Taxes key terms

Deductions

1.Accounting: Business expenses or losses which are legally permitted to be subtracted from the gross revenue of a firm in computing its taxable income. 2.Logic: See deductive reasoning. 3.Taxation: 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.

Tariff

1.General: Published list of fares, freight charges, prices, rates, etc. 2.Foreign trade: Popular term for import tariff and import tariff schedule. 3.Shipping: Popular term for shipping tariff And shipping tariff schedule.

Tax base

1.Measure upon which the assessment or determination of tax liability is based. For example, taxable income is the tax base for income tax and assessed value is the tax base for property taxes. 2.Total of taxable assets, income, and assessed value of property within the tax jurisdiction of a government.

W-4 form

A form completed by an employee to indicate his or her tax situation (exemptions, status, etc.) to the employer. The W-4 form tells the employer the correct amount of tax to withhold from an employee's paycheck.

Federal income tax

A tax levied by the United States Internal Revenue Service (IRS) on the annual earnings of individuals, corporations, trusts and other legal entities. Federal income taxes are applied on all forms of earnings that make up a taxpayer's taxable income, such as employment earnings or capital gains.

Property tax

Ad valorem tax imposed on the market value of real and personal property such as boats, cars, buildings, land, etc.

Sales tax

Ad valorem tax levied on sale of goods or services. Unlike a value added tax (VAT, levied only on the net increase in price at every point a good or service moves from one seller to the next purchaser) sales tax is a cost and involves double taxation (tax on tax) because it is imposed on the gross price (seller's net cost price + sales-tax paid by the seller + seller's profit) at each point of sale.

Payroll deduction

Amount withheld by an employer from employee's earnings. It typically includes income tax, national insurance or social security contributions, and may also include group insurance or pension fund contributions, union or association dues, authorized wage assignments, etc.

Corporate income tax

An assessment levied by a government on the profits of a company. The rate of corporate income tax paid by a business varies between countries, although since corporations are legal entities distinct from their owners and operators, they are typically taxed as if they were people.

Tax incentive

Deduction, exclusion, or exemption from a tax liability, offered as an enticement to engage in a specified activity (such as investment in capital goods) for a certain period.

Taxable income

Gross income from which standard deductions and other allowances have been subtracted.

Progressive tax

Income tax that takes a larger percentage of a larger income and a smaller percentage of a smaller income. For example, a tax on luxury cars. See also proportional tax and regressive tax.

Proportional tax

Income tax that takes the same percentage of all incomes, whether large or small. Also called flat tax. See also progressive tax.

Medicare tax

Part of the FICA tax, this tax is calculated based on an employee's wages. The current rate is 1.45 percent paid by an employee with the employer matching 1.45 percent. Medicare tax paid is 2.9 percent.

Personal exemption

Specified amounts that a taxpayer may deduct from his or her taxable income for self, or for each person who qualifies as a his or her dependent. Additional exemptions are allowed after a certain age (usually 65 years) and in case of certain disabilities. Also called personal allowance.

Tax return

Standard form provided by the tax authorities on which a taxpayer reports taxable income with permitted deductions and exemptions, and computes his or her tax liability.

State income tax

Tax levied on income at the state level. State income taxes have their own set of deductions and credits that may be awarded for certain activities, such as contributing to a state-sponsored 529 plan. Taxpayers who itemized deductions on their federal returns may deduct state taxes paid on Schedule A.

Regressive tax

Taxation that takes a larger percentage of a lower-income and a smaller percentage of a higher income. For example, a tax on the basic necessities (which form a larger percentage of the expenditure of the lower income population) is a regressive tax. See also progressive tax.

Gross income

The amount by which sales revenue exceeds production costs (cost of sales).

W-2 form

The form that an employer must send to an employee and the IRS at the end of the year. The W-2 form reports an employee's annual wages and the amount of taxes withheld from his or her paycheck.

Gift tax

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

Revenue

The income generated from sale of goods or services, or any other use of capital or assets, associated with the main operations of an organization before any costs or expenses are deducted. Revenue is shown usually as the top item in an income (profit and loss) statement from which all charges, costs, and expenses are subtracted to arrive at net income. Also called sales, or (in the UK) turnover.

Net income

The total revenue in an accounting period minus all expenses during the same period. If income taxes and interest are not deducted, it is called operating profit (or Loss, as the case may be). Also called earnings, net earnings, or net profit.

Social Security Tax (FICA)

This tax was created under the Federal Insurance Contributions Act (FICA). The amount taken from a contributor's earnings covers support for retired workers, those on disability, and individuals who are entitled to survivor-ship benefits, which provide financial support for individuals of a deceased family member who was the primary breadwinner.

Estate tax

a tax levied on the net value of the estate of a deceased person before distribution to the heirs.