Educational Resources
Tax & Accounting
Glossary
Understanding financial terminology empowers better business decisions. Browse our comprehensive glossary of tax and accounting terms.
A
Accounting Method
The set of rules used to determine when and how income and expenses are reported on tax returns. The two primary methods are cash basis and accrual basis accounting.
Accrual Basis
An accounting method where income is reported when earned and expenses are deducted when incurred, regardless of when cash is actually received or paid.
Adjusted Gross Income (AGI)
Your total gross income minus specific deductions such as IRA contributions, student loan interest, and educator expenses. AGI is used to determine eligibility for many tax benefits.
Amended Return
A corrected tax filing submitted using Form 1040-X to fix errors or make changes to a previously filed tax return.
Asset
Any property or resource owned by an individual or business that has economic value and can be converted to cash.
B
Balance Sheet
A financial statement that reports a company's assets, liabilities, and shareholders' equity at a specific point in time, providing a snapshot of financial position.
Basis
The original value of an asset for tax purposes, usually the purchase price, adjusted for improvements, depreciation, or other factors. Used to calculate capital gains or losses upon sale.
Bookkeeping
The systematic recording of financial transactions of a business, including purchases, sales, receipts, and payments, to maintain accurate financial records.
C
Capital Gain
The profit realized from the sale of a capital asset such as stocks, bonds, or real estate. Classified as short-term (held one year or less) or long-term (held more than one year).
Capital Loss
A loss resulting from the sale of a capital asset when the sale price is less than the purchase price. Can be used to offset capital gains and up to $3,000 of ordinary income annually.
Cash Basis
An accounting method where income is reported when received and expenses are deducted when paid, regardless of when they were earned or incurred.
Corporation
A legal entity separate from its owners (shareholders) that provides limited liability protection. Can be taxed as a C corporation or elect S corporation status.
Cost of Goods Sold (COGS)
The direct costs attributable to the production of goods sold by a company, including materials and labor. Deducted from revenue to calculate gross profit.
D
Deduction
An expense that can be subtracted from gross income to reduce taxable income. Common deductions include mortgage interest, charitable contributions, and business expenses.
Deferred Income
Income that is received in advance but not recognized for tax purposes until a later period when it is actually earned.
Depreciation
An accounting method of allocating the cost of a tangible asset over its useful life. Allows businesses to deduct a portion of an asset's cost each year rather than all at once.
Dividend
A distribution of a portion of a corporation's earnings to its shareholders, typically paid in cash or additional shares of stock.
E
Employer Identification Number (EIN)
A unique nine-digit number assigned by the IRS to business entities for tax filing and reporting purposes, similar to a Social Security Number for individuals.
Equity
The value of ownership in an asset or business, calculated as total assets minus total liabilities. Also known as net worth or shareholders' equity.
Estimated Tax
Quarterly tax payments made by self-employed individuals, business owners, and investors who do not have taxes withheld from their income. Due April 15, June 15, September 15, and January 15.
F
Fiscal Year
A 12-month accounting period used for financial reporting and tax purposes that does not necessarily coincide with the calendar year (January 1 – December 31).
Fixed Asset
Long-term tangible property used in business operations, such as buildings, machinery, vehicles, and equipment, not intended for resale to customers.
G
Generally Accepted Accounting Principles (GAAP)
A common set of accounting standards and procedures used by U.S. companies to ensure consistency, transparency, and comparability of financial statements.
Gross Income
Total income from all sources before any deductions, exemptions, or adjustments are applied. For businesses, gross income equals revenue minus cost of goods sold.
I
Income Statement
A financial statement that reports a company's revenues, expenses, and net income or loss over a specific period, also known as a profit and loss (P&L) statement.
Independent Contractor
A self-employed individual or business entity that provides services to another entity under a contract. Receives Form 1099-NEC instead of Form W-2.
Individual Retirement Account (IRA)
A tax-advantaged retirement savings account. Traditional IRAs offer tax-deductible contributions and tax-deferred growth; Roth IRAs offer tax-free withdrawals in retirement.
L
Liability
A financial obligation or debt owed by an individual or business to another party, such as loans, accounts payable, or mortgages.
Limited Liability Company (LLC)
A business structure that combines the limited liability protection of a corporation with the tax benefits and flexibility of a partnership.
M
Marginal Tax Rate
The tax rate applied to the last dollar of taxable income. The U.S. uses a progressive tax system where income is taxed at increasing rates as it moves through tax brackets.
N
Net Income
The amount remaining after all expenses, taxes, and costs have been deducted from total revenue. Also known as net profit or the bottom line.
Net Operating Loss (NOL)
A situation where business deductions exceed taxable income for a tax year. NOLs can often be carried forward to offset future taxable income.
P
Partnership
A business structure where two or more individuals share ownership. Partnerships file an informational return (Form 1065) but do not pay tax; income passes through to partners' individual returns.
Payroll Tax
Taxes withheld from employee wages and paid by employers, including Social Security, Medicare, and federal/state income tax withholding.
Profit and Loss Statement (P&L)
See Income Statement. A financial report summarizing revenues, costs, and expenses during a specific period.
R
Roth IRA
An individual retirement account funded with after-tax dollars. Contributions are not tax-deductible, but qualified withdrawals in retirement are tax-free.
Revenue
The total amount of income generated by the sale of goods or services related to the primary operations of a business.
S
S Corporation
A corporation that elects to pass corporate income, losses, deductions, and credits through to shareholders for federal tax purposes, avoiding double taxation.
Schedule C
IRS form used by sole proprietors and single-member LLCs to report business income and expenses. Filed with Form 1040.
Self-Employment Tax
Social Security and Medicare taxes paid by self-employed individuals. Currently 15.3% on net earnings (12.4% Social Security + 2.9% Medicare).
Standard Deduction
A fixed dollar amount that reduces taxable income. Taxpayers can choose between the standard deduction or itemizing deductions, whichever is greater.
T
Tax Credit
A dollar-for-dollar reduction of tax liability. More valuable than a deduction because it directly reduces taxes owed rather than taxable income.
Tax Deduction
An expense that reduces taxable income, thereby lowering the amount of tax owed. The value depends on the taxpayer's marginal tax rate.
Tax Liability
The total amount of tax debt owed to federal, state, or local taxing authorities.
Taxable Income
The portion of income subject to tax after all deductions and exemptions have been applied. Calculated as gross income minus allowable deductions.
W
Withholding
The portion of an employee's wages withheld by an employer and paid directly to the government as prepayment of income taxes.
Working Capital
The difference between current assets and current liabilities. Measures a company's ability to meet short-term obligations and fund ongoing operations.
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