Tax & Accounting glossary

1031 Exchange - Named after Section 1031 of the Internal Revenue Code, a 1031 exchange (or like-kind exchange) allows a taxpayer to defer gain or loss on the transfer of real property by exchanging it for like-kind real property.               
 

Ad valorem tax - Ad valorem tax is a tax based on the assessed value of assets, goods, or services. Ad valorem tax can extend to a number of tax applications, such as sales tax on consumer goods, but the most common ad valorem taxes are property taxes levied on real estate and personal property.                                                                                                                       

ASC 740 - Accounting Standards Codification 740, also known as ASC 740, is a set of tax guidelines regulating how companies must record their income taxes in financial statements under U.S. Generally Accepted Accounting Principles (GAAP).                                                                                                                                                                                                                                                                            

Bonus depreciation - Bonus depreciation is an additional first-year depreciation deduction that allows businesses to write off a large percentage of the purchase price of eligible assets. Bonus depreciation was enacted in 2002 as a way to incentivize businesses to invest more and stimulate the economy.

Deferred tax assets - Deferred tax assets (DTA) appear on the corporate balance sheet and are intangible, financial assets that are recoverable in the future. DTAs are the opposite of deferred tax liabilities. Typically, they are created when there are temporary differences between a company’s pre-tax book income and its taxable income.

Employee Retention Credit - The Employee Retention Credit (ERC) is a program created by Congress in response to the COVID-19 pandemic and economic shutdown which incentivizes companies who retained employees on their payroll with a tax credit. The ERC ended as of September 30^th 2021.                                                                                                                                                                                                                                                          

Excise tax - The sale of specific goods and services by U.S. businesses often triggers a government-imposed tax known as excise tax. Federal, state, and local governments can levy excise taxes. Businesses that are subject to excise tax must report it to the IRS. Usually, businesses pass the cost of the excise tax on to the consumer.

FATCA - The Foreign Account Tax Compliance Act (FATCA) – passed as part of the HIRE Act in 2010 – combats tax evasion by U.S. taxpayers with foreign accounts and offshore financial assets in two ways: imposing withholding requirements on financial institutions and reporting requirements on specified individuals.

Fixed Assets - Fixed assets are long-term physical assets, commonly referred to as property, plant and equipment (PP&E), that a company owns and uses in its business operations to provide services and goods to customers and help drive long-term financial benefits.

GILTI - The Global Intangible Low-Taxed Income (GILTI) is a tax that affects U.S. companies and shareholders that own a majority stake in a foreign corporation. Specifically, the tax is applied to income from easily moved intangible assets - for example, intellectual property - in order to capture revenue that might otherwise get sheltered in low or no-tax jurisdictions.

Kiddie Tax - Kiddie tax is a special set of income tax rules that apply to individuals under 18 years old and full-time students under 24 years with income-generating assets in a custodial account.

Net investment income tax - Net investment income tax (NIIT) is a tax that some investors may be subject to if they have investment income, and their modified adjusted gross income surpasses a certain amount. The tax is paid on the lesser of the following: the net investment income received or the amount by which the modified adjusted gross income surpasses the threshold.                                                                                                       

Pass-through entity - A pass-through entity is a legal business structure not subject to corporate income tax because it passes profits on to the owner. Pass-through entities include S-corporations, limited liability companies (LLCs), sole proprietorships, and partnerships.                                                                                                           

Paycheck Protection Program - Initially introduced in the CARES Act for COVID-19 pandemic relief, the Paycheck Protection Program (PPP) provided forgivable loans to small businesses to maintain payroll and other expenses (rent, utilities, etc.) and which are now applying for loan forgiveness.

Qualified business income - Qualified business income (QBI) deduction is Section 199A of the Internal Revenue Code. It provides eligible owners of partnerships, S corporations, sole proprietorships, single-member limited liability companies (LLCs), as well as some trusts and estates, a deduction of income from a qualified trade or business.
 

SALT deduction - When filing federal taxes, some taxpayers who itemize may be able to deduct certain taxes paid to state and local governments and avoid double taxation. This is known as the state and local tax (SALT) deduction.
 

Work opportunity tax credit - The Work Opportunity Tax Credit (WOTC) is a federal tax credit available to employers who hire members of certain targeted groups that have consistently experienced barriers to employment.