Glossary

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Accrual method

The accrual method, also called accrual basis, is a form of accounting that tracks income and expenses as they occur. This means that it is recorded before any actual money changes hands. For example, if something is ordered, the transaction is accounted for in a bill before the bill is actually paid.

Adjusted basis

This refers to the change in the value of a particular asset, to help determine if there’s been a gain or loss when you sell.

Amount realized

Amount realized refers to what you bring in from a sale minus any expenses, fees, etc., and is used to assess any capital gains or losses for taxes.

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Carryback

Through a carryback, a business can use a net operating loss and put it toward a prior year’s tax return and obtain a tax refund.

Carryforward

A carryforward allows business owners to use net operating loss deductions in future tax years.

Cash method

The cash method is a form of accounting that tracks revenue and expenses only when cash is actually received or spent.

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Estimated tax

Estimated tax refers to the estimated amount of tax you are required to pay quarterly, in lieu of regular payroll tax withholding. Think of it as a tax prepayment plan.

Excise tax

Excise tax is a type of tax that is imposed on certain products such as alcohol, soda, and cigarettes.

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Gross Receipts Tax

Gross receipts tax is a type of tax that is based on all revenue sources that is charged by some states, in place of sales tax.

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Net operating loss

When there are more expenses than there is income, businesses have a ‘net operating loss’. This net operating loss can be used as a carryback to get a refund on previous tax years or a carryforward and used as a deduction in the future.

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Payroll tax

This refers to the tax put on employees’ wages. A portion of this tax is deducted from an employee’s check and the other portion paid directly by employers.

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Self-Employment Tax

Self-Employment Tax refers to the 15.3% that small business owners pay to cover Social Security and Medicare benefits.

Standard Mileage Method

Under the Standard Mileage Method, business owners deduct a specific amount per mile as part of their car-related business deductions. The rate for standard mileage in 2021 is set by the IRS at 56 cents.

SEP-IRA

A SEP IRA is a Simplified Employee Pension Individual Retirement Account that is for self-employed people. Self-employed taxpayers can contribute to a SEP-IRA and deduct contributions.

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