| As a courtesy to our clients, we have compiled a comprehensive list of common tax terms and definitions for quick reference. | Tax Lingo Troubles? |
Accrual method of accounting |
A business method of accounting requiring income to be reported when earned and expenses to be deducted when incurred. However, deductions generally may not be claimed until economic performance has occurred. |
| Term | Definition |
|---|---|
| Cancellation of debt |
Release of a debt without consideration by a creditor. Cancellations of debt are generally taxable. |
| Capital |
The excess of assets over liabilities. |
| Capital asset |
Property subject to capital gain or loss treatment. Almost all assets you own are considered capital assets except for certain business assets or works you created. |
| Capital expenses |
Costs that are not currently deductible and that are added to the basis of property. A capital expense generally increases the value of property. When added to depreciable property, the cost is deductible over the life of the asset. |
| Capital gain distribution |
A mutual-fund distribution allocated to gains realized on the sale of fund portfolio assets. You report the distribution as long-term capital gain even if you held the fund shares short term. |
| Capital gain or loss |
The difference between amount realized and adjusted basis on the sale or exchange of capital assets. Long-term capital gains are taxed favorably. Capital losses are deducted first against capital gains, and then again up to $3,000 of other income. |
| Capital loss carryover |
A capital loss that is not deductible because it exceeds the annual $3,000 capital loss ceiling. A carryover loss may be deducted from capital gains of later years plus up to $3,000 of ordinary income. |
| Capitalization |
Adding a cost or expense to the basis of the property. |
| Carryback |
A tax technique for receiving a refund of back taxes by applying a deduction or credit from a current tax year to a prior tax year. For example, a business net operating loss may be carried back for two years. |
| Carryforward |
A tax technique of applying a loss or credit from a current year to a later year. For example, a business net operating loss may be carried forward 20 years instead of being carried back. |
| Cash method of accounting |
Reporting income when actually or constructively received and deducting expenses when paid. Certain businesses may not use the cash method. |
| Casualty loss |
Loss from an unforeseen and sudden event that is deductible, subject to a 10% income floor and $100 reduction for personal losses. |
| Catch-up contribution |
A type of retirement savings contribution that allows people over 50 to make additional contributions to their 401(k) and/or individual retirement accounts. The catch-up contribution provision was created by the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), so that older individuals would be able to set aside enough savings for retirement. |
| Child and dependent care credit |
A credit of up to 30% based on certain care expenses incurred to allow you to work. |
| Community income |
Income earned by persons domiciled in community property states and treated as belonging equally to husband and wife. |
| Condemnation |
The seizure of property by a public authority for a public purpose. Tax on gain realized on many conversions may be deferred. |
| Constructive receipt |
A tax rule that taxes income that is not received by you but that you may draw upon. |
| Consumer interest |
Interest incurred on personal debt and consumer credit. Consumer interest is not deductible. |
| Convention |
Rule for determining MACRS depreciation in the year property is placed in service. Either a half-year convention or mid-quarter convention applies. |
| Coverdell Education Savings Account |
A special account set up to fund education expenses of a student. |
| Credit |
A tax credit directly reduces tax liability, as opposed to a deduction that reduces income subject to tax. |