a company, not from its earnings but as a return of your investment in the stock. If you receive a nontaxable distribution, you must reduce your basis in the stock by the amount of the distribution. When you sell the stock, your gain or loss will be calculated using the adjusted basis.

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