EA Part 1 - Filing Requirements, Gross Income, and Business Deductions

A complete set of vocabulary flashcards derived from the EA Part 1 glossary covering filing requirements, gross income, and business deductions.

Abode

A place of residence; a house or home.

Alien

A foreigner, especially one who is not a naturalized citizen of the country where (s)he is living.

Alternative Minimum Tax (AMT)

A separate tax imposed in addition to regular tax, caused by two types of adjustments and preferences (i.e., deferral items and exclusion items).

Compliance

The action or fact of adhering to a wish or command such as rules, prior audits, adjustments, judgments, or other suitable criteria.

Deductible

Able to be subtracted from taxable income.

Dependent

An individual, such as a qualifying child, whom a taxpayer can claim on his or her federal tax return.

Dual-status alien

A taxpayer who is a resident alien for part of the tax year and is a nonresident alien for the remainder of the same tax year.

Employer identification number (EIN)

A unique $9$-digit number assigned by the Internal Revenue Service (IRS) to business entities operating in the U.S. for purposes of identifying the tax accounts of employers.

FinCEN Form 114 (FBAR)

A form for taxpayers with a financial interest in or signature authority over a foreign financial account to report those accounts to the Department of Treasury; failure to file is subject to civil and criminal penalties.

Form 2120 (Multiple Support Declaration)

A tax form signed by two or more taxpayers who together provide more than $50\%$ of the financial support for the same dependent.

Form 3520

A tax form for a U.S. person to report certain transactions with foreign trusts, ownership of foreign trusts, and receipts of certain large gifts or bequests from certain foreign persons.

Form 5471

A tax form used by certain U.S. citizens and residents who are officers, directors, or shareholders in certain foreign corporations.

Form 8379 (Injured Spouse Allocation)

Used by an injured spouse on a joint tax return to seek a refund of his or her share of a joint overpayment used to pay a past-due tax obligation of the other spouse.

Form 8801 (Credit for Prior Year Minimum Tax)

Used by individuals, estates, and trusts to figure the minimum tax credit for AMT incurred in prior tax years and any credit carryforward.

Form 8938 (Statement of Specified Foreign Financial Assets)

Used to report specified foreign financial assets with an aggregate value greater than $50,000$ at the last day of the year or more than $75,000$ at any time during the tax year.

Green card

Officially known as a Permanent Resident Card, it is a permit that allows a foreign national to reside and work in the United States.

Gross income

All income from whatever source derived except as otherwise provided in authoritative guidance.

Identity protection personal identification number (IP PIN)

A $6$-digit number assigned to eligible taxpayers to help prevent the misuse of Social Security numbers on fraudulent federal income tax returns.

Injured spouse

A taxpayer who files a joint return whose refund would normally be used to pay his or her spouse’s past-due tax obligations.

Itemized deductions

Eligible expenses an individual taxpayer can claim that decrease taxable income and are claimable in place of a standard deduction; considered below-the-line deductions.

Joint return

A single U.S. income tax return filed on behalf of a married couple, resulting in a combined tax liability.

Kiddie tax

Tax on a child’s unearned income, which is taxed to the dependent at the parent’s marginal rate.

Liability

A responsibility to pay debt, usually enforceable by contract or law.

Net unearned income (NUI)

Income not earned from active work less applicable expenses and the threshold amount of $2,700$.

Nonresident alien (NRA)

A non-U.S. citizen or foreign national who does not pass the green card test or the substantial presence test.

Personal information

Taxpayer credentials including date of birth, age, marital status, and dependents used to verify identity.

Publication 15 (Circular E)

A guide that explains tax responsibilities as an employer.

Publication 504

A guide that explains tax rules that apply if divorced or separated from spouse.

Publicly traded partnership (PTP)

Any partnership that is regularly traded on an established securities market regardless of the number of partners.

Qualified individual

A qualifying child or relative who meets the requirements to be claimed as a dependent by a separate taxpayer.

Recordkeeping

The process of maintaining and updating accounts, documents, and ledgers to reflect an entity’s financial standing; specific retention periods may apply.

Resident alien

A non-U.S. citizen or foreign national who has met the green card test or the substantial presence test.

Social Security number

A type of taxpayer identification number that is issued by the Social Security Administration.

Spouse

Any individual lawfully married to another individual.

Standard deduction

A dollar amount that taxpayers who elect not to itemize may subtract from their income before income tax is applied.

Substantial presence

A specified length of time for which a taxpayer must be physically present in the U.S. to be considered a U.S. resident.

Taxable income (TI)

Gross income or adjusted gross income minus any deductions or exemptions allowed in a given tax year.

Taxpayer identification number (TIN)

An identifying number used for tax purposes in the U.S.

Unearned income

Income derived from work or business activity in which the taxpayer is not an active participant, such as investment or rental income.

Accrual method

A method of accounting that records revenues and expenses when incurred, regardless of cash exchange; required when there are inventories.

Active duty

Currently enlisted and working for a branch of the military.

Alimony

A taxpayer’s court-ordered payment provision to an ex-spouse after separation or divorce.

Annuity

A lump sum of cash invested to produce a monthly stream of income for a fixed period or for life.

Assignment of income

Income attributable to a person even though the income is received by other persons.

Bartering

Exchanging goods or services for other goods or services without using money.

Cash equivalent

Property (generally securities) readily convertible to cash with a maturity of $3$ months or less.

Cash method

A method of accounting that measures revenues and expenses at the time the cash is received or paid out.

Claim-of-right doctrine

Causes taxpayers to recognize income if they receive the income even though they do not have a fixed right to the income.

Constructive receipt

Income received when it is credited to the taxpayer's account, set apart, or made available to be drawn upon at any time.

De minimis fringe

Any property or service provided to an employee of such small value that accounting for it is unreasonable or administratively impracticable.

Debtor

A person or institution that owes a sum of money.

Disability

A physical or mental impairment that functionally limits major life activities, including employment.

Discharge

The act of a taxpayer being released from the responsibility of a liability.

Endowment

An income or form of property given or bequeathed to someone.

Fringe benefit

Remuneration including property, services, or cash in addition to stated pay for services provided by an employer.

Hybrid method

An accounting method allowing a business to use the cash method for portions not required to be on the accrual method.

Indebtedness

The condition of owing money to another party or individual.

Inheritance

Money, property, or ownership rights received by an heir upon the death of the previous holder.

Pension

A regular payment made during retirement from an investment fund contributed to during working life.

Reimbursement

The repayment of an out-of-pocket expense equal to the amount incurred.

Royalties

Payments to an owner from people who use a right belonging to that owner.

Statutory employee

An independent contractor who reports on Schedule C but is treated as an employee for Social Security tax purposes and not liable for self-employment tax.

Transportation fringe

Qualified benefits up to $325$ per month for employer-provided parking, transit passes, and commuter highway vehicles.

Treasure trove

Found or kept property that has been lost or abandoned by another.

Virtual currency

Digital money issued and controlled by developers, used within a specific virtual community.

Working condition fringe benefit

Property or services that would have been an allowable business expense deduction if the employee had paid for them.

Below-market loans (BMLs)

A loan with an interest rate lower than the applicable federal rate.

Beneficiary

A person who derives advantage from something, such as a trust, will, or life insurance policy.

Bond

Debt investment where an investor loans money to an entity for a defined period at a variable or fixed interest rate.

Decedent

A person who has died.

Dividend reinvestment plan

Allows a taxpayer to use dividends to buy more shares of stock instead of receiving cash.

Employee stock option plan

Generally permits employees to buy stock in the employer corporation at a discount.

Imputed interest

The excess of interest payable under the applicable federal rate over the actual interest payable in a year.

Incentive

A payment or concession to stimulate greater output or investment.

Incentive stock option (ISO)

A type of employee stock option taxed at capital gain rates rather than ordinary rates.

Income in respect of a decedent (IRD)

Amounts a decedent was entitled to as gross income but were not includible on their final return.

Interest

Money paid regularly at a particular rate for the use of money lent or for delaying debt repayment.

Nonstatutory stock options (NSO)

Options that do not qualify for favorable tax treatment under specific Code provisions.

Original issue discount (OID)

The excess of the stated redemption price at maturity over the issue price; included in income via the effective interest rate method.

Private activity bonds

Bonds where more than $10\%$ of proceeds are used in private business and secured by private property, or more than $5\%$ or $5,000,000$ are used for private loans.

Qualified dividends

Dividends from domestic or qualified foreign corporations taxed at $0\%$, $15\%$, or $20\%$ rates.

Reinvestment

The action of putting profit from a previous investment back into the same investment or account.

Stock dividend

A dividend payment made in the form of additional shares rather than cash.

Accountable plan

A reimbursement arrangement requiring employees to substantiate business-related expenses within a reasonable time.

Adjusted basis (AB)

The original cost of property reduced by depreciation deductions and increased by capital expenditures.

Allocation

An amount or portion of a resource assigned to a particular recipient or expenditure.

Bad debt

An unrecoverable debt arising from a debtor-creditor relationship based on a valid obligation to pay a fixed sum.

Business expense

An ordinary and necessary expense paid or incurred during a tax year in carrying on a trade or business.

Convention

A large meeting or conference of members of a political party or particular profession.

Deduction

An expense subtracted from taxable income resulting in a reduction of tax liability.

Employee achievement award

Tangible personal property awarded for safety achievement or length of service as part of a meaningful presentation.

Home

Post of duty or place where the taxpayer resides.

Impairment-related expenses

Expenses of a handicapped individual for attendant care or other services at a place of employment necessary for the individual to work.

Intangible asset

An asset that is not physical in nature.

Necessary expense

An expenditure that is appropriate and helpful in developing or maintaining a trade or business.

Nonaccountable plan

A system where employees receive payments for business expenses but do not have to substantiate them or return excess funds.

Notional

Nominal or face value.

Ordinary expense

An expense that normally occurs or is likely to occur in connection with businesses similar to the taxpayer's.

Personal commuting expenses

Transportation expenses between the home and the main or regular place of work.

Prepaid

Paid for in advance.