Tax Accounting Blog

Ultra Vires Traditionally, the purpose of a corporation was closely spelled out in its articles of incorporation. If the corporation acted beyond its described purposes these actions were unenforceable against the corporation or by the corporation. However, most modern statutes allow corporate purposes to be any lawful activity. Therefore, the importance of this doctrine has greatly diminished. Unanimous Written Consent Nearly all states allow directors to act without a meeting if they each give their consent Underwriting The process by which an insurance company determines whether it can assume the risk of a specific life insurance policy. Alternatively, this can refer to the business of investment bankers, who purchase new issues of securities and resell them to the public. Unemployment The state of being "not in gainful employment," in which a person may be eligible for some state and federal benefits. Uniform Gift to Minors Act (UGMA) The law that allows an adult to contribute to a custodial account in a minor's name without having to establish a trust or name a legal guardian. The UGMA is called the Uniform Transfer to Minors Act (UTMA) in some states. Universal Life...

Tangible Asset Anything that has a value and physically exists, such as land, machines, equipment or currency. Tariff Duty A tax on imports collected by state custom authorities. Tax Avoidance Legal minimization of the impact of taxation. Tax Credit A dollar-for-dollar reduction in the amount of taxes an individual owes. Tax Credits The amount of money that tax payers can deduct directly from their taxes. Tax Deductions The amount that a person or business can subtract from their taxable income. The more you can deduct, the less you pay. Tax Evasion Illegal attempt to escape the impact of taxes. Tax Exempt Not subject to general taxation. Tax Liability The total amount of tax that a person must pay. Taxpayers pay this through withholdings, estimated tax payments and payments attached to their yearly tax forms. Tax Lien A claim against property for unpaid taxes, which lasts until the claim is satisfied or a statute of limitations takes effect. Tax Shelter Investment to acquire something of value with the expectation it will produce income and reduce or defer taxes. Tax Shift One lucky person or group is able to shift a tax that they're supposed to pay to someone else. Tax...

S Corporation A small corporation which elects sub-chapter S tax treatment. This tax treatment allows the corporation to avoid federal level taxation. Corporate Profits and Losses are passed through to the shareholders. SIMPLE (Savings Incentive Match Plan for Employees) Plan A retirement plan that allows employee pretax contributions and requires employer matching contributions. All contributions are immediately vested, and the plan can be set up as a 401(k) or IRA. Salary Reduction Plan A qualified retirement program to which employees make tax-advantaged contributions on a pretax basis. Sales Taxes A tax collected by a retailer against the retail price of a commodity. Savings Account A account with a bank, or savings and loan company, that pays interest on money deposited. Schedule A form a taxpayer uses to itemize specific sources of income or expenses that are claimed as deductions. Section 162 (Executive Bonus) Plan A life insurance policy for which the insured's employer pays premiums under Internal Revenue Code Section 162. Secured Card A credit card guaranteed by a deposit in a savings account, or certificate of deposit (CD), with a credit line usually equal to the...

Rate of Return The gain or loss of an investment over a specified period of time, expressed as a percentage of the original investment cost. Rated Policy An insurance policy that covers a higher risk for a higher than usual premium. Ratio Relative size, expressed as the number of times one quantity is contained in another. For example, the ratio of assets to liabilities of a company having total assets of $200,000 and liabilities of $150,000 would be $200,000 / $150,000 = 1.33 Real Estate Investment Trust (REIT) A security that is traded like a stock on the major exchanges and invests primarily in real estate. Recapitalization When a company changes its capital structure by exchanging preferred stock for bonds to reduce taxes or to avoid or emerge from a bankruptcy. Receivable An amount to be received at a future date. Redemption The repayment of a debt security or preferred stock, either for par value at maturity or for a premium before maturity. Refinancing Rescheduling of payments due. This usually resulting in smaller payments over a longer period of time. Refund When your employer deducts too much money from your paycheck, the government owes you that money back. When they...

Qualified Plan A retirement plan that meets the requirements of Section 401(a) of the Internal Revenue Code and is eligible for tax-favored treatment. Quorum The minimum attendance required to conduct business at a meeting. Usually, a quorum is achieved if a majority of directors are present, for directors meetings, or outstanding shares are represented, for shareholder meetings. The percentage needed for a quorum may be modified in the bylaws. Quotation The highest bid and lowest asked offering price currently available for a security.

PITI The four components of a mortgage payment: principal, interest, property taxes and insurance. Paid in Capital Requirements A few states require corporations to have a specified amount of paid-in capital prior to starting business. These states include CT, DC, SD and TX and require that the company have $1,000 in paid-in capital before starting business. Paid-Up Additions Additional life insurance coverage. These are typically purchased with policy dividends. Par Value The face value of a stock or bond when issued, which may bear little relationship to the security's current market value. Par-Value The stated minimum value of a share stock. Stock must be sold for at least this value or the owner of the stock can face liability. With low par value stock or no par value stock this liability is minimized. Parent Company A corporation that directly or indirectly owns a controlling interest in another corporation. See Subsidiary. Partnership A contractual association between individuals who share in the management and profitability of a business venture. Pass-Through Taxation Income to the entity is not taxed. Instead the income is "passed through" to the individual shareholders...

Offering Price The per share price at which a stock or mutual fund is offered to the public. The market price may be more or less than the offering price. Officers Officers are people who are appointed by the directors. They manage the daily affairs of the corporation. A corporation's officers usually consist of a president, vice-president, treasurer and secretary. In most states, one person can hold all of these positions. Old-Age, Survivors and Disability Insurance (OASDI) Also known as Social Security. OASDI is a comprehensive federal benefits program that includes retirement benefits, disability income, veterans' pensions, public housing and food stamps. Operating Agreement An agreement among the LLC members which govern the LLC operations and the rights of its members. It is analogous to corporate bylaws. Option The right to buy or sell a security at a set price on or before a given date. "Call" options are bets that the security will be worth more than the price set by the option, the strike price, plus the price of the option. "Put" options are bets that the security's price will fall below the price set by the option. Options Marketable securities that provide for future...

Name Reservation The name of a corporation or LLC must be distinguishable on the records of the state government. If the name is not unique, the state will reject the articles of incorporation or articles of organization in the case of LLCs. A name can be reserved, usually for 120 days, by applying with the proper state authorities and paying a fee. National Association of Securities Dealers Automated Quotations (NASDAQ) A computerized system that facilitates trading and offers price quotes for the most actively traded over-the-counter (OTC) securities. Net Income Total revenue minus total costs, expenses and taxes. Net Worth The amount of asset value exceeding total liabilities. New York Stock Exchange (NYSE) The oldest and largest stock exchange in the U.S. The NYSE lists many of the country's largest corporations. No-Par-Value Stock Stock with no minimum value. Most states allow no-par stock. Noncontributory Retirement Plan A pension plan that is funded only by employer contributions with no employee contributions. Nonforfeitable Benefit In an employee benefit plan, a benefit that is payable upon any occurrence listed in the employee contract and cannot be forfeited....

Management Accounting Accounting concerned with providing information to managers who are inside an organization and also direct and control operations. Management Accounting includes cost accumulation for product costing, budgeting and financial statement analysis. Management Buyout When managers or executives of a company buy a controlling interest in their company from existing shareholders. If they pay a premium over the existing fair market value of the outstanding shares, the company then becomes a private corporation without a majority of shares trading on the market. Management Fee A charge against an investor's assets for a fund manager's services. Manager An LLC may be operated by a group of managers who act much like a board of directors. If an LLC is to be controlled by mangers this fact must be stated in the articles of organization. Mandatory Employee Contribution Some employee benefit plans require employees to make contributions in order to accrue benefits. Market Risk The portion of a security's risk common to all securities in the same asset class. Market risk cannot be eliminated through diversification. Market Timing A strategy in which an investor attempts to...

Lapsed Policy An insurance policy that is canceled for nonpayment of premiums, or canceled before it has cash or surrender value. Lease A legal contract conveying the use of property from the owner (lessor) to another (lessee) at a fixed rate, for a stated length of time. Lease-Purchase Agreement An agreement where a portion of each lease payment applies to a future purchase of the leased property. Also, applies where the leaseholder has the right to buy the property during or at the conclusion of the lease term. Leaseback (Sale and Leaseback) An arrangement in which the seller of an asset leases that same asset back from the purchaser. For example, a business owner may sell the business's office building to raise cash, then arrange to lease the building from the new owner so the business can remain at its present location. Leasehold Improvements Additions, improvements or alterations made to leased property by the lessee. Ledger A book of final entry containing all the accounts of a business or all the accounts of a particular type. Some examples are general ledgers and accounts receivable ledgers. Lender A person or organization that parts with something of value for a stated,...