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July 16, 2021
Kanika is an enthusiastic content writer who craves to push the boundaries and explore uncharted territories. With her exceptional writing skills and in-depth knowledge of business-to-business dynamics, she creates compelling narratives that help businesses achieve tangible ROI. When not hunched over the keyboard, you can find her sweating it out in the gym, or indulging in a marathon of adorable movies with her young son.
A method of recording accounting transactions in which revenue is recorded when earned and expenses when they are incurred, regardless of when the money is actually received or paid.
A method for calculating expenses related to the use of an automobile for business purposes so as to claim deduction on the taxable income. It includes actual costs incurred to operate the vehicle such as fuel, repairs, maintenance, licenses, registration fees, depreciation and insurance as well as auto loan interest.
Primarily used for computation of capital gain or loss on a sale, adjusted basis is the net cost of an asset or security wherein the original cost is increased by capital expenditures and reduced by depreciation deductions.
Amounts assigned by an employer in addition to the tips reported by the employee. These are usually applicable to large food and beverage establishments where tipping is customary.
A tax credit claimed for putting a qualified fuel cell vehicle in service during your tax year. This credit can be availed on IRS Form 8910.
The amount received from a sale or exchange. It is the total of all the cash received, and the fair market value of all property or services. And also includes the liabilities assumed by the purchaser during the transaction and any liabilities to which the property bought is subject, such as real estate taxes or even a mortgage. This figure is primarily used for the computation of realized gain and loss.
Basis refers to the initial value of an asset from which a gain or loss is determined during a sale. In most situations, the basis of an asset purchased is its cost to you.
This refers to costs incurred to keep the business running, that is the necessary spending done in the ordinary course of the business.
Any Income received from the sale of products or services.
A method of recording accounting transactions wherein revenue and expenses are recorded when cash is received or paid respectively.
Also known as the basis, it is the original cost of an asset used to figure gain or loss on the sale.
This plan allows an employee to defer a part of his/her annual salary, and receive it later. The tax on such an amount also gets deferred, that is no tax is levied on the money in the year it was earned but later when received.
It is the recovery of the cost of an asset over a number of years. A part of the cost incurred is deducted every year by charging the expense till the full cost is recovered.
Income received for personal services by working for someone else, or yourself. It includes salary, wages, commissions, tips and money made from self-employment or by operating a business.
Popularly called E-file, it is the submission of a tax return to the IRS through the internet.
: Any person who performs services for you is your employee. In addition to paying regular wage or salary, you also have the right to direct and control the work performed by him/her, even if that right is not exercised.
It is the income that is not included in your gross income as it is exempt from tax. However, it doesn’t mean that such an income should always go unreported, in fact, certain income though exempted are mandated to be reported on the tax return.
Tax levied on manufacture, sale or consumption of specific goods, services or activities. The most common example being taxes imposed on fuel, tobacco, and alcohol.
This form is used by individual taxpayers to file an annual income tax return under IRS.
This is an alternative to using Form 1040 for U.S. senior taxpayers aged 65 or older. This form uses the same schedules and instructions as IRS Form 1040 does but in larger font.
: This is used to report itemized deductions.
This schedule is used by taxpayers to report their interest and ordinary dividend income.
You can use this schedule to report income or loss from your business or sole proprietorship firm.
Qualifying small businesses can use this instead of using Schedule C to report their income.
This form can be used to report capital gains and losses.
: This schedule is used to report any supplemental income and loss such as income from rental properties, royalties, estates, trusts, etc.
You can use this form to figure your self-employment tax liability.
This form is used by individuals to figure and pay their estimated tax.
You can file your amended tax returns using form 1040-X.
This is meant for partnerships wherein a partner’s share of income, deductions, credits, etc. for the year can be reported.
Used to report miscellaneous income, such as rent or payments to an attorney.
Used to report independent contractor income.
It is the U.S. corporation income tax return form and can be used by domestic corporations to figure their income tax liability as well as report their income, deductions, gains, losses, credits.
Employees can file this form to deduct ordinary and necessary expenses for their job — business, trade or profession.
This form is used to figure the social security and Medicare tax owed on your unreported tips.
Use this to claim for refund or request for abatement of your overpaid or over-assessed taxes, interest, penalties.
This is the declaration document and signature authorization for a tax return e-filed by an e-file provider.
This form is used by employers to report wages, tips, and other compensation paid to employees including FICA and any withheld income taxes.
Filled by an employee, this certificate indicates his/her tax situation. And used by employers to determine the tax amount to withhold from the employee’s paycheck.
This is an earned income credit advance payment certificate, and can be used by eligible taxpayers to receive a portion of the tax credit in advance with their pay.
You can use this form to apply for your IRS individual taxpayer identification number (ITIN). Additionally, you can use it to renew your expired ITIN or an existing one that is near expiration.
This represents the total income received from taxable sources, before making any adjustments, or applying deductions or exemptions.
It is a part of a person’s residence used primarily or exclusively for business purposes, for which qualified taxpayers can claim home office deductions.
Any person employed by a business, but does not work for it as an employee. As a result, he/she is subjected to self-employment tax.
This tax is not levied directly on the income, revenue or profit of the taxpayer but added to the price of the goods or services rendered such as sales tax, excise tax. In other words, though the real incidence of the tax falls on the firms selling goods or services, they do not pay for it but pass it on to their consumers, who ultimately bear the tax burden.
: IRS is the U.S. federal government agency responsible for collecting taxes and administering the tax code.
A tax levied and collected by a local government, such as a municipality or county.
An indirect tax, imposed on certain goods and services that are deemed non-essential and accessible to the affluent. Such goods include expensive cars, sports vehicles, yachts and jewelry.
The tax rate applicable on every additional dollar of taxable income earned.
Under federal tax law, a net operating loss occurs when deductible expenses exceed taxable income within a tax period. The IRS allows you to claim a deduction on your NOL subject to certain conditions.
It is the income that is exempted by federal income tax.
This refers to a tax charged on the property owned by the taxpayer. Also, referred to as the millage tax rate.
This tax is imposed on the payroll of the employee. It is withheld directly from his/her pay by the employer who pays it to the federal government on the employee’s behalf.
It is the net amount of income on which owners of pass-through entities can claim a qualified business income deduction.
It is a corporation with no more than 100 shareholders and is treated as a partnership if all the IRS stipulated requirements are met. And thus pays no corporate taxes, instead, its shareholders are taxed at their individual income tax rates.
A tax levied on the sale of retail goods, and services and is based on the purchase price.
A tax consisting of social security and Medicare taxes primarily for individuals who work for themselves.
This refers to a simple way to calculate the business use of your automobile. It involves tracking your mileage for the tax year and deducting the same from your taxable income.
A statutory employee is an independent contractor who is treated as an employee by statute for certain employment tax situations.
A method of depreciation that accounts for equal deductions every year of the recovery period, or asset’s life.
Simply put, it is a dollar-for-dollar reduction in tax liability. As a result, it directly trims down the amount of tax you owe. For example, a tax credit of $1,000 will lower your tax bill by the corresponding amount of $1,000.
This refers to a reduction in your tax liability by lowering your taxable income, that is the amount of income subject to tax. For example, if you fall into the 22% tax bracket, a $1,000 deduction will save you $220.
It is the total amount of tax that you owe to the taxing authority.
It is the taxpayer’s gross income adjusted for the allowable tax deductions. It determines the tax liability of the taxpayer.
It refers to a range of incomes that are subjected to a specified tax rate.
The entire body of tax rules, regulations, and procedures.
A reduction in the rate of tax charged by the government.
This refers to a situation wherein taxes levied now are delayed to a later time.
This refers to hiding or falsely reporting income to the IRS so as to reduce tax liability.
This refers to the percentage at which the taxpayer is taxed.
It is the 12-month period covered by a tax return. As a result, returns for a specific tax year are filed in the subsequent year. For example, for the tax year 2021 — January 1 – December 31, 2021, tax returns will be due on April 15, 2022.
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