Resources
Tax & Accounting Glossary
Plain-language definitions for common tax and accounting terms. No jargon, no assumptions. If a term comes up in a conversation with us and you’re unsure what it means, the answer is probably here.
Definitions are written for clients, not accountants. If a term is missing or unclear, reach out and we’ll add it.
A
Adjusted Gross Income (AGI)Your total income minus specific above-the-line deductions (student loan interest, IRA contributions, self-employment tax, etc.). AGI is the starting point for calculating taxable income and determines eligibility for many credits and deductions.
Accounts PayableMoney your business owes to vendors, suppliers, or creditors for goods or services already received but not yet paid.
Accounts ReceivableMoney owed to your business by customers for goods or services delivered but not yet paid for.
AmortizationThe gradual expensing of an intangible asset (such as a patent, trademark, or business goodwill) over its useful life. Similar to depreciation, but applied to non-physical assets.
AuditAn IRS review of your tax return to verify that reported income, deductions, and credits are accurate. Can range from a simple mail correspondence to a full in-person examination. A CPA can represent you during an audit.
B
Balance SheetA 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.
BookkeepingThe systematic recording of day-to-day financial transactions — income, expenses, payments, and receipts. Accurate bookkeeping is the foundation of clean financials and stress-free tax prep.
Business DeductionAn ordinary and necessary expense of operating your business that reduces taxable income. The IRS defines ‘ordinary’ as common in your industry and ‘necessary’ as helpful and appropriate for your business.
C
Capital GainsProfit from selling a capital asset (stock, real estate, business interest). Short-term gains (assets held under one year) are taxed as ordinary income. Long-term gains (held over one year) receive preferential tax rates of 0%, 15%, or 20% depending on income.
Cash Basis AccountingAn 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-CorporationA business entity taxed as a separate legal entity. C-Corps pay corporate income tax, and shareholders pay tax again on dividends (double taxation). However, C-Corps offer certain benefits in fringe benefits, retained earnings, and access to capital.
Chart of AccountsA 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 significantly 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 ongoing continuing education. CPAs are held to professional and ethical standards by their state licensing board.
D – E
DepreciationThe process of spreading the cost of a tangible asset (equipment, vehicle, building improvements) over its useful life as a tax deduction. The IRS defines useful lives for different asset categories.
Entity StructureThe legal form of your business — sole proprietor, LLC, S-Corp, C-Corp, or partnership. Your entity structure determines how income is taxed, your personal liability exposure, and your compliance requirements.
Estimated TaxesQuarterly tax payments required when you expect to owe $1,000 or more in federal taxes for the year. Applies to self-employed individuals, business owners, and anyone with significant income not subject to withholding. Due April 15, June 16, September 15, and January 15.
ExtensionIRS permission (Form 4868 for individuals) to file your tax return up to 6 months after the original deadline. An extension is to file — not to pay. Any taxes owed are still due by the original deadline.
F – H
Filing StatusYour tax classification for the year: Single, Married Filing Jointly, Married Filing Separately, Head of Household, or Qualifying Surviving Spouse. Determines your standard deduction amount, tax bracket thresholds, and credit eligibility.
Fiscal YearA 12-month accounting and tax period that doesn’t necessarily align with the calendar year (January 1 to December 31). Most individuals and small businesses use the calendar year. Corporations may elect a different fiscal year.
Form 1040The standard U.S. individual income tax return, used to report income, calculate tax, claim deductions and credits, and determine your refund or balance owed.
Form 1099A family of IRS informational returns used to report non-employment income. 1099-NEC reports contractor/freelance income. 1099-INT reports interest. 1099-DIV reports dividends. 1099-B reports brokerage transactions.
Home Office DeductionA deduction available to self-employed individuals who use a portion of their home regularly and exclusively for business. Not available to W-2 employees. Can be calculated using the simplified method ($5/sq ft, up to 300 sq ft) or the actual expense method.
I – L
Itemized DeductionsSpecific deductible expenses listed on Schedule A — mortgage interest, state and local taxes (capped at $10,000), charitable contributions, and certain medical expenses. You choose to itemize only if your total itemized deductions exceed the 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. This information flows to your personal tax 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 proprietor (single-member), partnership (multi-member), or corporation — depending on elections made with the IRS.
M – P
Mileage DeductionA deduction for business use of a personal vehicle, calculated using the IRS standard mileage rate (67 cents per mile in 2024) or actual vehicle expenses. Requires contemporaneous mileage logs to substantiate the deduction.
Net IncomeTotal revenue minus all expenses, taxes, and deductions. Your business’s actual profit after everything is accounted for. Also called the ‘bottom line.’
PartnershipA business owned by two or more individuals who share profits, losses, and management. Partnerships file an informational return (Form 1065) and issue K-1s to each partner, who report the income on their personal returns.
Pass-Through EntityA business structure — LLC, S-Corp, or partnership — where business income ‘passes through’ to owners’ personal tax returns rather than being taxed at the entity level. Avoids the double taxation of C-Corporations.
Payroll TaxTaxes withheld from employee wages and paid to the government. Includes Social Security (6.2%) and Medicare (1.45%), matched by the employer. Self-employed individuals pay both halves as self-employment tax (15.3%).
Q – S
Qualified Business Income (QBI) DeductionA deduction of up to 20% of qualified business income for eligible self-employed individuals and pass-through business owners, created by the Tax Cuts and Jobs Act (Section 199A). Subject to income limits and restrictions for certain service businesses.
ReconciliationThe process of comparing two sets of financial records to ensure they match — typically comparing your accounting records to your bank statements. Monthly reconciliation is a bookkeeping best practice that catches errors early.
Roth IRAA retirement account funded with after-tax contributions. Qualified withdrawals in retirement are completely tax-free. No required minimum distributions during the owner’s lifetime. Contributions are limited by income and subject to annual limits.
S-CorporationA corporation with a special IRS tax election (Form 2553) that allows income to pass through to shareholders’ personal returns. Avoids double taxation. Owners who work in the business must pay themselves a reasonable salary subject to payroll tax.
Schedule CThe tax form used by sole proprietors and single-member LLCs to report business income and expenses on their personal return. Net profit on Schedule C is subject to both income tax and self-employment tax.
Self-Employment TaxSocial Security and Medicare taxes paid by self-employed individuals — 15.3% on net self-employment income (12.4% Social Security + 2.9% Medicare). You can deduct half of self-employment tax as an above-the-line deduction.
Standard DeductionA fixed dollar amount that reduces your taxable income, available to most taxpayers as an alternative to itemizing. For 2025: $15,000 (single), $30,000 (married filing jointly), $22,500 (head of household). Adjusted annually for inflation.
T – W
Tax BracketThe range of income subject to a specific federal tax rate. The U.S. uses a progressive system — different portions of your income are taxed at different rates. Being in the 22% bracket does not mean all your income is taxed at 22%.
Tax CreditA dollar-for-dollar reduction in your tax bill. More valuable than a deduction of the same amount. Examples: Child Tax Credit, Earned Income Credit, education credits, and energy-efficiency credits.
Tax DeductionAn amount subtracted from your gross income before calculating taxes owed. Reduces your taxable income — but saves you only a percentage of the deduction amount (your marginal rate), not the full amount.
Traditional IRAA retirement account where contributions may be tax-deductible depending on income and whether you have a workplace retirement plan. Withdrawals in retirement are taxed as ordinary income. Subject to required minimum distributions starting at age 73.
W-2The form your employer sends each January showing your total annual wages and the federal, state, and FICA taxes withheld from your paychecks during the prior year. Required to file your personal tax return.
W-4The IRS form you complete when starting a new job to tell your employer how much federal income tax to withhold from each paycheck. Should be updated after major life changes (marriage, new dependents, second job).
WithholdingFederal and state income tax automatically deducted from your paycheck and remitted to the government on your behalf. Under-withholding results in a tax bill at year-end; over-withholding results in a refund.
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