A fiscal year is a 12-month period used for calculating annual financial statements in businesses and other organizations. The start and end dates of a fiscal year can vary between countries and organizations.
A fiscalist is an economist who believes that government intervention in the economy, primarily through changes in taxation and government spending, is essential for managing economic stability and growth.
FIT Investment refers to Foreign Investment Tax, a concept that pertains to the taxation policies applied to foreign investments within a host country. This concept is crucial in international business and taxation.
The Foreign Tax Credit (FTC) is a credit allowed against U.S. income taxes for foreign taxes paid on income earned overseas. It helps to mitigate the double taxation of income that is taxable both in the U.S. and by a foreign country.
An overview of the various forms used for individual U.S. income tax returns, including Form 1040, 1040A, and 1040EZ, their specific requirements, and use cases.
A situation that arises when two transactions, especially foreign-exchange transactions, offset each other commercially but not in terms of taxation.
Free depreciation is a method of granting tax relief to organizations by allowing them to charge the cost of fixed assets against taxable profits in whatever proportions and over whatever period they choose. This provides considerable flexibility for businesses in managing their cash flow and tax liabilities.
A frivolous tax position is one that is knowingly advanced in bad faith and is patently improper, often with the intent to delay or avoid tax obligations without any legitimate basis.
Gaming Duty is a tax levied on the profits of a gaming company, imposed in addition to corporation tax. It includes taxes from both traditional and remote gaming activities.
A general power of appointment allows holders the right to dispose of property in their favor or that of their estate, creditors, or the creditors of their estate. It impacts how a grantor is taxed on the trust income.
General property tax is a levy on property that the owner is required to pay. The tax is based on the value of the property, including land, buildings, and other improvements on the property.
In state and local governments, 'General Revenue' refers to the total revenue received, excluding revenue from utilities, sales of alcoholic beverages, and insurance trusts.
A general tax lien is a legal claim by a government entity against a taxpayer's assets for unpaid tax liabilities, affecting all of the taxpayer's property.
A gift inter vivos refers to the transfer of property from a donor to a donee during the donor's lifetime, made without any consideration or compensation. The donor thereby relinquishes all control or ownership over the gifted property.
In various domains such as business law, taxation, and international business, the term 'GOV' refers to governmental bodies, regulations, or actions pertaining to public policies, administrative systems, and regulatory frameworks that impact businesses, individuals, and the economy.
A type of trust that has beneficiaries other than the grantor, but because of the retention of certain interests or certain powers over the trust, all income of the trust is taxed to the grantor.
Gross estate refers to the total value of a person's assets before liabilities such as debts and taxes are deducted. It includes all types of property and accounts that the deceased owned or had an interest in.
To convert a net amount into its equivalent gross amount. For example, an amount payable net of 17.5% value added tax would be grossed up to the amount payable including 17.5% value added tax, i.e. by multiplying the net amount by 1.175.
A grossed-up gift is the result of adding the gift tax paid by the decedent of the estate back to the gift when it is included in the gross estate.
A hobby loss refers to losses incurred by a taxpayer in an activity not pursued for profit. Hobby losses are deductible only to the extent of income generated by the hobby. An activity that generates a profit in three of five years is presumed to be operated for profit.
The holding period is the length of time an investment is owned or expected to be owned. It is critical in determining if a gain or loss from the sale or exchange of a capital asset is long-term or short-term for tax purposes.
A 'home office' can refer to either the headquarters of a company or an office within a personal residence used exclusively for business purposes. Each carries specific implications, particularly in terms of taxation and business operations.
A homestead exemption is a legal provision that reduces the taxable value of a homeowner's primary residence, effectively decreasing the property tax burden.
Hybrid Accounting Methods are those accounting practices that incorporate elements from both cash and accrual accounting methods to better reflect a taxpayer's income. Used when authorized by the Treasury Regulations, and if consistently applied.
Imposition refers to an excessive or unwarranted request made by an individual or entity, or the act of levying a tax or fine on a specific item.
Imputed income refers to the economic benefit a taxpayer obtains through the performance of their own services or through the use of their own property. Generally, imputed income is not subject to income taxes.
Imputed interest refers to interest that is considered by tax authorities as having been paid or received even though no actual interest payment was made. It commonly applies in situations where the stated interest rate on a loan or financial instrument is considered insufficient or below market rates.
An Incentive Stock Option (ISO) is an equity-type compensation plan where qualifying stock options are free of tax at the date of grant and the date of exercise but are taxed when sold.
Incidence of tax refers to the analysis of the effect of a particular tax on the distribution of economic welfare. In simple terms, it identifies who ultimately bears the 'burden' of paying the tax.
Income in Respect of a Decedent (IRD) refers to income that was due to a deceased person at the time of their death but was not received until after their passing. This type of income retains its character as it passes to the decedent’s estate or beneficiaries.
Income tax is a tax imposed by governments on individuals and businesses based on their earnings within a fiscal year. Understanding income tax is essential for compliance and financial planning.
An independent contractor is a self-employed individual who offers services to clients while maintaining complete control over how those services are provided. They handle their own taxes and benefits, and are not classified as employees of the payor.
Indirect taxes encompass a range of levies imposed on goods and services rather than income or profits, ultimately paid by consumers through higher prices.
Industrial Development Bonds (IDBs) are debt obligations issued by state or local governments for funding the capital investments in the trade or business operations of nonexempt persons.
Input tax is the Value Added Tax (VAT) paid by a taxable person when purchasing goods or services from a VAT-registered trader. It is used to offset the output tax to determine the final VAT payable to tax authorities.
Costs incurred in drilling, testing, completing, and reworking oil and gas wells, such as labor, core analysis, fracturing, drill stem testing, engineering, fuel, geologists' expenses; as well as abandonment losses, management fees, delay rentals, and similar expenses.
An inter vivos transfer refers to the transfer of property or an interest in property during a person's lifetime. This term is derived from Latin, meaning 'between the living.' It is commonly used in estate planning and tax contexts to differentiate such transfers from those occurring after death.
Interest income refers to the earnings obtained from various types of investments where the payment reflects the time value of money or from transactions where payments are made for the use or forbearance of money.
Interest earned on dividends from a participating life insurance policy left on deposit with the insurance company and subject to taxation.
The Internal Revenue Bulletin (IRB) is a weekly publication issued by the Internal Revenue Service (IRS) that summarizes various administrative rulings, procedures, and other IRS-related announcements and developments.
The Internal Revenue Code of 1986 (IRC) is a comprehensive statute passed by Congress that outlines the laws governing the taxation of income. It details how income is to be taxed, what may be deducted from taxable income, and the provisions for enforcement and interpretation.
Involuntary conversion refers to the forced disposition of property, where the property owner is reimbursed for the property taken or destroyed.
Involuntary exchange occurs when property is destroyed, stolen, condemned, or disposed of under the threat of condemnation, and the owner receives money or other property as compensation.
Irrecoverable Input VAT refers to the Value-Added Tax (VAT) paid on items acquired to produce exempt supplies and cannot be reclaimed or offset against output tax.
Keynesian Economics is a body of economic thought originated by the British economist John Maynard Keynes. Keynes asserted that government should manipulate the level of aggregate demand to address unemployment and inflation.
Tax liability for children under age 14 on net unearned income (e.g., interest and dividend income) over $1,900 in 2010 (subject to indexing) is taxed at their custodial parents' highest marginal tax rate.
A method of inventory valuation in which the most recent items acquired are considered the first to be sold. It affects accounting and taxation outcomes, particularly in periods of rising prices.
Expenses that are deemed not reasonable based on the facts and circumstances, which are subsequently not tax-deductible by law.
Levy refers to the legal process by which a government or agency imposes a tax, fee, or fine, or seizes property to satisfy an outstanding debt or obligation.
LIFO (Last-In-First-Out) is an inventory valuation method where the most recently produced items are considered sold first.
Like-kind property refers to properties that are of the same nature or character but may differ in grade or quality. In terms of taxation, like-kind properties can be exchanged without triggering immediate tax liabilities, typically under IRS Section 1031.
In taxation, listed property refers to assets such as automobiles, computers, and cellular phones that are subject to a 50% business use test. Depreciation methods for these assets vary based on their usage for business purposes.
Long-Term Capital Gain (Loss) refers to the profit or loss earned from the sale of securities or capital assets held for more than 12 months. This gain or loss has special tax implications for individual and corporate taxpayers.
A technicality making it possible to circumvent a law's intent without violating its letter. Often used to refer to gaps in rules that allow for unintended advantages.
Loss carryback is a tax strategy that allows businesses to apply a net operating loss (NOL) from a current year to offset income from previous years, typically up to three years. This can result in a tax refund for taxes paid in those previous years.
Loss carryover refers to a tax mechanism that allows individuals or businesses to apply a net operating loss (NOL) to future tax years, offsetting taxable income.
The Loss Denial Rule, often referred to in tax contexts, precludes taxpayers from claiming deductions for expenses or losses associated with activities not engaged in for profit, commonly referenced as 'hobby losses.'
Luxury automobiles are four-wheeled vehicles used on public streets and highways with an unloaded gross weight of 6,000 pounds or less. Depreciation deductions for such vehicles are severely limited for income tax purposes.
Mainstream Corporation Tax (MCT) was formerly a key component of the corporation tax system in the UK, calculating a company's tax liability for an accounting period after the offsetting of Advance Corporation Tax (ACT), which was abolished in 1999.
The marginal tax rate is the tax rate applied to an additional dollar of income, influenced by the progressive nature of income tax systems.
A filing status option for taxpayers who are married to each other and agree to report their combined income and deductions. For a given level of income, filing jointly typically results in a lower tax than filing separately. *However, see Marriage Penalty*.
A comprehensive strategy document utilized in various sectors such as general planning, real estate development, and taxation, outlining overall development or operational concepts and objectives.
Material Participation refers to the level of involvement by a taxpayer in the operations of a business activity on a regular, continuous, and substantial basis. This term is crucial in distinguishing between passive and active income for tax purposes.
MCT can refer to an individual recognized as a Member of the Association of Corporate Treasurers or it can stand for mainstream corporation tax, a standard rate of corporate tax applied to profits of companies.
The analysis of economic behavior at the level of individual market participants, mainly individual firms or consumers.
The mid-month convention in taxation concerns the depreciation of residential and nonresidential real property, attributing service or disposal to the midpoint of the month in which these events occur.
A midnight deadline is a completion requirement that marks the end of a calendar day, often used in contexts such as personal tax return filings.
MIL, often expressed as MILL, represents one-tenth of a cent. The term is primarily used in expressing tax rates on a per-dollar basis. For example, a tax rate of 60 mills implies that taxes are 6 cents per dollar of assessed valuation.
The millage rate is the tax rate applied to property, where each mill represents $1 of tax assessment per $1,000 of assessed property value.
MACRS is a method of depreciation used in the United States to recover the cost of tangible property over a specified life span. Introduced by the Tax Reform Act of 1986, MACRS replaces the Accelerated Cost Recovery System (ACRS) and offers a faster depreciation schedule for tax purposes.
MACRS is a depreciation method introduced in 1986 to calculate tax depreciation for property placed in service after its inception. It allows businesses to recover the cost basis of certain property more quickly, by assigning longer lives for personal property and offering conventions for calculation.
Net denotes an amount remaining after specific deductions have been made. Net profit before taxation, for instance, is the profit made by an organization after the deduction of all business expenditure but before the deduction of the taxation charge.
Understanding the net investment in a lease involves considering the total amount of funds that a lessor has invested in a leased asset. This includes the cost of the asset, received grants, rental payments, taxation implications, residual values, and various interest payments and receipts.
An analysis of Net Operating Loss (NOL), detailing its definition, examples, frequently asked questions, related terms, resources, and suggested readings.
Nexus refers to a sufficient presence within the jurisdiction of a taxing authority, which allows the jurisdiction to tax the entity. Nexus can apply to both state sales taxes and state income taxes.
Nonbusiness income refers to earnings derived from passive sources such as interest, dividends, and nonbusiness capital gains, primarily used in taxation to calculate the net operating loss deduction. It includes income from investment assets separate from apportionment in multistate corporations.
The term 'offshore' refers to financial organizations with headquarters outside their primary country of operation or to oil and gas drilling ventures in the sea. Offshore activities are significant in both finance and energy sectors.
Ordinary income property refers to property whose sale at fair market value on the date of the contribution would have resulted in ordinary income or in short-term capital gain. It includes inventory, works of art or manuscripts created by the donor, and capital assets held one year or less.
An ordinary loss for income tax purposes is a type of loss that can be deductible against ordinary income. This is usually more beneficial to an individual taxpayer compared to a capital loss, which has limitations on deductibility.
Original Issue Discount (OID) refers to the discount from par value at the time a bond or debt instrument is issued. It plays a crucial role in the bond market, particularly in zero coupon bonds, and involves complex tax treatments.
Output tax refers to the value-added tax (VAT) charged on the total taxable supplies made by a VAT-registered trader. The standard rate typically varies by region, and understanding it is crucial for compliance and accurate financial reporting.
An in-depth look into Passive Activity Loss (PAL), including definition, examples, frequently asked questions, related terms, online resources, and suggested books for further studies.
An investment or activity that generates passive income, typically seen in income-oriented real estate limited partnerships. This income can offset passive activity losses (PALs) for tax purposes.
In the realm of business and economics, a patron is an individual who patronizes a business, typically known as a customer. In taxation contexts, it specifically refers to one who does business with a cooperative but is not necessarily a member.
The Pay-As-You-Earn (PAYE) system is a method of paying income tax and national insurance contributions to the revenue authorities based on an employee’s regular earnings.
An arrangement between employer and employee whereby a specified amount of money is deducted from the employee's pay and invested for the employee in stocks, bonds, or other investments.
Payroll withholding is the process by which employers deduct a portion of an employee's earnings to pay for taxes and other mandatory deductions. This system ensures that the employees' tax obligations are met throughout the year.
Perquisites of Office, also known as fringe benefits, refer to the advantages or benefits provided by an employer to an employee, which are above their regular wages or salary. When these benefits are used for personal or family purposes, they are taxable.
A tax designed to ensure the UK government obtains a share in the profits from oil and gas extraction, primarily focused on activities in the North Sea.
Phantom income refers to income that is taxable even though the taxpayer has not received equivalent cash or financial benefit. This situation often arises in leveraged real estate transactions where excess depreciation over mortgage amortization leads to a taxable gain without cash flow.
The term 'Placed in Service' refers to the date when property is in a state of readiness and is available for a specific use. This is a critical concept in accounting and taxation, as it determines the start of depreciation or amortization for the asset.
Portfolio income in taxation includes interest, dividends, royalties, and gains and losses from investments. It distinguishes between passive, active, and portfolio income, indicating that passive activity losses may not be offset against active or portfolio income.
A premium bond is a type of bond that sells for more than its face or redemption value. For example, if a bond with a face value of $1,000 sells for $1,050, it is considered a premium bond. The premium can be amortized on a straight-line basis over the life of the bond for tax purposes.
The pretax rate of return is the percentage yield or capital gain generated by a particular investment or security before considering the impact of taxes.
A principal place of business refers to the primary location where an individual conducts the administrative or management activities of a trade or business. It is a key criterion for determining if a home office is tax-deductible.
A federal tax lien for nonpayment of taxes has priority over most other liens but is not valid against specific lien holders until properly recorded. Certain superpriorities may have precedence over a tax lien.
A Profit and Loss Appropriation Account is a financial statement showing how the net profits or losses have been dealt with in a given period.
A proportional tax, also known as a flat tax, imposes the same percentage rate of taxation on everyone, regardless of income or wealth level.
A public charity is a type of nonprofit organization that draws its support from a broad base within the community. This can include schools, churches, hospitals, and other organizations. It offers more generous contribution limitations for donors and must adhere to specific criteria regarding its sources of income.
Compensation awarded in excess of actual damages, serving as a punishment for the wrongdoer and reparations for the injured. Typically granted in cases of malicious and willful misconduct.
