Tax Accounting Blog

Keogh Accounts: Similar to a 401(k), but for the self-employed. Keogh Plan A tax-deferred defined benefit or contribution plan that a self-employed individual can set up. Key Employee An employee whose skills, knowledge or abilities are crucial to the ongoing operation of the company. This term is used in applying top-heavy tests for qualified referral plans under the Internal Revenue Code Section 416. Key Person Insurance An insurance policy that reimburses a company for the loss of a key employee.

Joint Products Two or more goods having approximately the same economic value that are manufactured simultaneously from the same raw material. Joint Tenancy A form of property ownership in which two or more people own an undivided interest in the property. When one joint owner dies, ownership automatically passes to the surviving joint owner(s). Journal A book of original entry in which financial transactions are recorded. For example, a purchase journal is a record of purchase transactions. Journal Entry A transaction log of unique or recurring items. For example, debits and credits would be logged into a journal as journal entries.

Income The amount of money a person receives from all sources. These sources include wages, commissions, bonuses, Social Security and other retirement benefits, unemployment compensation, disability, interest and dividends. Income Statement A financial statement summarizing revenues, expenses, gains and losses for a stated period of time. The income statement is also known as a profit & loss statement, statement of earnings, statement of income or statement of operations. Income Tax These are taxes on income, both earned income, such as salaries, wages, tips or commissions, and unearned income, such as interest from savings accounts or dividends if you hold stock. Individuals and businesses are subject to income taxes. Incorporated (Inc.) See Corporation Incorporator The person or entity that prepares and files the articles of incorporation. Total Tax Solutions acts as an incorporator for many new companies. Indemnify To reimburse or compensate. Directors and officers of corporations are often reimbursed or indemnified for all the expenses they may have incurred during the incorporation process. Index An hypothetical portfolio of securities that represents a particular market...

Health Savings Account (HSA) An account that offers individuals covered by high-deductible health plans (HDHPs) tax-favored opportunities to save for medical expenses. Highly Compensated Employee (HCE) For benefit plan purposes, an employee who receives compensation in the top 20% of all employees, is a 5% owner of the business, and exceeds certain annual compensation levels. Holding Company A corporation that has no other function except owning other corporations. Home Equity The difference between a home's current market value and the sum of all claims against it. Home Equity Loan A loan in which the lender allows the borrower to use the equity in his or her home as collateral for a line of credit, or revolving credit. The borrower may then obtain cash advances by using a credit card, or checks, up to some predetermined limit. Hope Credit A federal tax credit that compensates families for a certain amount of tuition per student per year for the first two years of post-secondary education. Horizontal Equity Horizontal equity says that people in the same income groups should be taxed at the same rate. Household Income The combined income of all household members from all sources....

GAAP Abbreviation for generally accepted accounting principles. GAAP, by definition, have been given formal recognition, or authoritative support. GAAS Abbreviation for generally accepted auditing standards. GAAS, by definition, have been given formal recognition, or authoritative support. General Journal Journal in which transactions are recorded for which specific journals are not provided. For example: adjustments and corrections. In a small operation the general journal may be the only book of original entry. General Ledger All the financial accounts and statements of a business, including debits, credits and balances. General Partner An authorized agent of a partnership and of all other partners for all purposes within the scope and objectives of a business. Gift A voluntary transfer of assets, or property, with no compensation. Gift Tax A tax levied on assets transferred from one person to another. This tax is paid by the donor. Golden Boot The offering of financial incentives or benefits to persuade an older employee to retire early. Golden Handcuffs Benefits given to a valued employee to persuade him or her to remain with the company. Golden Parachute A benefits package...

F.O.B. Shipping term meaning "free on board" to inform the purchasers of the location at which they become responsible for the shipping charges. For example, F.O.B. Toronto means the vendor pays the charges to Toronto's freight yard and the purchaser is responsible from there. FICA (Federal Insurance Contributions Act) The Federal Insurance Contributions Act (FICA) consists of both a Social Security payroll tax and a Medicare tax. The tax is levied on employers, employees and certain self-employed individuals. FORM 1040EZ A simplified form to be used in place of the 1040 form for some individuals. FORM W-2 By January 31 of each year, your employer, even if you do not work there anymore, will provide you with a statement of how much you earned in wages, tips and other compensation from the previous year. This form will reflect state and federal taxes, social security, Medicare wages and tips withheld. It also includes a lot of other really important information you will need to file your return. FORM W-4 (Employee's withholding allowance certificate) Form W-4 is used to determine how much of an employee's paycheck is withheld for federal income taxes. Fair Market Value The highest...

Early Withdrawal The removal of funds from a fixed-rate investment before the maturity date or from a tax-deferred investment account before a predetermined time. Earned Income The sum of income pertaining to wages, salaries, tips, self-employed net earnings and any other income received for personal services. Earned Income Credit A refundable tax credit low-income workers can file for, even if no income tax was withheld from the worker's pay. Electronic Banking Computerized network services that allow bank account holders to securely access their accounts on the internet. Electronic Commerce (E-Commerce) The use of the internet to conduct business and buy or sell goods and services. Electronic Filing (IRS e-file) IRS e-file options allow you to file federal income tax returns, and some state returns, through a tax professional, through your home computer or even through your telephone. It may also be available in many other places in your local community. Electronic Funds Transfer System (EFTS) A process by which funds are electronically transferred between accounts. EFTS allows for direct deposits or withdrawals without processing written checks. Employee Retirement Income...

Debit An entry recording an increase to an asset or expense or a reduction to a liability, revenue or owner's equity. Debits are recorded in the left-hand column of an account or a two-column book. Opposite of credit. Debit Card A card issued by a bank that can be used to withdraw cash from an automated teller machine or to make purchases at merchant locations. Debit cards deduct funds from the checking or savings account linked to the card when they are used. Debt A legal obligation to deliver a product, service or amount of money. Debt-to-Equity Ratio The ratio that indicates a company's ability to repay outstanding creditors. This also indicates the degree of leveraged money to improve the rate of return for shareholders. Decreasing Term Insurance A term insurance policy with a death benefit that decreases over time. This type of insurance is often used in conjunction with a mortgage or other amortized debt to guarantee payment if the holder dies before it is paid off. Deed A document that identifies legal ownership of real estate. Deferred Annuity An annuity that pays an income or lump sum at a future date. Deficit A negative amount of retained earnings caused by cumulative...

CAPS A limit on how much the interest rate can change either at each adjustment or during the life of the mortgage, e.g., "2/6" equates to 2% per year and 6% over life of loan. Cafeteria Employee Benefit Plan A plan offering a variety of benefit options from which employees may choose, such as health insurance, life insurance, and retirement benefits. Canceled Check A check that has cleared the bank and is returned to the depositor with his monthly statement. Capital (or Equity) Interest of the owner in the business that is the difference between Assets & Liabilities. Also called Equity or Net worth. In a corporation, capital represents the stockholders' equity. Capital Asset Assets, of either a tangible or intangible nature, owned or held by a business which are expected to be used or held over several fiscal periods. Capital Gain / Loss Profit or gain realized from the sale or exchange of a capital asset. The amount is determined by calculating the difference between an asset's purchase and sale price. Capital Gains Distribution A payment to shareholders of profits realized on the sale of an investment company's securities. Capital Gains Tax A tax on profits from the sale...

Bad Debts Accounts receivable that are uncollectible used in accrual method accounting. Balance Amount arrived at by adding all debits and subtracting all credits to ensure total debits equal the total credits. Balance Sheet Statement, at a particular point in time, of the financial position of a business or organization. This is generally divided into three parts: assets, liabilities and ownership, or equity. Also known as Statement of Financial Position. Balloon Mortgage A type of mortgage with a final payment that is considerably larger than the preceding payments, typically used when borrowers anticipate receiving a large sum of cash to pay the balance or when they expect to refinance before the final payment. Bank Overdraft Balance of a bank account when funds withdrawn exceed funds deposited. Bank Reconciliation Analysis that accounts for the difference between the balance shown on the bank statement and the balance shown in the accounting records on a given date. Bankrupt Legal status of a person/corporation who/which is unable to pay its debts as they become due and who/which has made a transfer of property or of a right or interest in property to a trustee for the...