Dictionary

An explanation of a topic under consideration by the Financial Accounting Standards Board.

A check returned to the depositor unpaid because of insufficient funds in the drawer's account; also called an NSF check.

Amounts paid by employers to workers who have been separated from employment; also known as payments in lieu of notice, separation pay, or terminal leave pay.

The earnings remaining after withholding for federal and state income taxes, FICA taxes, state unemployment and disability taxes, and deductions required for state employees' retirement systems.

The legal term for termination of a partnership.

The dissolution of a corporation follows its liquidation. It is the technical termination of a corporation's existence by surrender or forfeiture of its charter. A corporation remains liable for the filing of income tax returns as long as it is in existence and until its dissolution, even though it is not doing business.

To the extent that an estate or trust has distributable net income, every distribution to a beneficiary except lump-sum payments of bequests, devises, or inheritances is taxable income. The distributable net income of an estate or trust is the same as its taxable income, with certain specified modifications.

As used in the income tax law, the term distribution by corporation refers to any amounts paid by a corporation to its shareholders, or any property distributed to them, other than for value received in goods or services. It is a broader term than dividend, for a distribution may be a dividend and, therefore, taxable income, or it may be an offset against the stockholder's cost or other basis of the stock.

The amount of net income or net loss allocated to each partner.

A corporation receives a 70 percent or 80 percent deduction--with limitations--for dividends it receives, unless it is an affiliated corporation which does not, or cannot, file a consolidated return. Such a corporation may elect a 100 percent dividends-received deduction.

Distributions of the profits of a corporation to its shareholders.

For tax purposes, a corporation created or organized in the United States or under the laws of the United States or any state.

Services of a household nature performed in or about a private home of the person who employs the domestic.

Capital resulting from the receipt of gifts by a corporation.

A method of depreciation that uses a rate equal to twice the straight-line rate and applies that rate to the book value of the asset at the beginning of the year.

An accounting system that involves recording the effects of each transaction as debits and credits.

A written order that requires one party (a person or business) to pay a stated sum of money to another party.

The bank on which a check is written.

The person or firm issuing a check.

A special type of owner's equity account set up to record the owner's withdrawal of cash from the business.

Earned income, which is usually defined with reference to the self-employment income rules, generally means wages, salaries, tips, professional fees, and other amounts received as compensation for personal services rendered. This term is often used to distinguish unearned income, which includes interest and dividends. The term is sometimes more specifically defined, e.g., for purposes of the foreign income exclusion and for determining self-employment income. In addition to foreign income and self-employment income, the term is relevant to determining income tax liability of minors, IRA contributions, and credits for low-income and elderly or permanently disabled taxpayers.

Accumulated earnings and profits, as well as earnings and profits of the current taxable year, measure the amount of a distribution by a corporation to its shareholders which represents a dividend. The earnings and profits of a distributing corporation are not the same as net income or taxable income. They include nontaxable as well as taxable income but do not include realized gains or losses which are not recognized for income tax purposes.

A business or organization whose major purpose is to produce a profit for its owners.

The expenses that an employer pays for an employee's education, such as tuition, fees, and payments for books, supplies, and equipment.

See Blind and elderly deduction and Tax credit for the elderly.

An electronic transfer of money from one account to another.

Paystub information made available through a secured Web site, kiosk, or interactive voice response system.

A person who is hired by and works under the control and direction of the employer.

An ESOP is a qualified stock bonus plan designed to invest primarily in qualifying employer securities.

Continuous record of the relationship between the employer and the employee.

An employee stock option is an option granted to an employee to purchase the employer's stock. Employee stock options to which special income tax treatment is accorded are known as statutory options that may still be created and exercised.

A form used to claim exemption (withholding) allowances.

Payroll record for each employee that is used to provide complete information about the accumulated earnings of each employee.

Any person or organization who employs one or more individuals for the performance of services, unless such services or employment are specifically excepted by law.

Preprinted government form used by the employer to report unemployment taxes for the calendar year.

Preprinted government form used by the employer to report payroll tax information relating to social security, Medicare, and employee income tax withholding to the Internal Revenue Service.

Any service performed by employees for their employer, regardless of the citizenship or residence of either.

A written authorization that transfers ownership of a check.

Applied to determine if employees of an enterprise are covered under the provisions of the FLSA. The test criteria are at least two employees engaged in interstate commerce and an annual gross sales volume of at least $500,000.

Anything having its own separate identity, such as an individual, a town, a university, or a business.

An owner's financial interest in a business.

The meaning of this word in the income tax law is much narrower than its general meaning, which, broadly speaking, is an interest in property. For federal tax purposes, it has two specific meanings. The gross estate of a decedent consists of assets, both probate and nonprobate, of the decedent for estate tax purposes. Taxable estate is the gross estate less deductions and exemptions. In its most widely used sense, for income tax purposes, an estate is a taxpayer. It is the executorship or administration of a decedent's estate, subject to a court having probate jurisdiction by a fiduciary, and is treated as a separate taxpayer. For income tax purposes, although clearly distinguishable, an estate is generally subject to the same Code provisions in determining taxable income as a trust. Each is allowed deductions for distributions to beneficiaries, such deductions representing gross income in the hands of the beneficiaries. Income accumulated that is neither distributed or distributable during the taxable year is taxable to the estate, after offsetting against it all allowable deductions.

Individual taxpayers must pay estimated taxes on as many as four payment dates unless estimated tax is not expected to exceed $1,000. A corporation deposits its estimated tax in advance on as many as four payment dates (April 15, June 15, September 15, and December 15 for calendar-year corporations). Trusts and estates must make quarterly estimated tax payments in the same manner as individuals, except that an estate is exempt from making such payments during its first two taxable years.

See Passive investment income.

Regulations issued by the federal government that ban, in employment on government contracts, discrimination based on race, color, religion, sex, or national origin.

A person appointed via a will to carry out the testator's directions and to dispose of property according to a will. The executor manages an estate.

Salaried employees who hold supervisory or managerial positions who are not subject to the maximum hour and overtime pay provisions of the Wage and Hour Law.

An exemption is a reduction in net income allowed on account of status or dependency. Thus in arriving at the tax base, or the figure at which the tax rates are applied, net income is reduced by the amount of personal and dependency exemptions. Individuals, estates and trusts are allowed exemptions. Every estate is allowed an exemption of $600. A trust is allowed an exemption of $100 or $300, depending on the type of trust. Except for dependents, every individual taxpayer is allowed at least one exemption of $4,050 in 2016 (adjusted for inflation). On a joint return, the two (or more) exemptions of both the husband and wife are allowed. One spouse is allowed the exemption (or exemptions) of the other on a separate return if the other has no gross income and is not the dependent of another person. Exemptions are also allowable for dependents of the taxpayer.

An outflow of cash, use of other assets, or incurring of a liability.

Method by which employer contribution payments may be adjusted because of a favorable employment record; also known as merit rating.

A system that rewards an employer for maintaining steady employment conditions by reducing the firm's state unemployment tax rate.

A proposed solution to a problem being considered by the Financial Accounting Standards Board.

Transactions that are highly unusual, clearly unrelated to routine operations, and that do not frequently occur.

The contractual interest specified on the bond.

Laws that deal with discrimination on the basis of age, race, color, religion, gender, or national origin as a condition of employment.

The current worth of an asset or the price the asset would bring if sold on the open market.

Taxes levied by the federal government against employers to benefit unemployed workers.

This term usually denotes the executor or administrator of the estate of a decedent or the trustee of a trust. Since an estate or trust is a taxpayer, the fiduciary is charged with the responsibility of filing a return for the estate or trust. The term also includes a guardian, conservator, or receiver.

Filing a return consists of filling it out and mailing or hand-delivering it, generally, to the appropriate IRS location. The time for filing an income tax return is specifically stated in the law, and penalties may be imposed for late filing.

Periodic reports of a firm's financial position or operating results.

Transactions with those who provide cash to the business to carry on its activities.

A method of inventory costing that assumes the oldest merchandise is sold first.

A fiscal year, for income tax purposes, is a period of 12 months, ending on the last day of a month other than December, or the special 52-53-week period. It is thus distinguished from a calendar year, which always ends on December 31. It is a recognized accounting period for income tax purposes.

A small pencil figure written at the base of an amount column showing the sum of the entries in the column.

A foreign corporation is one which is not organized under the laws of one of the states or territories or of the United States. Taxation of a foreign corporation depends on whether or not its income is effectively connected with a U.S. trade or business. Special rules apply to United States shareholders of certain controlled foreign corporations.

If a United States citizen or resident or a domestic corporation incurs or pays income taxes to a foreign country, an election may be made to deduct such taxes in determining taxable income or to take them as a credit against United States tax. The election must be made as to all foreign taxes incurred or paid in the taxable year. Generally, the credit will be limited to the percentage of the total tax against which the credit is being taken that the taxable income from foreign countries is of the total taxable income. Special rules apply to a U.S. shareholder of a controlled foreign corporation or a shareholder in a foreign investment company.

Form that lists the documents an employee must furnish to the employer; they identify the employee and, if an alien, verify authorization to work in the United States.

Form used by the employer to report the amount of wages paid each worker in the course of the trade or business of the employer.

An intangible asset; a right to exclusive dealership granted by a governmental unit or a business entity.

An account showing transportation charges for items purchased.

All information that might affect the user's interpretation of the profitability and financial condition of a business should be disclosed.

A signature transferring a check to a specific person, firm, or bank.

The relationship between assets and liabilities plus owner's equity.

The disposition of an asset for more than its book value.

Legal or equitable procedure by means of which a portion of the wages of any person must be withheld for payment of a debt.

The general business credit consists of the investment tax credit (the sum of the rehabilitation investment credit, the energy investment credit, and the reforestation investment credit), the work opportunity credit, the welfare-to-work credit, the alcohol fuels credit, the research credit, the low-income housing credit, the disabled access credit, the enhanced oil recovery credit, and five other credits.

A financial record for entering all types of business transactions; a record of original entry.

A permanent, classified record of all accounts used in a firm's operation; a record of final entry.

A member of a partnership who has unlimited liability.

Accounting standards developed and applied by professional accountants.

A gift has been defined as a valid transfer of property from one to another without consideration or compensation. For income tax purposes, the words gift and contribution usually have separate meanings, the latter word being used in connection with the contributions to charitable, religious, etc. organizations, whereas the word gift refers to transfers of money or property to private individuals, needy persons, friends, relatives, etc. The recipient of a gift is not required to include it in gross income. The donor is not entitled to deduct it (except for a business gift to a customer of $25 or less per donee per year).

The assumption that a business will continue to operate indefinitely.

An intangible asset; the value of a business in excess of the net value of its identifiable assets.

Accounting work performed for a federal, state, or local governmental unit.

A grantor trust is one in which the grantor retains control over the income or principal, or both, to such an extent that the grantor is regarded as being substantially the owner of the trust property and of the income. The grantor is taxable on this trust income. The law contains specific tests to find whether the grantor is the substantial owner of the trust property.

Total regular earnings and total overtime earnings, also known as gross pay.

Gross estate is an estate tax term. It means a decedent's entire property which is subject to the estate tax, that is, prior to any deductions.

Gross income, for income tax purposes, refers to all income which is taxable. The law enumerates specific items of income which are not to be included in gross income and, therefore, are nontaxable. With these exceptions, all income is includible in gross income.

The difference between net sales and the cost of goods sold (gross profit = net sales — cost of goods sold).

A method of estimating inventory cost based on the assumption that the rate of gross profit on sales and the ratio of cost of goods sold to net sales are relatively constant from period to period.

The amount of gross profit from each dollar of sales (gross profit percentage = gross profit ± net sales).

Gross-up amount of payment so that after the appropriate payroll taxes are withheld, the net amount left is equal to the original intended payment.

Life insurance program for employees at a low cost.

By means of a special tax rate table, a head of household receives a tax advantage over a single individual but less than that afforded a husband and wife who file a joint return. Generally, a head of a household is an unmarried individual who is not a surviving spouse and who maintains as a home a household which is the principal place of abode of at least one child or grandchild or any other relative (except a cousin).

Form that is sent to the Payroll Department so that new employees are properly added to the payroll.

The principle that requires assets and services to be recorded at their cost at the time they are acquired and that, generally, long-term assets remain at historical costs in the asset accounts.

The holding period of property is the length of time that property has been held by a taxpayer or the length of time the taxpayer is treated for income tax purposes as having held it. The term is most important for income tax purposes as it relates to capital gains transactions. Whether a capital gain or loss is long- or short-term depends on whether the asset sold or exchanged has been held by the taxpayer for more than 12 months.

Computing the percentage change for individual items in the financial statements from year to year.

A method of paying employees according to a stated rate per hour.

Those procedures and methods related to recruiting, selecting, orienting, training, and terminating personnel.