1.

ACCOUNTING PERIOD

A regular span of time used for accounting purposes especially a period used by a taxpayer in
determining income and related tax liability.

2. ACCRUAL BASIS

An accounting method that records entries of debits and credits when the revenue or liability
arises rather than when the income is received or an expense is paid.

3. ACCUMULATED EARNINGS TAX

A penalty tax imposed on a corporation that has retained its earnings in an effort to avoid the
income tax liability arising once the earnings are distributed to shareholders as dividends.

4. ACCUMULATED INCOME

Income that is retained in an account especially income that has not yet been reinvested or
distributed by the trustee.

5. AD VALOREM TAX

A tax imposed proportionally on the value of something especially real property, rather than its
quantity or some other measure.

6. ADMISSION TAX

A tax imposed as part of the price of being admitted to a particular event.

7. AMENDED RETURN

A return filed after the original return, usually to correct an error in the original.

8. AMORTIZATION

The act or result of apportioning the initial cost of a usually intangible assent, such as a patent,
over the asset’s useful life.

9. AMUSEMENT TAX
A tax on a ticket to a concert, sporting event or the like.

10. APPROPRIATED RETAINED EARNINGS

Retained earnings that a company’s board designates for a distinct use and that are therefore
unavailable to pay dividends or for other uses.

11. ARBITRAGE

The simultaneous buying and selling of identical securities in different markets, with the hope of
profiting from the price difference between those markets.

12. ARM’S LENGTH TRANSACTION

A transaction between two unrelated and unaffiliated parties.

13. ASSESSMENT

Determination of the rate or amount of something, such as a tax or damages.

14. AUDIT

A formal examination of an individual’s or organization’s accounting records, financial situation,

or compliance with some other set of standards.

15. BAD DEBT

A debt that is uncollectible and that may be deductible for tax purposes.

16. BALANCE SHEET

A statement of an entity’s current financial position, disclosing the value of the entity’s assets,
liabilities and owner’s equity. Also termed statement of financial condition.

17. BENEFICIAL OWNERSHIP

A beneficiary’s interest in trust property.

18. CAPITAL GAIN

The profit realized when a capital asset is sold or exchanged.

19. CAPITAL GAINS TAX

A tax on income derived from the sale of a capital asset.

20. CLOSED TRANSACTION

A transaction in which an amount realized on a sale or exchange can be established for the
purpose of stating a gain or loss.

21. DEFERRED INCOME

Money received at a time later that when it was earned, such as a check received in January for
commissions earned in November.

22. DEFICIENCY

A lack, shortage or insufficiency. A shortfall in paying taxes; the amount by which the tax

property due exceeds the sum of the amount of the tax shown on a taxpayer’s return.

23. DEFICIENCY ASSESSMENT

An assessment after administrative review and tax-court adjudication – of additional tax owed by
a taxpayer who underpaid.

24. DEPLETION RESERVE

A charge to income reflecting the decrease in the value of a wasting asset, such as an oil reserve.

25. DEPRECIATION METHOD

A set formula used in estimating an asset’s use, wear or obsolescence over the asset’s useful life
or some portion thereof. This method is useful in calculating the allowable annual tax deduction
for depreciation.

26. DIRECT TAX

A tax that is imposed on property as distinguished from a tax on a right or privilege.

27. DISPOSABLE INCOME

Income that may be spent or invested after payment of taxes and other obligations.

28. DIVIDEND INCOME

The income resulting from a dividend distribution and subject to tax.

29. DONOR’S TAX

A tax imposed when property is voluntarily and gratuitously transferred.

30. DOUBLE TAXATION

The imposition of two taxes on the same property during the same period and for the same taxing
purpose.

31. EARNINGS

Revenue gained from labor or services, from the investment of capital or from assets.

32. EARNINGS BEFORE INTEREST AND TAXES

A company’s income calculated without deductions for interest expenses and taxes, used as a
measure of the company’s ability to generate cash flow from ongoing operations.

33. EARNINGS BEFORE INTEREST, TAXES AND DEPRECIATION

A company’s income without deductions for interest expenses, taxes, depreciation expenses, or
amortization expenses used as an indicator of a company’s profitability and ability to service its
debt.

34. EARNINGS PER SHARE

A measure of corporate value by which the corporation’s net income is divided by the number of
outstanding shares of common stock. Investors benefit from calculating a corporation’s earnings
per share because it helps the investors determine the fair market value of the corporation’s
stock.

35. EQUAL AND UNIFORM TAXATION

A tax system in which no person or class of persons in the taxing district- whether it be a state,
city or county- is taxed at a different rate from others in the same district on the same value or
thing.

36. ESTATE TAX

A tax imposed on the transfer of property by will or by intestate succession.

37. EXEMPT INCOME

Income that is not subject to income tax.

38. FAIR MARKET VALUE

The price that a seller is willing to accept and a buyer is willing to pay on the open market and in
an arm’s length transaction; the point at which supply and demand intersect.

39. GOING CONCERN VALUE

The value of a commercial enterprise’s assets or of the enterprise itself as an active business with
future earning power, as opposed to the liquidation value of the business or of its assets. Going
concern value includes, for example, goodwill.

40. GROSS INCOME

Total income from all sources before deductions, exemptions or other tax deductions.

41. GROSS RECEIPTS

The total amount of money or other consideration received by a business taxpayer for goods sold
or services performed in a taxable year before deductions.

42. HEDGE

To use two compensating or offsetting transactions to ensure a position of breaking even

especially to make advance arrangements to safeguard oneself from loss on an investment,
speculation, or bet as to when a buyer of commodities insures against unfavorable price changes
by buying in advance at a fixed rate for later delivery.

43. HISTORICAL COST

An asset’s net price; the original cost of an asset. It is also termed acquisition cost.

44. INCOME

The money or other form of payment that one receives usually periodically, from employment,
business, investments, royalties, gifts and the like.

45. INCOME TAX

A tax on an individual or entity’s net income.

46. INCOME STATEMENT

A statement of all the revenues, expenses, gains, and losses that a business incurred during a
given period.

47. INDIRECT TAX

A tax on a right or privilege.

48. JEOPARDY ASSESSMENT

An assessment without the usual review procedures – of additional tax owed by a taxpayer who
underpaid, based on the belief that collection of the deficiency would be jeopardized by delay.

49. LOCAL ASSESSMENT

A tax to pay for improvements (such as sewers and sidewalks) in a designated area levied on
property owners who will benefit from the improvements.

50. NET INCOME

Total income from all sources minus deductions, exemptions and other tax reductions. Income
tax is computed on net income.

51. NET OPERATING INCOME

Income derived from operating a business after subtracting operating costs.

52. OPTIMAL USE VALUE

The highest and best use of a thing from an economic standpoint. If a farm would be worth more
as a shopping center than as a farm, the shopping center value will control even if the transferee
(that is, a done or heir) continues to use the property as a farm.

53. ORDINARY INCOME

For business tax purposes, earnings from the normal operations, or activities of a business.

54. PASSIVE INCOME

Income derived from a business, rental, or other income-producing activity that the earner does
not directly participate in or has no immediate control over.

55. PROGRESSIVE TAX

A tax structured so that the effective tax rate increases more than proportionately as the tax base
increases or so that an exemption remains flat or diminishes.

56. PROPERTY TAX

A tax levied on the owner of the property usually based on the property’s value.

57. REGRESSIVE TAX

A tax structured so that the effective tax rate decreases as the tax base increases.

58. SPECIAL ASSESSMENT

The assessment of a tax on property that benefits in some important way from a public
improvement.

59. STRAIGHT-LINE DEPRECIATION METHOD

A depreciation method that writes off the cost or other basis of the asset by deducting the
expected salvage value from the initial cost of the capital asset and dividing the difference by the
asset’s estimated useful life.

60. SUM OF THE YEAR’S DIGITS DEPRECIATION METHOD

A method of calculating the annual depreciation allowance by multiplying the depreciable cost
basis (cost minus salvage value) by a constantly decreasing fraction which is represented by the
remaining years of useful life at the beginning of each ear divided by the total number of years of
useful life at the time of acquisition. Sometimes shortened to SYD method.

61. TAXABLE INCOME

Gross income minus all allowable deductions and exemptions.

62. TAX AVOIDANCE

The act of taking advantage of legally available tax-planning opportunities in order to minimize
one’s tax liability.

63. TAX BASE

The total property, income or wealth subject to taxation in a given jurisdiction; the aggregate
value of the property being taxed by a particular tax.

64. TAX BENEFIT RULE

The principle that if a taxpayer recovers a loss or expense that was deducted in a previous year,
the recovery must be included in the current year’s gross income to the extent that it was
previously deducted.

65. TAX BRACKET

A categorized level of income subject to a particular tax rate.

66. TAX CREDIT

An amount subtracted directly from one’s total tax liability as opposed to a deduction from gross
income.

67. TAX EVASION

The willful attempt to defeat or circumvent the tax law in order to illegally reduce one’s tax
liability.

68. TAX EXEMPT

By law, not subject to taxation.

69. TAX FREE EXCHANGE

A transfer of property for which the tax law specifically defers (or possibly exempts) income tax
consequences.

70. TAX INCENTIVE

A governmental enticement, through a tax benefit, to engage in a particular activity, such as the
contribution of money or property to a qualified charity.

71. TAX LIABILITY

The amount that a taxpayer legally owes after calculating the applicable tax.

72. TAX PROTEST

A taxpayer’s formal, usually written, statement that he or she does not acknowledge a legal or
just basis for the tax or a duty to pay it.

73. TAX REFUND

An income tax form on which a person or entity reports income, deductions and exemptions and
on which tax liability is calculated.

74. TAX SHELTER

A financial operation or investment strategy (such as partnership or real estate investment trust)
that is created primarily for the purpose of reducing or deferring income tax payments.

75. TAX SITUS

A state or other jurisdiction that has a substantial connection with assets that are subject to
taxation.

76. TAX WRITE OFF

A deduction of depreciation, loss or expense from taxable income.

77. VALUE ADDED TAX

A tax assessed at each step in the production of a commodity, based on the value added at each
step by the difference between the commodity’s production cost and its selling price.

78. WITHHOLDING TAX

A portion of income tax that is subtracted from salary, wages, dividends or other income before
the earner receives payment.