Glossary: Business Tax Terms That May Stump You

Updated June 2022

As an entrepreneur, you’re focused on charting your own course of success. But when it comes to navigating the complex world of business tax, it can often feel like you need a Ph.D. to wrap your head around all that tax jargon — not to mention keep up with changing tax rules and regulations. 

What’s the difference between estimated tax, gross receipts tax, and excise tax, anyway?  

If preparing business tax is just as perplexing as peering into a bowl of alphabet soup and trying to make sense of it all, you’re not alone. Small business owners consistently cite the confusing tax landscape as a source of pain in their business. Unfortunately, avoiding business tax could cost them a lot of money — or lead to an audit. 

At ComplYant, we believe knowledge is power.  To help get you started, we’ve compiled a list of the top business tax terms you should know.  

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. 

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. 

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.

Gross Receipts Tax 

Gross receipts tax is a type of tax enforced by some states in place of sales tax. It is applied to a company’s gross sales, without deductions for business expenses such as costs or compensation.

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. 

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 is paid directly by employers.

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. 

Overwhelmed? There are resources that can help! 

A lot of different terms get thrown around when business taxes are discussed, and the jargon can easily become confusing. It’s no wonder why a lot of business owners feel overwhelmed. 

However, it’s not impossible to make sense of these tax terms. ComplYant’s tax tools and resources can help you navigate the nuances of tax lingo so you can keep track of your tax obligations and grow your business into a success.