Tax Law Insights

One of the biggest challenges for many clients is keeping up with their tax advisors while he or she is explaining the details of a particular tax matter.  For instance, the term “recapture” sounds more like a rule out of a game of capture the flag than the word used to denote a certain type of income recognition.  While there is certainly too much tax lingo to create an exhaustive list on this blog, perhaps the definitions below will help you get more out of your next tax representation, and at the very least, will help you hide that “Bueller?” look on your face.

• Adjusted basis – The cost of acquiring property after making appropriate allowances for increases such as capital expenditures and decreases such as depreciation. The amount collected upon resale less the adjusted basis shows whether any capital gain or loss was made on the disposition.
• Adjusted gross income – An intermediate computation between gross income and taxable income, once the individual has made certain adjustments, principally employee business expenses, I.R.A. contributions, alimony and the special allowance for working spouses. It determines the limit on allowable medical, charitable and casualty deductions.
• Capital gain or loss - The profit or loss on the sale or disposition of most property.
• Carryback or carryover - The transfer of one year's deductions, losses or credits backward or forward to another tax year.
• Casualty loss - Property loss resulting from some sudden, unexpected, or unusual cause, such as fire, storm, shipwreck or theft.
• Community income or property - Assets shared by both spouses, pursuant to the laws of various states.
• Deferral - A tax device that accelerates deductions and postpones taxable income.
• Depreciable asset - Property used in business or income production whose cost a taxpayer can recover as deductions from income over the useful life of the asset.
• Estimated tax - The amount a taxpayer expects to owe in taxes after withholding. Generally speaking, installments must be paid to the I.R.S. quarterly.
• Exclusion - An amount excluded from taxable income.
• Gross Income - With a few exceptions, the total of an individual's income, including wages, salaries, interest, dividends, alimony, rents, royalties, bonuses, tips and fringe benefits.
• Intangible property - Property that entitles its owners to certain rights, such as cash, notes, bonds and accounts receivable.
• Ordinary gain or loss - Gain or loss realized from the sale or exchange of property that is not a capital asset, such as inventory.
• Qualifying dividends – Ordinary dividends that meet specific criteria to be taxed at the lower long-term capital gains tax rate rather than at a higher tax rate for an individual’s ordinary income.
• Recapture - The repayment of deductions or credits if there is a profitable sale or disposition of depreciable property.
• Salvage value - An asset's estimated worth at the end of its useful life.
• Tangible property - Movable or detachable property such as vehicles, machinery, equipment and furnishings and certain structural improvements.
• Tax Credit - A 100 percent offset against tax liability; a deduction provides a tax benefit equal only to the individual's tax rate times the deducted amount.
• 1099 - The I.R.S. form for reporting the payment of interest, dividends and miscellaneous fees to individuals.
• Taxable income - The figure used to compute taxes before credits. Adjusted gross income reduced by personal exemptions and either reduced further by excess itemized deductions or in some unusual cases, increased by any unused zero bracket amount.
• Tax preference item - Specified items that provide special tax allowances. In some cases, these items precipitate an increased tax liability under the alternative minimum tax.