Chapter 27 - Taxation

Independent contractor

1) a person hired to undertake a contractually defined result without direct supervision (not an employee and usually not an agent) 2) person hired to complete a specific task or project and who, generally, is subject to the hirer's control only as to the end product and not as to the method of performance

Statutory employees

a class of employee that is permitted to deduct work-related expenses on Schedule C instead of Schedule A; usually salespeople or other employees who work on commission; are independent contractors under the IRS's common-law rules

Payroll

a company's list of its employees; commonly used to refer to the total amount of money that a company pays to its employees

Tax bracket

a range of incomes taxed at a given rate

Inheritance taxes

a tax imposed on someone who inherits property or money

Fiscal year

a year as reckoned for taxing or accounting purposes

Accrual method of accounting

accounting method that records revenues and expenses when they are incurred, regardless of when cash is exchanged; "accrual" refers to any individual entry recording revenue/expense in the absence of a cash transaction

Sixteenth Amendment

allows the Congress to levy an income tax without apportioning it among the states or basing it on the United States Census

Taxable income

amount of income used to calculate an individual's or a company's income tax due; generally described as gross income or adjusted gross income minus any deductions or exemptions allowed in that tax year

Tax credits

an amount of money that can be offset against a tax liability

Adjusted gross income

an individual's total gross income minus specific deduction; taxable income is adjusted gross income minus allowance for personal exemptions and itemized deductions

Estate tax

federal tax imposed on all property remaining in an estate, after debts have been paid, together with other property such as certain trust funds and property held in joint tenancy with right of survivorship, less a deduction allowed for property transferred to the decendent's spouse or to charity

Deductions

fixed amount or percentage permitted by taxation authorities that a tax payer can subtract from his or her adjusted gross income to arrive at the taxable income

W-2 form

form that an employer must send to an employee and the Internal Revenue Service (IRS) at the end of the year; reports an employee's annual wages and the amount of taxes withheld from his or her paycheck

Self-employment taxes

money that a small business owner must pay to the federal government to fund Medicare and Social Security; due when an individual has net earnings of $400 or more in self-employment income over the course of the tax year

Cash method of accounting

practice of recording revenues when cash is received and recording expenses when the expense is paid

Circular E

provides information on Employer Identification Numbers and defines different kinds of employees, taxes, payroll periods, the Earned Income Tax Credit, Wages and Other Compensation, and Employee Social Security Numbers

Form 1099-MISC

tax form that reports the year-end summary of all non-employee compensation; covers rent, royalties, self-employment and independent contractor income, crop insurance proceeds and several other kinds of miscellaneous income

Income taxes

tax levied by a government directly on income, especially an annual tax on personal income

Gift tax

tax on the transfer of property by one individual to another while receiving nothing, or less than full value, in return; applies whether the donor intends the transfer to be a gift or not

Payroll taxes

taxes imposed on employers or employees, and are usually calculated as a percentage of the salaries that employers pay their staff; generally fall into two categories: deductions from an employee's wages, and taxes paid by the employer based on the employee's wages

Progressive income tax

taxing mechanism in which the taxing authority charges more taxes as the income of the taxpayer increases; higher tax is collected from the taxpayers who earn more and lower taxes from taxpayers earning less

Proportional income tax

taxing mechanism in which the taxing authority charges the same rate of tax from each taxpayer, irrespective of income; lower class, or middle class, or upper class people pay the same amount of tax

W-4 form

tells the employer the correct amount of tax to withhold from an employee's paycheck based on the employee's marital status, number of exemptions and dependents and other factors

Marginal tax rate

the percentage of tax applied to your income for each tax bracket in which you qualify; the percentage taken from your next dollar of taxable income above a pre-defined income threshold

Calendar year

the period of 365 days (366 days in leap years) starting from the first of January, used for reckoning time in ordinary affairs

Internal Revenue Service

the revenue service of the United States federal government; is a bureau of the Department of the Treasury, and is under the immediate direction of the Commissioner of Internal Revenue

W-9 form

used to collect information about a business in order to complete form 1099-MISC; information includes name, address and Social Security or tax identification number

Schedule SE form

used to figure the tax due on net earning from self-employment