A
Adjusted Gross Income (AGI)
Your total income minus specific above-the-line deductions (student loan interest, IRA contributions, half of self-employment tax, etc.). AGI is the starting point for calculating taxable income and determines eligibility for many credits and deductions.
Accounts Payable
Money your business owes to vendors, suppliers, or creditors for goods or services already received but not yet paid.
Accounts Receivable
Money owed to your business by customers for goods or services delivered but not yet paid for.
Amortization
The gradual expensing of an asset (such as a patent, trademark, or business goodwill) over its useful life. Similar to depreciation, but generally applied to non-physical assets.
Audit
An IRS review of your tax return to verify that reported income, deductions, and credits are accurate. It can range from a simple mail correspondence to a full in-person examination. A CPA can represent you during an audit.
B
Balance Sheet
A financial statement showing your business’s assets, liabilities, and owner’s equity at a specific point in time. One of the three core financial statements, alongside the income statement and cash flow statement.
Bookkeeping
The systematic recording of day-to-day financial transactions (income, expenses, payments, and receipts). Accurate bookkeeping is the foundation of clean financials and smoother tax prep.
Business Deduction
An ordinary and necessary expense of operating your business that reduces taxable income. The IRS describes ‘ordinary’ as common in your industry and ‘necessary’ as helpful and appropriate for your business.
C
Capital Gains
Profit from selling a capital asset (stock, real estate, a business interest). Short-term gains (assets held one year or less) are taxed as ordinary income. Long-term gains (held more than one year) receive preferential rates of 0%, 15%, or 20% depending on income.
Cash Basis Accounting
An accounting method that records income when cash is received and expenses when cash is paid. Simpler than accrual accounting and used by most small businesses and individuals.
C-Corporation
A business entity taxed as a separate legal entity. C-corps pay corporate income tax, and shareholders pay tax again on dividends (double taxation). C-corps can offer advantages for fringe benefits, retained earnings, and raising capital.
Chart of Accounts
A categorized list of every account used to record your business’s financial transactions. A well-structured chart of accounts makes bookkeeping, tax prep, and financial analysis much easier.
CPA (Certified Public Accountant)
A licensed accounting professional who has passed the Uniform CPA Exam, met state education and experience requirements, and maintains licensure through continuing education. CPAs are held to professional and ethical standards by their state licensing board.
D – E
Depreciation
Spreading the cost of a tangible asset (equipment, vehicles, building improvements) over its useful life as a tax deduction. The IRS defines recovery periods for different asset categories.
Entity Structure
The legal form of your business: sole proprietor, LLC, S-corp, C-corp, or partnership. It determines how income is taxed, your personal liability exposure, and your compliance requirements.
Estimated Taxes
Quarterly tax payments generally required when you expect to owe $1,000 or more in federal tax for the year. Applies to self-employed individuals, business owners, and anyone with significant income not subject to withholding. Due April 15, June 15, September 15, and January 15, moved to the next business day when a date falls on a weekend or holiday.
Extension
IRS permission (Form 4868 for individuals) to file your return up to 6 months after the original deadline. An extension is to file, not to pay: taxes owed are still due by the original deadline.
F – H
Filing Status
Your tax classification for the year: Single, Married Filing Jointly, Married Filing Separately, Head of Household, or Qualifying Surviving Spouse. It determines your standard deduction, tax bracket thresholds, and credit eligibility.
Fiscal Year
A 12-month accounting and tax period that doesn’t necessarily match the calendar year. Most individuals and small businesses use the calendar year; corporations may elect a different fiscal year.
Form 1040
The standard U.S. individual income tax return, used to report income, calculate tax, claim deductions and credits, and determine your refund or balance due.
Form 1099
A family of IRS information returns that report non-employment income. 1099-NEC reports contractor income, 1099-INT interest, 1099-DIV dividends, and 1099-B brokerage sales. For payments made in 2026, the 1099-NEC and 1099-MISC reporting threshold is $2,000.
Home Office Deduction
A deduction for self-employed individuals who use part of their home regularly and exclusively for business. Not available to W-2 employees. It can be calculated with the simplified method ($5 per square foot, up to 300 square feet) or the actual expense method.
I – L
Itemized Deductions
Specific deductible expenses listed on Schedule A: mortgage interest, state and local taxes, charitable contributions, and certain medical expenses. You itemize only if the total exceeds your standard deduction.
K-1 (Schedule K-1)
A form issued by partnerships, S-corporations, estates, and trusts to each owner or beneficiary, reporting their share of the entity’s income, deductions, and credits. It flows to your personal return.
LLC (Limited Liability Company)
A flexible business structure that provides personal liability protection. For tax purposes, an LLC can be taxed as a sole proprietorship (single-member), a partnership (multi-member), or a corporation, depending on elections made with the IRS.
M – P
Mileage Deduction
A deduction for business use of a personal vehicle, using either the IRS standard mileage rate or actual vehicle expenses. For 2026 the business rate is 72.5 cents per mile for January–June and 76 cents from July 1. A contemporaneous mileage log is needed to support the deduction.
Net Income
Total revenue minus all expenses, taxes, and deductions: your business’s actual profit. Also called the ‘bottom line.’
Partnership
A business owned by two or more people who share profits, losses, and management. Partnerships file an information return (Form 1065) and issue K-1s to each partner, who report the income on their personal returns.
Pass-Through Entity
A business structure (such as an LLC, S-corp, or partnership) whose income ‘passes through’ to the owners’ personal returns rather than being taxed at the entity level, avoiding the double taxation of C-corporations.
Payroll Tax
Taxes withheld from employee wages and paid to the government, including Social Security (6.2%) and Medicare (1.45%), each matched by the employer. Self-employed individuals pay both halves as self-employment tax (15.3%).
Q – S
Qualified Business Income (QBI) Deduction
A deduction of up to 20% of qualified business income for eligible self-employed individuals and pass-through owners (Section 199A). Created by the 2017 Tax Cuts and Jobs Act and made permanent by the 2025 tax law. Subject to income limits and restrictions for certain service businesses.
Reconciliation
Comparing two sets of financial records to make sure they match, typically your accounting records against your bank statements. Monthly reconciliation catches errors early.
Roth IRA
A retirement account funded with after-tax contributions. Qualified withdrawals in retirement are tax-free, and there are no required minimum distributions during the owner’s lifetime. Contributions are subject to income and annual limits.
S-Corporation
A corporation (or LLC) with an IRS tax election (Form 2553) that passes income through to shareholders, avoiding double taxation. Owners who work in the business must pay themselves a reasonable salary subject to payroll tax.
Schedule C
The form sole proprietors and single-member LLCs use to report business income and expenses on their personal return. Net profit is subject to both income tax and self-employment tax.
Self-Employment Tax
Social Security and Medicare taxes paid by self-employed individuals: 15.3% of net self-employment income (12.4% Social Security, up to the annual wage base, plus 2.9% Medicare). Half is deductible as an above-the-line deduction.
Standard Deduction
A fixed dollar amount that reduces taxable income, used instead of itemizing. For 2026: $16,100 (single), $32,200 (married filing jointly), and $24,150 (head of household). Adjusted annually for inflation.
T – W
Tax Bracket
The range of income taxed at a specific federal rate. The U.S. system is progressive: being in the 22% bracket does not mean all your income is taxed at 22%.
Tax Credit
A dollar-for-dollar reduction in your tax bill, generally more valuable than a deduction of the same amount. Examples: the Child Tax Credit, Earned Income Credit, and education credits.
Tax Deduction
An amount subtracted before calculating tax. It reduces taxable income, so it saves you your marginal rate times the deduction, not the full amount.
Traditional IRA
A retirement account where contributions may be tax-deductible, depending on income and workplace-plan coverage. Withdrawals are taxed as ordinary income, and required minimum distributions start at age 73 or 75, depending on birth year.
W-2
The form your employer provides each year showing your wages and the federal, state, and FICA taxes withheld during the prior year. Needed to file your personal return.
W-4
The IRS form you give your employer to set federal income tax withholding. Update it after major life changes (marriage, new dependents, a second job).
Withholding
Income tax taken from your paycheck and sent to the government on your behalf. Too little means a balance due at filing; too much means a refund.
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