Tax returns can be complicated – that’s why you hire experts like DiMercurio Advisors. Working with a professional on your tax return is always a good idea, but it’s still helpful to be able to understand what you’re looking at.
We have a list of common IRS tax forms, and to follow that up, here’s some vocab words you might encounter during tax season.
Adjusted Gross Income (AGI): Your total taxable income minus adjustments like alimony or student loan interest.
Adjustments: Entries to the general journal made at the end of the year to recognize income or expenses that haven’t been recorded yet.
Amended return: An updated tax return filed to correct a mistake on the original return.
Assets: A property held by a person or entity that can be used to create value. Cash, equipment, real estate, intellectual property, etc.
Balance sheet (BS): A financial statement that reports a company’s assets, liabilities, and shareholder equity.
Basis: The value that you have invested in your company.
Business expenses: Costs of ordinary business operations, like office leases, employee wages, or insurance costs.
Business mileage: Any mileage incurred while travelling from one place of work to another. Does not include commute.
Capital gains: An increase in a capital asset’s value, recorded when the asset is sold for more than its purchase price.
Charitable contributions: A donation or gift to certain qualified organizations, able to be written off as a tax deduction.
Child tax credit: A reduction in your tax liability for each child under 17 you can claim as a dependent.
Cost of Goods Sold (COGS): Costs associated with your inventory, including labor, storage, materials, etc.
Debt restructuring: Making debt payments easier by renegotiating the terms of debt.
Deductions: A reduction in taxable income based on an expenditure like charitable contributions or mortgage interest.
Dependents: A qualifying child or relative who relies on you for most of their financial support.
Depreciation: A reduction in the value of an asset over time.
Earned income: Any income earned from a wage or self-employment, including tips, bonuses, and commissions.
Employer Identification Number (EIN): Also known as a Federal Tax Identification Number and is used to identify a business entity. It’s like a Social Security Number for a business.
Entertainment expenses: Cost of entertainment provided to clients or employees, including meals, events, etc. No longer fully deductible, although some employee events remain deductible.
Estimated tax payments: Payments made every quarter by businesses and individuals who expect to owe over $1000 in taxes to the IRS, based on estimated tax liability.
Exemption: An exclusion of certain income from taxes that would otherwise be owed.
Filing status: A categorization of which tax return you need to file, based on your marital status.
General ledger (GL): A record-keeping system for a company’s financial data, with debit and credit account records validated by a trial balance. This should be provided in the detailed view to show all transactions in all accounts throughout the period.
Health savings account: A type of savings account that allows for medical expenses to be paid with reduced or removed tax liability.
Home office: An area in your home that is strictly used for business activity and can be used to claim a tax deduction.
Income & Expense summary: A detailed categorized list of income and expenses, along with applicable descriptions.
Independent contractor: A self-employed person that provides a service on a temporary contractual basis.
Inventory: A comprehensive list of goods in stock.
IRA: An Individual Retirement Account, a tax advantaged way of saving money for retirement.
Joint return: A single tax return representing a married couple.
Liabilities: Money that a person or entity will have to pay in the future, such as for wages, taxes, pensions, or warranties.
Limited Liability Company (LLC): A business structure that combines tax flexibility with liability protection.
Nontaxable income: Income that does not incur a tax liability.
Partnership: A business entity consisting of two or more owners in which tax liability falls upon the owners instead of the business itself.
Payroll: A list of employees of a company that records wages paid or owed, in addition to other benefits.
Penalties: A fee applied to taxpayers who don’t meet their tax obligations.
Profit and loss statement (P&L): A financial statement that summarizes the revenues, costs, and expenses incurred during a specified period.
Research & Development (R&D): The development of new products or services, and the improvement of existing products and services.
Retirement plan: Methods of funding retirement, including IRAs and 401(k)s.
Revenue: The money generated by regular operation of the business.
S corp: A corporate structure that passes income and losses to its shareholders.
Self-employment tax: A tax on self-employment income that feeds into Medicare and Social Security.
Single Member LLC (SMLLC): An LLC with one owner that has elected to file taxes on its owner’s individual return.
Sole proprietorship: A type of business owned by one person without a separate, distinct legal identity for the business.
State taxes: Taxed owed to the state you live and work in, in addition to your federal taxes.
Tax credits: An amount that can be subtracted directly from a taxpayer’s owed income taxes, rather than their taxable income.
Tax return: A set of forms submitted with the IRS or other tax authorities that reports income, expenses, and anything else that would influence your tax liability.
Tax questionnaire: A document used by tax professionals to assess their clients’ financial situations and better prepare their tax returns.
Trial balance (TB): A statement of all debits and credits in a double-entry account book.
Withholding: The practice of an employer withholding money from an employee’s paycheck to pay directly to the government as taxes.
This should answer some questions you might have on your tax information requests, and hopefully you feel a little bit more ready for tax season. For any more help, schedule a call with our team.