The Accelerated Cost Recovery System (ACRS) is a method of tax depreciation introduced in 1981 and modified in 1984. It was used for tangible personal property placed in service between January 1, 1981, and December 31, 1986, and later replaced by the Modified Accelerated Cost Recovery System (MACRS) for assets placed in service after 1986.
An assessment of deficiency refers to the determination of additional tax owed by a taxpayer following an appellate review within the Internal Revenue Service (IRS) and a tax court adjudication, if necessary.
The 'Assignment of Income' doctrine is a tax principle that prevents taxpayers from avoiding tax by directing income they have earned to another person.
A principle applied to various transactions to ensure that the transaction serves a legitimate business purpose, other than solely for tax benefits, in order to be considered valid for tax purposes.
Carryforward refers to a provision in tax law allowing individuals or corporations to apply an unused deduction, credit, or loss from one tax year to future tax years, effectively reducing future taxable income or taxes owed.
Consortium relief is a modified form of group relief that applies to consortia, which allows for the surrendering of losses between consortium members and the consortium company. This serves to optimize tax efficiency in complex corporate structures.
Constructive ownership of stock refers to situations in which a taxpayer is treated as owning shares that are actually owned by another person or entity, due to the application of specific tax rules, also known as attribution rules.
De minimis refers to matters too trivial or minor to be considered by the judicial or taxation systems. Originating from the legal principle 'De minimis non curat lex,' meaning 'The law does not concern itself with trifles.'
A deduction is an amount allowed to taxpayers under the Internal Revenue Code as an offset against gross income or adjusted gross income.
The Earned Income Tax Credit (EITC) is a refundable tax credit aimed at helping low- to moderate-income working individuals and families, particularly those with children. It serves to reduce the amount of tax owed and may result in a refund.
A tax credit available to eligible taxpayers who are elderly, permanently disabled, or both, offering a maximum allowable credit of up to $1,125.
An enrolled agent (EA) is a tax advisor who is authorized to represent taxpayers before the IRS. EAs have demonstrated their competence in tax matters by passing a rigorous examination or through significant professional experience with the IRS.
Equal and uniform taxation is a principle stipulating that all persons of the same class must be treated equally in terms of taxation, ensuring that the same rate and value apply to similar properties being taxed.
The period of time over which a taxpayer will use an asset. In theory, depreciable assets are written off over this period for depreciation purposes. However, tax laws often use artificial recovery periods unrelated to the estimated useful life.
A term used in accounting to describe a fixed asset to which all allowable depreciation has been charged according to accounting or tax laws. The asset is carried on the books at its residual value, although its market value may be higher or lower.
A measure designed to counter tax avoidance in the UK by outlawing any arrangement that creates a tax advantage through means judged 'artificial and abusive.' The rule evaluates the reasonableness of the arrangements.
A principle in tax law that allows for a transaction to be excluded from certain anti-avoidance provisions if it was undertaken for legitimate business purposes rather than for tax evasion or avoidance.
A type of trust that has beneficiaries other than the grantor, but because of the retention of certain interests or certain powers over the trust, all income of the trust is taxed to the grantor.
In tax law, the assumption that an asset acquired at any point in the taxable year was placed in service halfway through the year.
Interest deductions refer to the tax deduction of interest paid on various types of loans. This guide will explore the different types of interest deductions available, their limitations, and their applications.
The Internal Revenue Code of 1986 (IRC) is a comprehensive statute passed by Congress that outlines the laws governing the taxation of income. It details how income is to be taxed, what may be deducted from taxable income, and the provisions for enforcement and interpretation.
Jurisdiction refers to the power, right, or authority to interpret and apply laws or decisions in specific legal matters, often determined by geography, type of legal issue, or specific court mandates.
Tax liability for children under age 14 on net unearned income (e.g., interest and dividend income) over $1,900 in 2010 (subject to indexing) is taxed at their custodial parents' highest marginal tax rate.
A letter ruling, also known as an advance ruling, is a written statement issued by a tax authority to a taxpayer, clarifying how specific transactions will be dealt with under the applicable tax laws.
A managed service company (MSC) is a type of business entity that primarily provides the services of an individual while compensating that individual through dividends and expense payments rather than a traditional salary. Changes in tax law from 2007 have brought PAYE regulations to apply to these companies.
Various provisions of the tax law that require married people to pay more taxes in some situations than if they were single. The penalty is most pronounced for high-tax bracket couples earning equal amounts of income.
Material Participation refers to the level of involvement by a taxpayer in the operations of a business activity on a regular, continuous, and substantial basis. This term is crucial in distinguishing between passive and active income for tax purposes.
A nonrecognition transaction refers to any disposition of property in which the gain or loss is not recognized in whole or part under tax laws, like a like-kind exchange.
The Personal Exemption Phaseout (PEP) reduces or entirely eliminates personal exemptions for high-income taxpayers based on their adjusted gross income (AGI).
A private ruling is a written response from the Internal Revenue Service (IRS) regarding the tax implications of a specific proposed transaction. Initially kept private, these rulings are now publicly accessible.
In tax law, proprietorship income refers to the income earned within businesses that are sole proprietorships (owned by one person and not incorporated).
Official interpretations of the Internal Revenue Code (IRC) issued by the Treasury Department (IRS) that have the force and effect of law to guide taxpayers and tax professionals.
An official interpretation by the IRS of the internal revenue laws, related statutes, tax treaties, and regulations, published in the Cumulative Bulletin. Revenue rulings are issued only by the National Office of the IRS and are published for the information and guidance of taxpayers, IRS officials, and others concerned.
A Revenue Ruling (REV. RUL.) is an official interpretation by the Internal Revenue Service (IRS) that provides guidance for taxpayers on how the IRS applies the law to specific factual situations. These rulings are intended to promote understanding and compliance with tax laws.
Section 167 of the Internal Revenue Code details the rules and methodology regarding depreciation deductions for assets used in a trade or business or held for the production of income.
Setoff refers to a counterclaim put forth by the defendant against the plaintiff, often diminishing the amount recoverable by the plaintiff by considering an independent cause of action.
A set of statutory provisions under which income arising from property that has been gifted is taxed as if it were income of the donor and not of the donee.
For tax purposes, a short-term capital gain (loss) is the profit (loss) realized from the sale of securities or other capital assets not held long enough to qualify for a long-term capital gain (loss).
The term 'single taxpayer' refers to an individual who is not married on the last day of the tax year. This designation affects the rate schedules and tax tables used to calculate their tax liabilities.
A tax-exempt social club is organized for pleasure, recreation, and other nonprofitable purposes where substantially all activities are for such purposes. None of the net earnings benefit any private shareholders.
Subchapter C refers to the portion of the Internal Revenue Code that covers corporate taxation, outlining the rules and regulations for how corporations are taxed in the United States.
The Supreme Court is the highest appellate court or court of last resort in the federal court system and in most states. It reviews the constitutionality of tax laws and some tax decisions by Courts of Appeal under its certiorari procedure.
A tax audit is an examination of an individual's or organization's tax returns by the tax authorities to ensure that financial information is reported accurately and according to taxation laws. The primary aim is to verify that the amount of tax declared and paid is accurate.
The specified domain on which a tax is levied, such as an individual's income for income tax, the estate of a deceased person for inheritance tax, and the profits of a company for corporation tax.
The tax code refers to the body of tax law applicable in a country, within which tax legislation is codified rather than laid down by statute. Understanding the nuances of the tax code is essential for both individuals and businesses to ensure compliance with tax obligations.
Tax Commissioners are officials responsible for overseeing tax assessments, collections, and tax-related legal matters within a designated area. They often play a crucial role in interpreting tax laws and policy application.
Tax evasion is the illegal act of deliberately misrepresenting or not reporting income to reduce tax liabilities. This practice involves concealing income, inflating deductions, or using deceptive methods to evade tax obligations.
Minimizing tax liabilities illegally, typically by not disclosing taxable income or providing false information to tax authorities. It contrasts with tax avoidance, which is the legal practice of reducing tax liabilities through lawful means.
A tax loophole is an ambiguity or omission in the tax code that allows individuals or corporations to reduce their tax liabilities legally. These loopholes are often the result of complex tax laws and can be used to advantage through strategic financial planning.
A taxpayer is an individual or entity that is liable to pay taxes to a governmental authority, including but not limited to the Internal Revenue Service (IRS) in the United States.
A Treasury Decision (T.D.) is a formal pronouncement issued by the United States Department of Treasury that implements, interprets, or prescribes law or policy related to taxation and the Internal Revenue Code.
UK GAAP refers to the practices followed by British accountants in preparing company accounts, governed by accounting standards, theoretical accounting concepts, and legal requirements. These are increasingly critical in determining taxable profits.
The underpayment penalty, also known as the estimated tax penalty, is levied on taxpayers who do not withhold enough tax or fail to make sufficient estimated tax payments throughout the year.
The Westminster Doctrine refers to the principle in UK tax law that individuals and entities may arrange their financial affairs to minimize tax liability. It originated from the 1936 ruling in Commissioners of Inland Revenue v the Duke of Westminster.
