Income Tax Planning Definitions Flashcards
1
Q
Above-the-Line Deductions
A
Deduction for adjusted gross income
2
Q
Accelerated Depreciation
A
Allows the owner of an asset to front-load the depreciation deductions so that more of the depreciation deduction is taken in the early years
3
Q
Accountable Expense Reimbursement Plan
A
A plan under which an employer reimburses employees for certain actually incurred expenses and requires the employee to substantiate the expenditures by producing receipts.
4
Q
Accountable Plan
A
A reimbursement plan that reimburses employees only for actual expenses incurred
5
Q
Accrual Method
A
An accounting method under which income is reported when it is earned rather than when it is received in cash
6
Q
Accuracy-Related Penalty
A
A penalty of 20 percent of the underpayment amount imposed on taxpayers who file incorrect tax returns in certain situations.
7
Q
Acquisition Indebtedness
A
Indebtedness that is secured by the home and is used to acquire
8
Q
Active Participation
A
Requires participation in making management decisions concerning the property
9
Q
Activities of Daily Living
A
Eating
10
Q
Adjusted Gross Income
A
Gross income less above-the-line deductions.
11
Q
Adjustments
A
AMT changes made to adjusted gross income that either increase or decrease AMTI.
12
Q
Adoption Assistance Program
A
An employer plan that assists employees with the cost of adoption and may not discriminate in favor of highly compensated or key employees.
13
Q
Adoption Expenses Credit
A
A nonrefundable credit allowed for qualified adoption expenses paid by an individual to adopt an eligible child.
14
Q
Alimony
A
A separate maintenance payment that is intended to replace income lost by one spouse as the result of a divorce and may be included in the gross income of the payee. Alimony will be included in income for divorce decrees signed prior to 2019.
15
Q
Alimony Recapture
A
Rules designed to prevent taxpayers from transforming property settlements into deductible alimony payments.
16
Q
Alternative Minimum Tax (AMT)
A
An anti-abuse technique designed to change the timing of tax payments.
17
Q
Alternative Minimum Taxable Income (AMTI)
A
Adjusted gross income plus or minus certain adjustments and preferences.
18
Q
American Opportunity Tax Credit
A
A credit (a portion of which is refundable) allowed for the qualified education expenses of an eligible student during the first four years of post-secondary education.
19
Q
Amortization
A
Cost recovery deductions for intangible assets.
20
Q
Amount Realized
A
The amount of money plus the value of property received in the sale or exchange of an asset.
21
Q
Annuitized
A
When regular periodic payments on an annuity contract begin for life or for a specified period of time in excess of one year.
22
Q
Annuity Contract
A
A contract under which an individual invests a lump sum or stream of payments with an insurance company and the income on the investment growth is deferred until the owner begins to take distributions from the annuity.
23
Q
Archer Medical Savings Accounts (MSAS)
A
Tax-favored savings accounts for medical expenses that were established by HIPAA in 1996
24
Q
Articles of Incorporation
A
The charter document for a corporation that must be filed with the Secretary of State in the state of organization.
25
Articles of Organization
Charter document for LLC filed with Secretary of State.
26
At-Risk Rule
Limits taxpayer's deductible losses to at-risk amount.
27
Bartering
Exchange of goods or services without cash.
28
Basis
Total capital from after-tax income for investments.
29
Basis Limitation
Maximum deductible loss equals taxpayer's investment basis.
30
Below-the-Line Deductions
Deductions from adjusted gross income
31
Bona Fide Resident Test
Test for foreign income exclusion based on residency intent.
32
Bonus Depreciation
Accelerated depreciation allowing 100% deduction for assets.
33
Boot
Non-like-kind property received in a Section 1031 exchange.
34
Cafeteria Plan
Plan allowing employees to choose compensation benefits.
35
Capital Asset
Assets not classified as ordinary income or Section 1231.
36
Cash Receipts and Disbursements Method
Income reported when received
37
Casualty Loss Deduction
Deduction for unexpected property loss or damage.
38
Checking the Box
Choice for entities to be taxed as corporation or partnership.
39
Child Tax Credit
Nonrefundable credit of $2
40
Community Property
Property regime where spouses share ownership equally.
41
Compensation
Salary and benefits received for services provided.
42
Compensatory Damages
Monetary award for losses or personal injury.
43
Conventions
Rules governing first-year depreciation deductions.
44
Corporate Recapitalization
Restructuring corporate equity for estate or succession planning.
45
Corporations
Legal entities formed by individuals under state law.
46
Cost Basis
Initial asset value acquired by investor.
47
Coverdell Education Savings Account
Plan allowing $2
48
Credit for Child and Dependent Care Expenses
Nonrefundable credit for employment-related care expenses.
49
Credit for Increasing Research Activities
Encourages businesses to increase research expenditures.
50
Credit for the Elderly or Disabled
Nonrefundable credit for elderly or disabled individuals.
51
Credits for Taxes Paid
Refundable credits for federal taxes paid in advance.
52
De Minimis Fringe Benefit
Insignificant fringe benefits not worth accounting.
53
Deductions
Items subtracted from gross income to determine taxable income.
54
Deferral Items
Tax credits usable in future years based on current tax.
55
Dependency Exemption
Deduction for qualifying child or relative before 2018.
56
Depletion
Depreciation method for natural resource assets.
57
Depreciation
Reduction in asset basis due to capital return.
58
Depreciation Recapture
Tax consequences when selling Section 1231 asset above basis.
59
Determination Letter
IRS letter advising on transaction reporting for taxes.
60
Disability Insurance
Benefits for individuals unable to work due to illness.
61
Disabled Access Credit
Encourages businesses to improve accessibility for disabilities.
62
Disallowed Losses
Realized losses not recognized for tax purposes.
63
Discriminant Inventory Function System
IRS program identifying tax returns for audit.
64
Distance Test
50-mile distance requirement for moving expense deduction.
65
Dividend Income
Corporate earnings distributed to shareholders
66
Doctrine of Constructive Receipt
Income must be reported when available
67
Double Basis Rule
Basis rules for gifts and related party transactions.
68
Double Declining Balance Method
Accelerated depreciation method using double the straight-line rate.
69
Earned Income
Income from wages
70
Earned Income Credit
Refundable credit for lower-income taxpayers earning income.
71
Educational Assistance Program
Employer plan providing educational assistance to employees.
72
Employee Business Expenses
Deductible expenses for employees not reimbursed by employers.
73
Employer-Provided Child Care Credit
Credit encouraging employers to support employee child care.
74
Endowment Contract
Insurance contract paying benefits upon death or reaching age.
75
Estimated Tax Payments
Quarterly payments to IRS credited against annual tax.
76
Exclusion Items
Adjustments causing permanent tax increases.
77
Exclusions
Income items exempt from taxation.
78
Failure to File Penalty
5% penalty per month for late tax return filing.
79
Failure to Pay Penalty
0.5% penalty per month for unpaid taxes.
80
Family Limited Partnership
Partnership for transferring assets to younger generations.
81
Federal Insurance Contributions Act (FICA)
Law governing employee pay withholding for OASDI benefits.
82
Final Regulations
Treasury regulations formally adopted after compliance.
83
5-Year Lookback Rule
Unrecaptured Section 1231 losses taxed as ordinary income.
84
Flexible Spending Account (FSA)
Cafeteria plan funded by employee salary reductions.
85
Foreign Earned Income
Income earned abroad by U.S. citizens or residents.
86
Foreign Tax Credit
Credit for taxes paid to foreign governments.
87
Fraud
Intentional disregard of tax rules by taxpayer.
88
Fringe Benefits
Non-cash benefits provided to employees beyond salary.
89
Functional Use Test
Replacement property must serve same functional purpose.
90
General Business Credit
Combination of over thirty nonrefundable tax credits.
91
General Partnership
Business venture with co-owners having unlimited liability.
92
Gross Income
Total income from all sources
93
Head of Household Filing Status
Filing status with better tax benefits than single.
94
Health Reimbursement Arrangements (HRAs)
Employer-funded plans reimbursing employees for medical expenses.
95
Health Savings Account (HSA)
Tax-free savings for medical expenses with high deductible plans.
96
Highly Compensated Employees
Employees earning over $130
97
Hobby Activity
Non-profit motive activity; no deductions allowed post-2017.
98
Holding Period
Duration of asset ownership by taxpayer.
99
Home Equity Indebtedness
Debt secured by home exceeding acquisition indebtedness.
100
Hybrid Method
Accounting method combining various permitted reporting methods.
101
Imputed Interest
Deemed payment when loan interest is below federal rate.
102
Incentive Stock Option (ISO)
Tax-favored stock option for employees meeting specific criteria.
103
Income
Gross money
104
Individual Investor Exception
Allows $25
105
Interest Income
Income from debt instruments like bonds and accounts.
106
Interpretive Regulations
Treasury's official interpretations of tax code.
107
Inventory
Assets held for resale in normal business operations.
108
Investment Credit
Sum of four business credits for tax purposes.
109
Involuntary Conversion
Realization event beyond taxpayer's control.
110
Keogh Plan
Qualified retirement plan for self-employed individuals.
111
Key Employee
Employee with significant ownership or high salary.
112
Kiddie Tax
Tax on child's unearned income at parent's rate.
113
Legislative Regulations
Regulations detailing laws determined by Treasury.
114
Life Insurance Contract
Contract paying specified amount upon insured's death.
115
Lifetime Learning Credit
Nonrefundable credit for qualified education expenses.
116
Like-Kind Assets
Property of similar nature for exchange purposes.
117
Like-Kind Exchange
Tax deferral for exchanging productive business assets.
118
Limited Liability Company
Legal entity offering liability protection and tax flexibility.
119
Limited Liability Partnership
Hybrid entity providing partial liability protection.
120
Limited Partnerships
Partnership with limited management participation.
121
Listed Property
Property used for both business and personal purposes.
122
Long-Term Care Insurance
Insurance for benefits when daily activities are impaired.
123
Long-Term Holding Period
Asset ownership exceeding one year.
124
Low-Income Housing Credit
Credit promoting construction of low-income housing.
125
Managing Partner
Partner responsible for specific tasks or operations.
126
Married Filing Jointly
Filing status for combined income and deductions.
127
Married Filing Separately
Filing status for couples not filing jointly.
128
Material Participation
Regular
129
Medical Savings Account (MSA)
Tax-free growth for medical expense payments.
130
Mixed-Use Rental Activity
Rental property used personally more than 14 days.
131
Modified Accelerated Cost Recovery System (MACRS)
Accelerated depreciation system based on asset classes.
132
Modified Endowment Contracts (MECS)
Life insurance contracts failing specific regulatory tests.
133
Municipal Bonds
State-issued debt instruments with tax-exempt interest.
134
Necessary Expense
Prudent business expense incurred during operations.
135
Net Investment Income Tax (NIIT)
3.8% tax on high net investment income.
136
Net Operating Losses
Higher expenses than income in a tax year.
137
Net Unearned Income (NUI)
Child's unearned income taxed at parent's rate.
138
No-Additional-Cost Services
Fringe benefits excluded from employee's gross income.
139
Non-Accountable Reimbursement Plans
Employer gives fixed sum for business expenses.
140
Nonqualified Stock Option (NQSO)
Right to buy stock at market price on grant date.
141
Nonrecourse Debt
Debt secured only by the pledged asset.
142
Nonrefundable Tax Credits
Credits reducing tax to zero
143
Nontaxable Rental Activity
Rental activity for less than 15 days annually.
144
150 Percent Declining Balance Method
Accelerated depreciation method for specific MACRS assets.
145
Operating Agreement
Rules for operation of a limited liability company.
146
Ordinary Expense
Typical expense in normal business operations.
147
Ordinary Income Assets
Assets generating gains taxed at ordinary rates.
148
Original Issue Discount
Difference between redemption and purchase price of bonds.
149
Original Issue Discount (OID) Bond
Bond issued below face value
150
Passive Activity
Any activity in which a taxpayer does not materially participate
151
Passive Activity Loss Rule
Provides that passive losses may only be used to offset gains from passive activities and may not be used to offset other types of income.
152
Passive Credits
Non-refundable tax credits designed to encourage individuals to engage in certain types of passive activities.
153
Passive Income
Income received by a taxpayer including income generated from investments in real estate and income generated by business entities in which the owner does not materially participate.
154
Pass-Through Entities
Legal business forms that are not treated as separate taxable entities for income tax purposes. The income of a pass-through entity is taxed to each of the owners in proportion to their ownership interest.
155
Personal Exemption
A deduction from adjusted gross income for the taxpayer and the taxpayer's spouse for tax years before 2018 and after 2025.
156
Personal Property
Any property that is not real property.
157
Phantom Income
Income imputed to taxpayer without a corresponding receipt of cash.
158
Physical Presence Test
Requirement for the Foreign Earned Income exclusion that requires the taxpayer to be present in a foreign country or countries for at least 330 full days during any period of 12 consecutive months.
159
Piercing the Veil
Occurs when a court disregards the status of the entity that gives the owners limited liability because the owners failed to maintain a clear and consistent identity for the entity.
160
Portfolio Income
Income received by a taxpayer through the investment of capital
161
Preferences
AMT changes made to adjusted gross income that increase AMTI.
162
Premium Assistance Credit
A credit created by the 2010 Health Care Legislation to provide assistance to low income taxpayers who purchase health insurance through a state-sponsored health benefit exchange.
163
Primarily Rental Use Activity
Rental activity in which the real estate is rented for 15 days or more per year and the owner's personal use of the property is less than the greater of 14 days per year or 10 percent of the rental days.
164
Private Activity Municipal Bonds
Securities issued by or on behalf of local governments that bear tax-exempt interest for regular income tax and are used to provide debt financing for private projects.
165
Private Charities
Corporations or trusts structured to further the charitable intentions of a donor or the donor's family.
166
Private Letter Ruling
Rulings issued by the IRS that are binding on the IRS only with respect to the transaction and the taxpayer that are the subject of the ruling.
167
Procedural Regulations
Housekeeping instructions indicating how the Treasury and IRS will conduct their affairs.
168
Profit Motive
An actual and honest
169
Proposed Regulations
Regulations that have been drafted by the Treasury
170
Public Charities
Charitable organizations that receive support from a wide cross-section of the population
171
Publicly Traded Partnership (PTP)
A partnership that trades on an active securities market.
172
Punitive Damages
Payments intended to punish the offending party.
173
Qualified Business Income (QBI)
The net amount of income
174
Qualified Charitable Organization
An organization that is operated exclusively for religious
175
Qualified Dividends
Dividends subject to favorable tax rates.
176
Qualified Education Expenses
Educational expenses that receive favorable tax treatment. Such expenses may vary depending on the type of program or tax benefit.
177
Qualified Employee Discounts
Employer-provided discounts on qualified property and services that can be excluded from an employee's gross income.
178
Qualified Moving Expense Reimbursement
Direct or indirect payments by an employer to pay the cost of moving an employee's family and belongings (TCJA 2017 limited this provision to members of the Armed Forces after 2017).
179
Qualified Residence Interest Deduction
Tax deduction that permits taxpayers to deduct the interest on up to $750
180
Qualified Retirement Planning Services
Any retirement planning advice or information provided to an employee and his spouse by an employer maintaining a qualified employer-sponsored retirement plan.
181
Qualified Transportation Fringe Benefits
Benefits in the form of (1) transportation between an employee's residence and the place of employment in a commuter highway vehicle
182
Qualified Tuition Programs
Also known as 529 Plans
183
Qualifying Child
A person who meets the relationship test
184
Qualifying Relative
A person who meets the relationship test
185
Real Estate Professional Exception
Provides that if a taxpayer meets certain requirements
186
Real Property
Land and anything permanently attached to it (such as buildings
187
Realization Event
Generally occurs when an asset has been sold or exchanged. Gains on capital assets are subject to tax only when there has been both a realization event and a recognition event.
188
Reasonable Expense
An expense that is incurred in a trade or business that is considered by the IRS to be reasonable based on the facts and circumstances surrounding the expense.
189
Recognition Event
Occurs when a realized gain is included on a taxpayer's income tax return. All realized gains are generally recognized unless a provision in the Code provides otherwise.
190
Recourse Debt
Debt that the taxpayer is personally liable to repay regardless of whether the investment produces a return for the investor.
191
Refundable Tax Credits
Tax credits that can be used not only to reduce or eliminate the current year's tax
192
Reinvestment Period
Period during which the taxpayer must acquire replacement property.
193
Related Party
Anyone defined under Section 267(b) including brothers and sisters (of whole or half blood or adopted).
194
Reserve Method
A method of deducting bad debts used by some businesses in which bad debt deductions are taken based on a percentage of accounts receivable representing the historical percentage of accounts that go bad.
195
Residential Energy Efficient Property Credit
A nonrefundable energy tax credit that helps an individual taxpayer pay for qualified residential alternative energy equipment.
196
Residential Energy Property Credit
A credit that increases the energy tax credit for energy efficient improvements made to a taxpayers existing home.
197
Retirement Savings Contribution Credit
A nonrefundable credit intended to encourage lower-income taxpayers to save for retirement.
198
Revenue Procedures
Statements issued by the IRS which detail internal practices and procedures within the IRS and make important announcements to taxpayers.
199
Revenue Rulings
Rulings issued by the IRS based on a set of facts common to many taxpayers and binding on the IRS.
200
S Corporation
A corporation formed under state law that elects to be taxed under Subchapter S of the Internal Revenue Code.
201
Sale or Exchange Requirement
One of the requirements for a gain to be subject to income tax.
202
Section 1231 Asset
Depreciable property or real property used for productive use in a trade or business or for the production of income.
203
Section 179 Election
Provides to business owners
204
Short-Term Holding Period
Occurs when an asset is owned by a taxpayer for one year or less.
205
Single Filing Status
A filing status used by an unmarried taxpayer who does not qualify as a surviving spouse or head of household.
206
16th Amendment
Amendment to the U.S. Constitution adopted on February 25
207
Small Business Health Coverage Tax Credit
A tax credit for organizations that employ 25 or fewer employees who have annual compensation of $55
208
Small Business Stock (1202 Stock)
Stock that is eligible for a 100% capital gains exclusion.
209
Small Business Stock (1244 Stock)
Stock in a company initially capitalized with $1 million or less that permits special ordinary loss recognition.
210
Small Corporation
A corporation with average gross receipts of $7.5 million or less for the past three years.
211
Small Employer Pension Plan Startup Costs Credit
A component of the general business credit intended to encourage small employers to set up retirement plans for employees.
212
Sole Proprietorship
A business venture owned and operated by a single individual.
213
Specific Charge-Off Method
Allows businesses to deduct bad debts as an ordinary loss in the year in which the debt becomes partially or wholly worthless.
214
Specified Service Trade or Business (SSTB)
A trade or business involving performance of services in the fields of health
215
Standard Deduction
A standard amount that is specified by Congress and includes inflation adjustments. Taxpayers may deduct the greater of the standard deduction or allowable itemized deductions.
216
Statute of Limitations
Specified time within which the IRS may examine an income tax return.
217
Step-to Fair Market Value
The basis of inherited property
218
Straight-Line Depreciation
A depreciation method under which the purchase price of the asset
219
Substantial Omission
An omission from a tax return of more than 25 percent of the gross income reported.
220
Surviving Spouse Filing Status
A filing status for a surviving spouse with a qualifying child that affords the same basic standard deduction and tax rates as the married filing jointly status.
221
Tax Court
A special purpose court that sits in Washington
222
Tax Credit
An amount that reduces the calculated tax liability of the taxpayer.
223
Tax Relief
Unemployment Insurance Authorization
224
Tax Year
Normally a period of 12 months.
225
Taxable Income
Determined by subtracting allowable deductions from gross income.
226
Taxpayer Use Test
Requires that the replacement property be used by the taxpayer within activities which is treated the same for tax purposes.
227
Temporary Regulations
Regulations that have the same authority as final regulations and are issued when guidance must be provided quickly to taxpayers.
228
Transfer for Value Rule
An exception to the general rule that life insurance death benefits are received tax-free.
229
Treasury Regulations
An administrative source of tax law that are official interpretations of the Internal Revenue Code and give taxpayers insight as to how the Code will be enforced by the IRS.
230
U.S. Court of Federal Claims
Court that may preside over tax controversies and only hears cases in Washington
231
U.S. District Court
Trial court of the federal judicial system which has general jurisdiction and is the only option for tax controversies in which the taxpayer would like a jury trial.
232
Unrecaptured Section 1250 Depreciation
The portion of gain that is attributable to non-recaptured depreciation (up to the amount of straight-line depreciation deductions taken) for depreciable real estate that is taxed at 25 percent upon the sale or exchange of the property (plus the Affordable Care Act surtax of 3.8% if applicable).
233
Wash Sale
Occurs when a taxpayer sells a stock or security at a loss
234
Work Opportunity Credit
Part of the general business credit intended to promote the hiring of targeted groups of people who have special needs or high unemployment rates.
235
Working Condition Fringe Benefit
Any property or service provided to an employee to help the employee perform his job better.
236
Zero Coupon Bond
A bond that is sold at a deep discount
