An ad valorem tax is a tax based on the assessed value of an item, such as real estate or personal property. The term 'ad valorem' is Latin for 'according to value.'
Alimony refers to financial support provided by one spouse to another following a divorce or separation.
An allowable capital loss refers to the loss that an investor or taxpayer sustains from the sale or exchange of a capital asset, which the IRS permits to be deducted against capital gains when computing taxes.
An amount deducted from an invoice, given to an employee for expenses, or a deduction for tax purposes. Different types of allowances serve various functions in accounting and taxation.
At-risk rules are tax laws designed to limit the amount of tax losses an investor can claim from certain industries, including oil and gas, movie production, farming, and real estate. These rules ensure that losses are deductible only to the extent of money the equity investor stands to lose.
Away from home refers to scenarios where sleeping arrangements are necessary for at least one night before returning home, allowing for the deduction of 'ordinary and necessary' travel expenses on a business trip.
Before-Tax Cash Flow (BTCF) represents the cash generated by an asset or a business before deducting income tax payments or adding income tax benefits. It's a critical measure for assessing an investment's or business's potential earnings and operational efficiency.
A business gift refers to a present provided by a business to its clients, partners, or employees as part of its promotional, networking, or goodwill strategies. The IRS limits the tax deduction for business gifts to $25 per recipient per year.
Charitable contributions are donations made to qualified organizations that can be claimed as a deduction on your tax return. These contributions can provide both societal benefits and potential tax savings for individuals and businesses.
The Construction Industry Scheme (CIS) is a set of regulations established by the UK government to manage tax payments within the construction sector.
The Construction Industry Scheme (CIS) is a set of statutory provisions established to ensure tax is deducted at the basic rate from payments made to subcontractors in the building industry unless the subcontractor can provide a specific Revenue certificate. Implemented on 6 April 2007, the scheme helps to manage tax collection in the construction sector effectively.
Interest incurred on personal debt and consumer credit, which is not deductible for tax purposes after 1990.
Contributions in the context of finance and taxation refer to payments made by individuals or businesses, either for charitable purposes or as required unemployment taxes. Understanding the implications of these contributions is crucial for effective financial planning.
A Dependency Exemption allows taxpayers to deduct a specified amount for each dependent claimed on their tax return, reducing their overall taxable income. It is designed to assist families by acknowledging the financial responsibility involved in supporting dependents.
Depreciation is an accounting method of allocating the cost of a tangible asset over its useful life. It is used to account for declines in value as assets age and wear out.
Depreciation is an accounting method that allocates the cost of a tangible asset over its useful life.
Depreciation refers to the methodical reduction in the recorded cost of a tangible fixed asset, allocated over its useful life. It is a key accounting concept employed to denote the impairment of value of assets over time due to wear and tear, age, or obsolescence.
Depreciation allowance refers to the total depreciation deducted against property used in a trade or business or held for the production of income, allowing for an annual deduction for wear and tear and diminution of the property's value. It is also known as accumulated depreciation.
A dividend warrant is a cheque issued by a company to its shareholders that provides details of dividends paid, including tax deducted and the net amount payable.
A tax deduction allowed to a corporation owning shares in another corporation for the dividends it receives. The deduction is often 70%, but in some cases, it may be as high as 100% depending on the level of ownership the dividend-receiving company has in the dividend-paying entity.
A taxpayer who was divorced under a final decree of divorce or separate maintenance by the last day of the tax year; considered unmarried for the entire year for tax purposes.
Dues and subscriptions refer to professional expenses that can be tax-deductible as miscellaneous itemized deductions, subject to specific regulations such as the 2% adjusted gross income (AGI) floor.
Education expenses can potentially be tax-deductible as miscellaneous itemized deductions, provided certain conditions are met.
A tax law introduced in 1993 that prohibits a publicly held corporation from taking a deduction for compensation paid to an executive in excess of $1 million per year, unless the compensation is linked to productivity.
An expense is a business cost incurred in operating and maintaining property, used in profit-directed business activities and calculated as the cost of goods and services used. Expenses can be currently deductible costs, distinct from capital expenditures that must be depreciated or amortized over the property's useful life.
An allowable method for computing a business automobile mileage allowance that is not reported as wages on Form W-2.
A home equity loan is a loan secured by a second mortgage on one's principal residence, typically used for non-housing expenses. It gained popularity in the late 1980s due to its tax-deductible interest.
A 'home office' can refer to either the headquarters of a company or an office within a personal residence used exclusively for business purposes. Each carries specific implications, particularly in terms of taxation and business operations.
Any permanent, fixed development of land or buildings through expenditure of money or labor that more than merely replaces, repairs, or restores to original condition, and tends to increase the value of the property.
Income tax code is a code number issued by HM Revenue and Customs (HMRC) which takes account of the personal allowance and any other additional allowances. It is used by employers through the PAYE scheme to calculate the taxable pay, ensuring the tax due for the fiscal year is deducted from the employee's earnings in equal weekly or monthly amounts.
Investment interest expenses are interest payments made on loans used to purchase investments such as stocks, bonds, and undeveloped land. These expenses can be tax-deductible but are limited to the net investment income received.
A rule introduced in the Finance Act 2000 that requires individuals providing services through intermediaries to be taxed as employees rather than self-employed, affecting tax deductions, National Insurance contributions, and expense deductions.
Loss carryforward involves the practice of applying current year's net operating losses to future years' net incomes for tax purposes. It's typically employed when a loss carryback is not feasible.
Medical care refers to amounts paid for the diagnosis, cure, mitigation, treatment, or prevention of disease, or for the purpose of affecting any structure or function of the body, including associated transportation and insurance premiums.
Moving Expense Deduction refers to the tax deduction available for certain expenses incurred by an individual when relocating to a new residence for employment purposes. The deduction is permitted if the taxpayer's new job is located at least 50 miles farther from the former residence than the previous job.
Net Investment Income refers to the excess of investment income over investment expenses. Individuals are allowed to deduct investment interest expenses for tax purposes to the extent of their net investment income.
The deduction of a net operating loss (NOL) incurred in one tax year in another tax year. This mechanism allows businesses to adjust their taxable income by carrying losses forward or backward to reduce tax liabilities.
An ordinary loss for income tax purposes is a type of loss that can be deductible against ordinary income. This is usually more beneficial to an individual taxpayer compared to a capital loss, which has limitations on deductibility.
An essential financial term representing the profits of a company that are subject to corporation tax, adjusted for allowable deductions.
The Percentage Depletion Method permits a taxpayer with an economic interest in a mineral deposit to deduct a specified percentage of the gross income from the deposit instead of focusing solely on cost depletion.
A permanent difference refers to a discrepancy between profits or losses calculated for tax purposes and those reported in the financial statements. For example, certain expenses may be included in financial statements but not allowed as deductions for tax purposes.
Personal interest expense refers to any interest that is not categorized as home mortgage interest, investment interest, or business interest. The tax deduction for personal interest expense was completely eliminated after 1990.
In tax law, plant and machinery refer to the equipment required to operate a business, qualifying for capital allowances which facilitate tax deductions on business investments in these assets.
Prepaid interest is the interest paid in advance before it is earned, often seen in loan agreements and mortgage practices. Generally, prepaid interest is not tax deductible, except for the customary points paid by a borrower on the initial mortgage to purchase a principal residence.
The principal amount is the face value of a financial obligation such as a bond or a loan that is required to be repaid at its maturity date, distinct from the interest accrued.
Profit motive refers to the desire to earn a favorable financial return on a business venture. Without a profit motive, tax losses from an activity may be considered a hobby loss, which are only deductible to the extent of income.
A financial estimate calculated to cover debts deemed uncollectable during an accounting period. It distinguishes between general and specific provisions based on the likelihood of debt recovery.
A Qualified Charity is an organization that has applied for and received tax-exempt status under the Internal Revenue Code, allowing it to receive tax-deductible contributions from donors.
A qualified organization is an entity to which individuals or businesses can make deductible charitable contributions according to tax regulations.
A trading loss arising in a current accounting period as a result of computing the profits and losses of an organization in accordance with accepted corporation-tax principles.
The process of returning cash or a check, typically by the IRS or state tax agency, when the taxpayer's withholding and estimated tax payments exceed their tax liability for the year.
A section of the Internal Revenue Code of 1986 (IRC) that allows the cost of capital improvements for qualifying personal property to be deducted in the year of acquisition rather than being recovered over time through depreciation.
The standard deduction is a provision that allows taxpayers to deduct a specified amount from their gross income, thereby reducing their taxable income. This deduction is an alternative to itemizing deductions and is adjusted for inflation annually.
The Standard Mileage Method permits an automobile business expense deduction based on a standard mileage rate. It allows taxpayers to deduct a specific amount per mile driven for various purposes.
A tax advantage is a benefit that individuals and businesses experience when they are eligible for a reduction in a charge to taxation, which can arise through exemptions, deductions, credits, or deferrals.
A tax break refers to a reduction in tax liability that the government offers to stimulate or incentivize particular economic activities or behaviors.
A tax-deductible expense can be used to reduce taxable income, resulting in a lower tax liability. Common examples include interest on housing, ad valorem taxes, depreciation, repairs, maintenance, utilities, and other ordinary and necessary business expenses.
A tax deduction reduces the amount of income subject to tax, thereby decreasing the total tax bill for individuals or businesses. Tax deductions can encompass a wide range of expenses, from mortgage interest to medical expenses.
A tax preference item is an income or deduction excluded or partially excluded from regular tax calculations but must be added back for alternative minimum tax (AMT) purposes.
A tax preference item refers to a specific item of income, tax deduction, or tax credit that is considered to provide an extra benefit under federal tax law. These items are identified as potentially leading to excessively low tax liability for some taxpayers, which is why the Alternative Minimum Tax (AMT) is imposed to ensure a minimum tax is paid.
A thin corporation primarily uses loans from shareholders for its capital rather than equity investments to enjoy tax advantages. This can lead to tax challenges if debt-to-stock ratios surpass acceptable industry standards.
Tuition refers to the amounts paid to an educational organization that maintains a regular faculty and curriculum and has a regularly enrolled body of students.
Useful life refers to the period of time over which a depreciable asset is expected to provide a competitive return or service. The Modified Accelerated Cost Recovery System (MACRS) allows depreciable lives for tax deduction purposes that may differ from the useful life of the property.
A wash sale is a transaction where an investor sells a security at a loss and quickly repurchases the same or substantially identical security within a specific period. This rule prevents taxpayers from claiming a tax deduction for the loss.
Withholding tax is a tax deducted at source from dividends or other income paid to non-residents of a country. If there is a double taxation agreement between the country in which the income is paid and the country in which the recipient is resident, the tax can be reclaimed.
Special work clothes are apparel required for the performance of one's job and are not suitable for wear outside of work settings. The cost of these clothes is a miscellaneous itemized deduction, subject to the 2% Adjusted Gross Income (AGI) floor.
The Writing-Down Allowance (WDA) is a form of tax relief that allows businesses to depreciate certain types of assets to reduce taxable profits.
