Tax and accounting glossary
40 tax and accounting terms in plain English. Every definition links to its official source.
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A
- Accrual accounting
- Accrual accounting records income when it is earned and expenses when they are incurred, no matter when cash changes hands.
- Appraisal district
- An appraisal district is the county office that sets the appraised value of property for local taxing units; Tarrant Appraisal District and Denton CAD are two examples.
B
- Balance sheet
- A balance sheet is a statement of what a business owns, what it owes and what the owners have left, shown as of one date.
- Bookkeeping
- Bookkeeping is the routine recording of a business's daily transactions, such as income, expenses and payments, so the records support its tax returns and statements.
- Business valuation
- A business valuation is an estimate of what a business is worth, often based on fair market value, used for a sale, buy-out, gift or estate.
C
- Capital gains
- A capital gain is the profit from selling a capital asset for more than its adjusted basis; holding it over one year usually makes the gain long term.
- Chart of accounts
- A chart of accounts is the list of named accounts, such as income, expense, asset and liability accounts, that a business uses to sort its transactions.
- Cost basis
- Cost basis is generally the amount you paid for an asset, and it is used to figure depreciation and any gain or loss when you sell.
D
- Depreciation
- Depreciation is the way a business recovers the cost of equipment or other long-lived property by deducting part of the cost each year.
E
- Employer identification number (EIN)
- An employer identification number is a federal tax ID number the IRS assigns to businesses, including those that hire employees or file certain business returns.
- Estimated tax payments
- Estimated tax payments are advance payments of income tax and self-employment tax that people make during the year when no employer withholds tax from their income.
F
- Form 1099-NEC
- Form 1099-NEC is the IRS information return a business files to report payments of nonemployee compensation, such as fees paid to an independent contractor.
- Form 2848 power of attorney
- Form 2848 is the IRS form that authorizes an eligible person, such as a CPA, to represent a taxpayer before the IRS.
- Form 941
- Form 941 is the Employer's Quarterly Federal Tax Return, which reports income tax withheld and the Social Security and Medicare taxes on employee wages.
- Form W-2
- Form W-2 is the Wage and Tax Statement an employer files for each employee, showing yearly wages paid and the taxes withheld from them.
- Form W-9
- Form W-9 is the form a person or business completes to give a payer a correct taxpayer identification number so the payer can file information returns.
H
- Homestead exemption
- A homestead exemption lowers the taxable value of a Texas owner's main home, and the owner must apply for it with the county appraisal district.
I
- Innocent spouse relief
- Innocent spouse relief can free a person from extra tax on a joint return when a spouse understated tax and the person did not know about the errors.
- Installment agreement
- An installment agreement is an IRS payment plan that lets a taxpayer pay a tax balance over time instead of all at once.
- IRS audit
- An IRS audit is a review of a taxpayer's books, accounts and financial records to confirm that a tax return is correct.
- IRS CP2000 notice
- An IRS CP2000 notice says income or payment data from third parties does not match a tax return, and it proposes changes to the tax.
- Itemized deduction
- An itemized deduction is an allowed expense, such as mortgage interest or state tax, that a filer lists on Schedule A instead of taking the standard deduction.
L
- Limited liability company (LLC)
- A limited liability company is a state-created business entity whose owners are called members; the IRS taxes it by default as a sole proprietorship or a partnership.
N
- No tax due report
- A no tax due report was a Texas franchise tax filing for entities under the revenue threshold; since the 2024 report year, many such entities file an information report instead.
O
- Offer in compromise
- An offer in compromise is an IRS program that may let a taxpayer settle a tax debt for less than the full amount owed, based on ability to pay.
P
- Payroll tax
- Payroll tax is the federal income, Social Security and Medicare tax an employer withholds from wages, plus the employer's own share of certain taxes.
- Penalty abatement
- Penalty abatement is the IRS removing or reducing a penalty, usually for a first-time issue, reasonable cause or a statutory exception.
- Profit and loss statement
- A profit and loss statement, also called an income statement, shows a business's income and expenses over a set period of time.
- Property tax protest
- A property tax protest is a formal challenge to an appraisal district's value or action, heard by the appraisal review board, usually due by May 15.
Q
- Qualified business income deduction
- The qualified business income (QBI) deduction lets many owners of pass-through businesses deduct up to 20 percent of qualified business income.
R
- Reasonable compensation
- Reasonable compensation is the fair salary an S corporation must pay an owner who works in the business before the owner takes other distributions.
S
- S corporation
- An S corporation is a corporation that passes its income and losses through to its shareholders, who report them on their personal tax returns.
- Sales and use tax
- Sales and use tax is the Texas tax on retail sales and taxable services; the state rate is 6.25 percent and local rates can bring the total to 8.25 percent.
- Section 179 deduction
- The Section 179 deduction is an election that lets a business deduct all or part of the cost of qualifying property in the year it is placed in service.
- Self-employment tax
- Self-employment tax is the Social Security and Medicare tax that people who work for themselves pay on their net earnings.
- Standard deduction
- The standard deduction is a set dollar amount, based on filing status, that reduces the income an individual is taxed on if they do not itemize.
T
- Tax extension
- A tax extension gives more time to file a return, usually until October 15, but it does not give more time to pay any tax owed.
- Tax levy
- A tax levy is the legal seizure of property, such as wages or bank funds, to pay a tax debt; it differs from a lien, which is only a claim.
- Tax lien
- A federal tax lien is the government's legal claim against a person's property when a tax debt goes unpaid; it is a claim, not a seizure.
- Texas franchise tax
- The Texas franchise tax is a state privilege tax on LLCs, corporations and other entities formed in or doing business in Texas, reported every year by May 15.
Talk to Wallace CPA
Call the Southlake office and say what you need: a return, an IRS letter, your books or a new business. Have the notice or last year's return nearby if you have one.