Tax Preparation Flashcards
Abandonment
The act of voluntarily and permanently giving up possession and use of property with the intention of ending ownership without transferring ownership to another person.
Abode
The taxpayers home, habitation, residence, domicile, or place of dwelling.
Academic Period
A semester, trimester, quarter, or other period of study (such as a summer school session) as reasonably determined by an educational institution.
Accelerated Cost Recovery System (ACRS)
The name given to tax rules relating to recovering, through depreciation deductions, the cost of property used in a trade or business or to produce income. ACRS applies to property first used before 1987.
Accelerated Death Benefits
Any amounts paid under a life insurance contract, prior to death, for an insured individual who is terminally or chronically ill.
Accountable Plan
A reimbursement or allowance arrangement that requires an employee to account to their employer for their business expenses within a reasonable time.
Accounting Method
The way a taxpayer accounts for income and expenses.
Active Conduct of a Trade or Business
Generally, to participate meaningfully in the management or operations of a trade or business.
Active Participation
Involvement in a rental real estate activity in which the taxpayer owns at least 10% of the rental property and makes significant and bona fide management decisions, such as approving new tenants, deciding on rental terms, and approving expenditures.
Activity
A unit for performing a specific function that generates taxable income, such as a business entity.
Actual Expense Method
A method used to determine the deductible amount of the expenses of operating a vehicle (including a car, van, pickup, or panel truck) for business, charitable, medical, or moving purposes. This method is based on the actual costs incurred and the percentage of business use.
Additional Child Tax Credit
A refundable credit for certain individuals who get less than the full amount of the Child Tax Credit.
Adjusted Basis
The basis in property (usually its cost) increased or decreased by various events, such as improvements, depreciation, and casualty losses.
Adjusted Gross Income (AGI)
The amount of income that remains after certain adjustments to income are subtracted from t he taxpayer’s gross income.
Adjustments to Income
Certain subtractions allowed directly against a taxpayer’s gross income.
Adopted Child
An individual adopted by the taxpayer or lawfully placed with the taxpayer for legal adoption. This child is considered a child for the taxpayer by blood.
Adoption Assistance Program
A written plan set up by an employer to provide adoption assistance to its employees.
Adoption Taxpayer Identification Number (ATIN)
A temporary nine-digit number issued by the IRS for a U.S. citizen or resident alien child being adopted when the adoptive parents cannot get a social security number for the child in time to file their tax return.
Advance Earned Income Credit
Advance payments of the Earned Income Credit paid to the taxpayer throughout the year in their paychecks.
Advance Payments of the Premium Tax Credit (APTC)
Payments made directly to the taxpayer’s Marketplace insurance provider for insurance premiums.
Advance Rent
Any rent received before the period that it covers.
After-Tax Contribution
A voluntary contribution, generally to a retirement plan, subject to income tax.
Age of Majority
The age at which an individual legally becomes an adult. This is generally determined by state law.
Alien
An individual who is not a U.S. Citizen
Alimony
A payment to or from a spouse or a former spouse under a divorce or separation instrument.
Allocated Tips
Tips that an employer assigns an employee. These tips are in addition to tips the employee reported to the employer for the year.
Alternative Minimum Tax (AMT)
An additional tax a taxpayer may have to pay if they benefit from special tax treatment for some types of income, deductions, and expenses.
Alternative Depreciation System (ADS)
The slower of the two depreciation systems under the Modified Accelerated Cost Recovery System (MARCS). Under ADS, straight-line methods are used for calculating depreciation.
Alternative Minimum Taxable Income (AMTI)
The basis for calculating the alternative minimum tax exemption amount and the tentative minimum tax.
Amended Return
Forms completed to correct a tax return that was filed previously.
Amortization
A method of recovering (deducting) certain capital costs in equal amounts over a period of 60 months or more.
Amount Realized
The total of all money and the fair market value of all property or services from the seller received from a sale or exchange of a property, less expenses of sale. The amount realized also includes any of the seller’s liabilities or any liabilities (assumed by the buyer) to which the transferred property is subject.
Amount Recognized
The amount of gain or loss realized from a sale or exchange of property that is included in or deducted from gross income for tax purposes.
Ancestor
A person from whom an individual descended. For example, an individual’s great grandmother and great grandfather are their ancestors.
Annual Additions
The total of all contributions (not including rollovers) for the year to an individual participants’s retirement plan account plus forfeitures allocated to that account.
Annual Benefits
The annual payment of a straight-life annuity (with no extra benefits) under a plan without employee contributions or rollovers.
Annuitant
A person entitled to receive benefits from an annuity.
Annuity
A contract for a series of fixed or variable payments made at regular intervals over a period of more than one full year.
Annuity Starting Date
The first day of the first period for which an individual should receive a payment plan or, if after that day, the date the plan’s obligations became fixed.
Annulment
A legal order declaring that a valid marriage never existed.
Asset
An item of value or usefulness.
At Risk
The amount a taxpayer could actually lose in an activity.
Authorized IRS e-file Provider
A tax professional or business that is accepted to participate in the IRS e-file program.
Authorized Placement Agency
Any person, state or local government agency, tax-exempt organization licensed by a state, or court authorized by state law to place children for legal adoption or in foster care.
Away from Home
The status of an individual when their job requires them to travel away from their tax home longer than an ordinary workday and they need sleep or rest before they can continue working.
Bad Debt
A loss from the worthlessness of a debt.
Balance Due
The amount owed to the IRS after subtracting total tax payments from the total tax liability on a tax return.
Bankruptcy
The legal declaration that a person is unable to pay their debts. The property of a bankrupt individual is administered for the benefit of their creditors.
Barter Exchange
Any person or an organization with members or clients that contract with each other (or with the barter exchange), who jointly trades or barters property or services.
Bartering
An exchange of property or services.
Basis
The amount of an individual’s investment in property for tax purposes.
Beneficiary
A person designated to receive all or a portion of a benefit after the owner dies.
Boot
Cash or fair market value of unlike property received in an exchange.
Business Bad Debt
A debt that comes from operating a trade or business which becomes collectible.
Business Expense
Costs that do not have to be capitalized or included in the cost of goods sold. To be deductible, business expenses must be both ordinary and necessary.
Calendar Quarter
One of the four quarters of a calendar year: January through March, April through June, July through September, or October through December.
Call Option
The right to buy a stated number of shares of stock at a predetermined price (the strike price) before a specified date.
Cancellation of Debt
Forgiveness by the lender of a portion or the total amount due on a secured or unsecured debt.
Capital Asset
For tax purposes, generally everything an individual owns and uses for personal purposes, pleasure, or investment.
Capital Gain Distributions
Amounts paid to an individual or credited to their account by regulated investment companies and real estate investment trusts. These amounts are also known as capital gain dividends.
Capitalize
To recover a cost over a period of years through deductions for depreciation, amortization, or depletion, and adding the cost to the basis of the property to which it relates.
Capitalized Property
Property that is expected to have a useful life of more than one year that is depreciated instead of expensed.
Capitalized Interest
The unpaid interest on a loan that the lender adds to the outstanding principal balance of the loan.
Cash Settlement Option
Any option that, upon exercise, is settled by paying the owner of the option case or other property and not the actual property underlying the option.
Cash Wages
Generally, wages paid by cash, checks, money orders, or equivalent means. Case wages do not include the value of food, lodging, clothing, or other such non cash items given to an employee.
Casualty
The damage, destruction, or loss of property resulting from an identifiable event that is sudden, unexpected, or unusual.
Centralized Authorization File (CAF)
A computer file system containing information regarding the authority of individuals appointed under Powers of Attorney.
Charitable Contribution
A donation or gift provided to, or for the use of, a qualified charitable organization. It is voluntary and is made without getting or expecting anything of equal value in return.
Child
A natural child, stepchild, adopted child, or an eligible foster child.
Child Support
A payment that is specifically designated as child support or treated as specifically designated as child support under a divorce or separation instrument.
Chronically Ill Individual
An individual who has been certified by a licensed health care practitioner within the previous 12 months as one of the following:
An individual who is unable, for at least 90 days, to perform at least two activities of daily living without substantial assistance from another individual due to loss of functional capacity.
An individual who requires substantial supervision to be protected from threats to health and safety due to severe cognitive impairment.
Church Employee
An employee (other than a minister or member of a religious order) of a church or qualified church-controlled organization that is exempt from employer Social Security and Medicare taxes.
Civil Service Annuity
Annuity benefits that are paid primarily under the Civil Service Retirement System or the Federal Employees Retirement System.
Class Life
The number of years that establishes the property class and the recovery period for most types of property for the General Depreciation System (GDS) and the Alternative Depreciation System (ADS) under the Modified Accelerated Cost Recovery System (MARCS)
Closely Held Corporation
Generally, a corporation that, at any time during the last half of the tax year, has more than 50% in value of its outstanding stock directly or indirectly owned by five or fewer people. This type of corporation is generally not a personal service corporation.
Cohabitation
Individual living together in an intimate relationship when not legally married.
Collapsed Loans
Two or more loans made to the same borrower that are treated by both the lender and the borrower as one loan.
Collectible
Any work of art, rug, antique, metal (such as gold, silver, and platinum bullion), gem, stamp, coin, or alcoholic beverage.
Combat Zone
Any area the president of the United States designates by Executive Order as an area in which the U.S. armed forces are engaging or have engaged in combat. An area usually becomes a combat zone and stops being a combat zone on the dates designated by an Executive Order.
Common-Law Employee
An individual who performs services for an employer in return for compensation. An employee is subject to the control of the employer regards what work is done and how, when and where it is done.
Common-Law Marriage
A union of two individuals without a marriage license or a formal ceremony created by agreement, cohabitation that is legally recognized by a state, and public representations of the union.
Common Stock
A type of share in the ownership of a company that usually provides the right to vote on decisions relating to the company’s management. Shareholders are entitled to receive distributions of the company’s profit in the form of dividends.
Community Income
Income earned while married and domiciled in a community property state that is allocated equally to both spouses, regardless of which spouse actually earned it.
Community Property Laws
Laws that affect what income is reported on the federal income tax returns of married taxpayers who live in a community property state and file separate returns.
Commuting
Travel between a personal home and work or job site within the area of an individual’s tax home.
Compensation
Money or other benefits given or received as payment for work or services. Compensation can include wages, salaries, bonuses, prizes, and tips an employee receives.
Condemnation
The process by which private property owned by a taxpayer is legally taken for public use without their consent.
Conduit IRA
An IRA account used as a holding account for eligible rollover distributions from an employer plan that can be rolled over to a new employer plan later.
Consent to Assessment
A written agreement between a taxpayer and the IRS that extends the statutory period of limitations (which is usually three years) to allow additional time, when it is necessary, to fairly resolve a tax examination. These agreements are called consents and apply to all kinds of taxes except state tax.
Consolidated Loans
Loans used to refinance more than one loan of the same borrower
Constructive Receipt
The unqualified, vested right to receive immediate income or property. The right may be credited to an account, set apart, or otherwise made available so that it may be drawn upon at any time.
Contract Price
The selling price plus mortgages, debts, and other liabilities assumed or taken by the buyer that are in excess of the seller’s adjusted basis. This amount is the total of all principal payments a seller is scheduled to receive on the installment sale, including the down payment and each later payment of principal on any debt that the buyer assumed. It also includes payments the seller is considered to receive. This does not include interest.
Contribution (Retirement)
The amount put into a retirement plan for the individuals participating in the plan, including self-employed individuals.
Convention
A method established under the Modified Accelerated Cost Recovery System (MARCS) to determine when the recovery period begins and ends. The convention affects a taxpayer’s depreciation deduction for the year they place their property in service and for the year they dispose of it.
Conversion (IRA)
The movement of funds from a traditional IRA to a Roth IRA
Copyright
Legal protection for artists and authors for the publication or use of their works.
Cost of Goods Sold
Inventory at the beginning of the year, plus purchases (reduced by cost of items withdrawn for the taxpayer’s personal use), plus cost of labor (not including amounts the taxpayer paid to themselves), plus materials and supplies, plus other costs, minus inventory at the end of the year.
Coverage Family
All individuals in the taxpayer’s tax family who are enrolled in a Marketplace qualified health plan and are not eligible for minimum essential coverage (other than coverage in the individual market).
Coverdell Education Savings Account (Coverdell ESA)
A trust or custodial savings account that is set up to pay the qualified education expenses of a designated beneficiary. Contributions are not deductible, but earnings may be tax-free.
Covered Disaster Area
A presidentially declared disaster area in which the IRS has decided to postpone tax-related filing deadlines for up to one year.
Credit
A tax benefit that impacts the bottom line of a tax return
Custodial Parent
The parent who has custody of a child for the greater part of the year or for the entire year.
Custodian
An individual or organization, such as a bank or trust company, that is responsible for overseeing and safeguarding assets on behalj of the beneficiary or owner of the assets (for example, a minor).
Customer-Based Intagible
The value associated with a customer base, a circulation base, an undeveloped market or market growth, insurance in force, a mortgage servicing contract, an investment management contract, or any other relationship with customers involving the future provision of goods and services.
Date of Record
The date an individual must be listed as the owner of shares in a company’s records to be the recipient of the dividends to be paid.
Decedent
A deceased individual
Declaration Date
The date a company publicly announces that it will be paying a dividend.
Declining Balance Method
A method of calculating the depreciation for property that applies the same depreciation rate each year to the adjusted basis of the property.
Deduction
An amount subtracted when calculating taxable income. It reduces the amount of income on which a taxpayer is taxed.
Deemed IRA
A qualified employer retirement plan that maintains a separate account or annuity to receive voluntary employee contributions. If this plan or annuity otherwise meets the requirements of an IRA, it is subject only to the IRA rules. An employee’s account can be treated as a traditional IRA or a Roth IRA.
Default
Failure to meet the terms of a loan or other debt.
Deferred Compensation
The voluntary contribution an employer deducts from an employee’s pay that is not subject to income tax. Also called elective deferral or pre-tax contributions.
Deferred Interest Account
An account that postpones payment of interest to a future date.
Dependent
An individual, other than the taxpayer or their spouse, who entitles the taxpayer to claim an exemption.
Dependent Care Benefits
Amounts an employer pays directly to an employee or the employee’s care provider for the care of the employee’s qualifying dependent while the employee works, or the fair market value of care in a daycare facility provided or sponsored by the employer.
Depletion
The using up of natural resources by mining, quarrying,drilling, or felling, for which a deduction allows an owner or operator to account for the reduction of a product’s reserves.
Depreciation
An amount that can be deducted annually that allows the taxpayer to recover the cost or other basis or certain property over the time the property is used in trade or business. It is an allowance for the wear and tear, age, deterioration, or obsolescence of the property.
Descendant
A person who descended from an individual. For example, an individual’s great grandchild is their descendant.s
Direct Rollover
The transfer of a distribution made by the administrator of the distributing plan directly from one qualified plan to another qualified plan (if permitted) or traditional IRA.
Disabled Individual
An individual who can show proof that they cannot engage in a substantial gainful activity because of their physical or mental condition. A physician must determine that their condition can be expected to result in death or to be of long-standing and indefinite duration.
Disaster Area
Any area within a federally declared disaster.
Discharge of Indebtedness
To release a debtor from debt obligation
Discount
The difference between the amount paid for an asset and the fair market value or stated face value of that asset.
Disposition
The exchange, sale, or loss of property, whether voluntary or involuntary.
Distressed Community
Any area for which the poverty rate or other conditions cause certain tax incentives to apply.
Distribution
Money or assets paid out or withdrawn.
Dividend Reinvestment Plan
A plan that lets an investor choose to use their dividends to buy more shares of stock in a corporation through an agent instead of receiving the dividends in cash. The investor must still report the fair market value of the dividends on their tax return.
Dividends
Distributions of money, stock, or other property paid to shareholders by a corporation. Dividends may also be received through a partnership, estate, trust, or association that is taxed as a corporation.
Divorce or Separation Instrument
A divorce or separate maintenance decree or a written instrument that happens as a result of that decree, a written separation agreement, or a decree or any type of court order requiring a spouse to make payments for the support or maintenance of the other spouse. This includes a temporary decree, an interlocutory (not final) decree, and a decree of alimony pendente lite (while awaiting action on the final decree or agreement).
Documentary Evidence
Written records that establish certain facts; for example, documents that support a tax deduction or an expense.
Domicile
The taxpayer’s permanent legal home where they intend to live for an indefinite or unlimited period and to which they intend to return after an absence.
Donee
A person who receives a gift
Donor
A person who gives a gift.
Dual-Status Taxpayer
An individual who is a resident alien for part of the tax year and a nonresident alien for part of the year.
Due Diligence
The practice by a tax preparer of acting as a reasonable, prudent individual with respect to the information supplied to them.
Dwelling Unit
Property, such as a house, an apartment, a condominium, a mobile home, a boat, a vacation home, or another similar property that has basic living accommodations, such as sleeping space, a toilet, and cooking facilities. It does not include a unit in a hotel, motel, inn, or other establishment where more than half the units are used on a transient basis.
Early Distribution
An amount distributed from the individual’s pension, annuity, or traditional IRA account before they reach age 59 1/2
Earned Income
Income received for services, such as wages, salaries, tips, net earnings from self-employment and processional fees, and any other income received as pay for work actually performed. Earned income also includes taxable scholarship and fellowship grants.
Earned Income Tax Credit (EITC)
A refundable credit for certain individuals who work and have earned income under a certain amount based on their filing status and the number of qualifying children, if any.
Easement
A legal right to use someone else’s land for a particular purpose, such as for utilities, a right of way, or recreational purposes. Ownership is not transferred.
Education Savings Bond Program
A program that allows a taxpayer who paid qualified higher educational expenses during the year to exclude from income all or part of the interest they receive during the same year from redeeming Series EE savings bonds and Series I savings bonds issued after 1989.
E-File
The process of electronically filing tax and other types of returns.
Elective Deferral
The voluntary contribution an employer deducts from an employee’s pay that is not subject to income tax. Also called deferred compensation or pre-tax contributions.
Electronic Return Originator (ERO)
The individual or entity that originates the electronic submission of the tax return to the IRS
Eligible Education Institution
Any college, university, vocational school, or other post secondary educational institution eligible to participate in a student aid program administered by the Department of Education. These institutions include nearly all accredited, public, nonprofit, and proprietary (privately owned profit-making) post secondary institutions.
Eligible Foster Care
An individual who is placed by an authorized placement agency, or by judgement, decree, or other order of any court of competent jurisdiction.
Employee
An individual who is hired to work for a person, an organization, or a company in return for compensation and who is subject to the will and control of the employer regarding what work is done and how and when to do it.
Employer
The individual, organization, or company for which an employee works.
Employer Identification Number (EIN)
A nine-digit number assigned by the IRS to an employer for tax filing and reporting purposes.
Entertainment Expenses
Expenses incurred while participating in an activity that provides entertainment, amusement, or recreation.
Erroneous Item
Any deduction, credit, or expense item that is incorrectly stated on a tax return and any income item that is not properly reported on a tax return.
Escrow
Placing an amount in the care of a third party to make a payment int he future.
Estimated Tax
The method used to prepay tax on income that is not subject to withholding.
Excess Accumulation
The difference between the minimum amount required to be distributed from a qualified retirement plan and the amount that was actually distributed.
Exchange
To barter, swap, part with, give, or transfer property for other property.
Ex-Dividend Date
The date that determines whether the buyer or the seller of stock receives the next dividend distribution a company pay. This date is usually two business days before the end of record.
Exemption Amount
A predetermined dollar amount that a taxpayer can deduct for themselves, their spouse, and each individual they claim as a dependent.
Extension
Additional time granted by the IRS for a taxpayer to file their federal income tax return.
Fair Market Value (FMV)
The price that property would sell for on the open market of the price that would be agreed upon between a willing buyer and a willing seller, with neither being required to buy or sell and both having reasonable knowledge of the relevant facts.
Fair Rental Price
Generally, an amount that an individual (who is not related to the property owner) is willing to pay to rent property. If the rental price is substantially less than that for similar properties in the same area, it is not considered a fair rental price.
Fair Rental Value
The amount an individual could reasonable expect to receive from a stranger for lodging. Fair rental value includes rent or taxes, interest, depreciation, paint, insurance, utilities, or the cost of furniture and appliances. In some cases, fair rental value may be equal to the rent paid.
Farming Business
A trade or business involving the cultivation of land; raising or harvesting any agricultural or horticultural commodity; operating a nursery or sod farm; raising or harvesting trees bearing fruit, nuts, or other crops; or raising or harvesting ornamental trees. Farming businesses also include the raising, shearing, feeding, caring for, training, and management of animals.
Federal Individual Income Tax Return
The tax form or forms that the U.S. citizens and residents complete to report their federal income, deductions, credits, and payments.
Federally Declared Disaster
Any disaster determined by the President to qualify for assistance by the Federal Government under the Robert T. Stafford Disaster Relief and Emergency Assistance Act.
Fellowship
Generally, an amount paid for the benefit of an individual to aid in the pursuit of study or research.
Filing Requirements
Factors that determine whether a taxpayer must file an income tax return.
Filing Status
The tax return status used to determine a taxpayer’s filing requirements, a standard deduction, applicable tax, and whether the taxpayer is allowed to claim certain other deductions and credits.
Financially Disabled
The inability of an individual to manage their financial affairs because of a medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months.
Fiscal Year
A 12 month period ending on the last day of any month, except December.
Foreclosure
A procedure by which the lender either takes title to or forces the sale of the borrower’s property in satisfaction of a debt.
Foreign Country
Usually any territory (including the air space and territorial waters) under the sovereignty of a government other than that of the United States, including the seabed and subsoil of those submarine areas adjacent to the territorial waters of a foreign country and over which the foreign country has exclusive rights under international law to explore and exploit the natural resources.
Foreign Earned Income
Generally, income the taxpayer receives for services performed during a period in which their tax home is in a foreign country and they meet either the Bona Fide Residence Test or the Physical Presence Test.
Fringe Benefit
A form of additional compensation for the performance of services.
Full Day
A period of 24 consecutive hours, beginning at midnight.
Full-Time Student
An individual attending an educational institution who meets the definition of full-time attendance for that institution.
General Depreciation System (GDS)
The faster of the two depreciation systems under the Modified Accelerated Cost Recovery System (MACRS). Under GDS, 200% declining balance, 150% declining balance, or straight-line methods are used for calculating depreciation.
General Partner
A partner who is personally liable for partnerships debts.
General Rule
The method generally used to determine the tax treatment of pension and annuity income from non-qualified plans (including commercial annuities).
General Sales Tax
A tax imposed at one rate with respect to the retail sale of a broad range of classes of items.
Genuine Debt
A debt that arises from a debtor-creditor relationship based on a valid and enforceable obligation to repay a fixed or determinable amount of money.
Going Concern Value
The value associated with a business based on the expectation that the business will continue to function and generate income for the foreseeable future even though there is a change in ownership.
Goodwill
The intangible value of a business based on expected continued customer patronage due to its name, reputation, location, or any other factor.
GO Zone Act
The Gulf Opportunity Zone Act of 2005
Gross Distribution
The total amount distributed before any adjustments or consideration for basis.
Gross Distribution (Retirement)
The total amount distributed from a retirement account before income tax and other deductions are withheld.
Gross Income
All income received in the form of money, goods, property, and services that is not exempt from tax. Gross income includes earned income and unearned income.
Gross Profit Percentage
A certain percentage of each installment sale payment (after subtracting interest) that is reported as a gain from the sale.
Gulf Opportunity Zone (GO Zone)
A special tax area specific to Hurricane Katrina designated by the Gulf Opportunity Zone Act of 2005 (GO Zone Act), which consists of the Hurricane Katrina core disaster area as determined by the Katrina Emergency Tax Relief Act of 2005 (KETRA). The GO Zone consists of countries and parishes affected by Hurricane Katrina that the president has determined are eligible for both individual and public assistance from the federal government under the Robert T. Stafford Disaster Relief and Emergency Assistance Act.
High Deductible Health Plan
A health plan that has a higher annual deductible than typical health plans and a maximum limit on the sum of the annual deductible and out-of-pocket medical expenses that must be paid for covered expenses.
Highly Compensated Employee
An individual who meets one of the following criteria:
Owned more than 5% of the capital or profits in a business at any time during the current or prior year.
Received compensation during the prior year that was more than an annual predetermined amount and in the top 20% compared to other employees’ compensation.
Hobby
An activity that is carried on for personal pleasure or recreation and is not entered into with the intention of making a profit.
Holding Period
The length of time property is held. Generally, the time between the date of purchase (or acquisition) and the date of sale (or disposition). The holding period for stocks and securities begins the day after the trade date and ends the day of sale.
Household Income for the Health Coverage Exemption
The total of the modified adjusted gross income (MAGI) of the taxpayer and their spouse (if filing jointly), plus the MAGI’s of all individuals for whom dependent exemptions are claimed on the taxpayer’s tax return and who are required to file a tax return based on the Filing Requirements for Dependents.
Household Income for the Premium Tax Credit (PTC)
The total of the modified adjusted gross income (MAGI) of the taxpayer and their spouse (if filing jointly) plus the MAGI’s of all the individuals for whom dependent exemptions are claimed on the taxpayer’s tax return and who are required to file a tax return based on the filing requirements for most taxpayers.
Household Income for the Shared Responsibility Payment
The total of the modified adjusted gross income (MAGI) of the taxpayer and their spouse (if filing jointly) plus the MAGI’s of all the individuals for whom dependent exemptions are claimed on the taxpayer’s tax return and who are required to file a tax return based on the Filing requirements for dependents.
Home Mortgage Interest
Any interest an individual pays on a loan secured by their home (either their main home or a second home). The loan may be a mortgage to buy their home, a second mortgage, a line of credit, or a home equity loan.
Household Services
Ordinary and usual services done in and around the taxpayer’s home that are necessary to run their home, including the services of a housekeeper, maid, or cook, but not including the services of a chauffeur, bartender, or gardener.
Improvement
Property maintenance or enhancement that adds to the value of property, lengthens its useful life, or changes it so it can be used in a new way.
Incentive Stock Option (ISO)
An option to purchase stock that is granted to an employee for any reason connected with their employment by a corporation. This option is granted by the employer corporation or its parent or subsidiary corporation and applies to an employee’s purchase of stock of any such corporation.
Incidental Costs
Expenses or costs that are not material expenses incurred while on business or that do not add substantial value to a gift.
Income
Case, property, and services received from all sources unless specifically excluded under the tax code.
Income in Respect of the decedent
Income received after the decedent’s death that cannot be included in the decedent’s income tax return but that would have been attributable to the decedent had they lived.
Indefinite Assignment
An assignment that is realistically expected to last for more than one year or that does in fact last more than one year.
Independent Contractor
A non-employee who performs services for a person. The person for whom they perform services has the right to control or direct only the result of the work and not the means and methods of accomplishing the result.
Individual Retirement Arrangement (IRA)
A personal savings plan that offers an individual tax advantages to set aside money for retirement.
Individual Taxpayer Identification Number (ITIN)
A nine-digit number issued by the IRS to resident and nonresident aliens who are not eligible to get a Social Security number. An ITIN is issued exclusively for tax reporting or filing purposes.
Injured Spouse
An individual who files a joint return for which all or part of their share of the overpayment was, or is expected to be, applied toward their spouse’s past-due federal tax, child or spousal support, federal nontax debt (such as student loan), or state income tax.
Innocent Spouse
A taxpayer who did not know and had no way of reasonably knowing that there was an understatement of tax due to erroneous items of their spouse (or former spouse) on their joint return.
Insolvent
The condition that occurs when a taxpayer’s debts are more than the fair market value of their assets.
Installment Agreement
An agreement with the IRS to pay tax debt in smaller, more manageable amounts (installments).
Installment Sale
A sale of property in which the seller receives at least one payment after the tax year of the sale.
Instrument
A legal document
Intangible Property
Property that has value but cannot be seen or touched, such as goodwill, patents, copyrights, and computer software.
Intangibles Tax
A tax based on the value of certain intangible personal property, such as portfolio income (income from stocks, bonds, mutual fund shares, etc.)
Interest
The fee received for lending money, usually calculated as a percentage rate for a certain time period. Interest can be earned through depositing money in savings programs, buying certificates of deposit (CD’s) or bonds, or lending money to people.
Inventory
Property or merchandise the individual produces or purchases to sell in the natural course of their trade or business.
Investment Interest
The interest paid for money borrowed to buy property held for investment.
Investment Property
Generally, property that produces interest, dividends, annuities, or royalties not derived in the ordinary course of a trade or business.
Involuntary Conversion
The forced (not voluntary) disposition of property due to theft, casualty, or condemnation, and the receipt of other property or money in payment of this property, such as insurance or a condemnation award. An involuntary conversion is also called an involuntary exchange.
IRA Basis
For a traditional IRA, the amount of nondeductible traditional IRA contributions in the person’s IRA. For a Roth IRA, the amount of contributions and conversions to the Roth IRA.
Itemized Deductions
Expenses paid that reduce the amount of income subject to tax.
Joint and Survivor Annuity
An annuity from which more than one person can receive regular payments. Upon the original annuitant’s death, regular payments are made to the designated survivor.
Joint Tenancy
A form of property ownership in which two or more individuals own property jointly. If one owner dies, the survivors are automatically entitled to the decedent’s share of the property.
Keogh PLan
A retirement savings plan that is available to self-employed taxpayers. Contributions are deductible within specific limits.
Kidnapped Child
A child who is presumed by law enforcement authorities to have been kidnapped by someone who is not a family member.
Like-Kind Properties
Properties of the same nature or character, even if they differ in grade or quality.
Limited Liability Company (LLC)
An entity formed under state law by filing articles or organization as an LLC. Unlike a partnership, none of the members of an LLC are personally liable for its debts. An LLC may be classified for federal income tax purposes as a partnership, a corporation, or an entity disregarded as an entity separate from its owner by applying the rules in the Treasury Regulations, section 301.7701-3.
Limited Liability Partnership (LLP)
A partnership formed under a state limited liability partnership law. Generally, a partner in an LLP is not personally liable for the debts of the LLP or any other partner, nor is a partner liable for the acts or omissions of any other partner, solely by reason of being a partner.
Limited Partner
A partner in a partnership whose personal liability for partnership debts is limited to the amount of money or other property that the partner contributed or is required to contribute to the partnership.
Limited Partnership
A partnership formed under a state’s limited partnership law and composed of at least one general partner and one or more limited partners.
Listed Property
Items specifically named (listed) in IRS code as subject to special rules for depreciation. Listed property includes any the following:
Passenger automobiles and any other property used for transportation
Property of a type used generally for entertainment, recreation, or amusement
Computers and their peripheral equipment (unless used only at a regular business establishment and owned or leased by the person operating the establishment).
Loan Origination Fees
The costs incurred to obtain a loan
Lodging
For calculating the amount of support for a dependent, the fair rental value of the room, apartment, or house where an individual lives including a reasonable allowance for the use of furniture and appliances and for heat and other utilities.
Long-Term Holding Period
A period of more than one year
