Glossary

The tax terms on your return, defined in plain words.

Each entry opens with a one-sentence definition. Its figures carry the date they were checked and a link to the primary source.

0-9

1099-K: Form 1099-K is the IRS form that card processors, payment apps and online marketplaces file to report the payments they settled for you.
1099-MISC: Form 1099-MISC is the IRS form a business files to report miscellaneous payments it made to you, such as royalties, rents, prizes and awards.
1099-NEC: Form 1099-NEC is the IRS form a business files to report nonemployee compensation, what it paid a creator or other nonemployee for services.
10b5-1 plan: A 10b5-1 plan is a trading plan, set up while you have no inside information, that fixes your future trades in a company’s stock.
25% foreign-owned corporation: A 25% foreign-owned corporation is a US corporation at least 25% owned, by vote or value, by one foreign person.

A

Accountable plan: An accountable plan is an employer’s expense reimbursement arrangement that meets three IRS requirements, so its payments are not taxable wages.
Accrual basis: Accrual basis is the accounting method that counts income when it is earned and expenses when they are incurred.
Adjusted gross income (AGI): Adjusted gross income (AGI) is your gross income minus specific deductions the tax code lists, such as deductible IRA contributions.
AFSP (Annual Filing Season Program): The Annual Filing Season Program (AFSP) is a voluntary IRS program for paid tax preparers who are not attorneys, CPAs or enrolled agents.
Authorized shares: Authorized shares are the maximum number of shares a corporation may issue, as stated in its certificate or articles of incorporation.

B

Backup withholding: Backup withholding is the 24% federal income tax a payer must take from reportable payments when your taxpayer ID is missing or incorrect.
Bargain element: The bargain element is the fair market value of stock you buy by exercising an option, minus the exercise price you pay.

C

C corporation: A C corporation is a corporation that pays federal income tax on its own profits, separately from its shareholders.
Capital loss carryover: A capital loss carryover is the unused part of a net capital loss, carried forward to later tax years.
Cash basis: Cash basis is the accounting method that counts income when it is received and expenses when they are paid.
Certificate of Loss of Nationality: A Certificate of Loss of Nationality (CLN) is the State Department document, Form DS-4083, that certifies a person has lost US nationality.
Chart of accounts: A chart of accounts is the list of every account in a business’s general ledger, grouped as assets, liabilities, equity, income and expenses.
Circular 230: Circular 230 is the Treasury regulation that sets who may practice before the IRS and the standards they must follow.
Closer connection exception: The closer connection exception lets someone who passes the substantial presence test remain a nonresident alien, because their ties to another country are closer.
Controlled foreign corporation (CFC): A controlled foreign corporation (CFC) is a foreign corporation whose US shareholders own more than 50% of its vote or value.
Convertible note: A convertible note is a loan from an investor to a startup that can turn into shares at a later funding round.
Cost basis: Cost basis is your investment in an asset for tax purposes, usually what you paid for it.
Cost of goods sold: Cost of goods sold (COGS) is the cost of the inventory a business sold during the year.
Covered digital asset: A covered digital asset is crypto acquired in a broker’s custodial account from January 1, 2026, and held there until sold.
Covered expatriate: A covered expatriate is a former US citizen or long-term green card holder who meets one of three tests for the exit tax.

D

De minimis exemption (crypto): A de minimis crypto exemption is a proposed law that would exempt very small crypto transactions from tax.
De minimis safe harbor: The de minimis safe harbor is a yearly election that lets a business deduct low-cost tangible property at once, instead of capitalizing it.
Dependent care assistance program (DCAP): A dependent care assistance program (DCAP) is a written employer plan that pays for employees’ dependent care, tax-free up to a yearly limit.
Depreciation recapture: Depreciation recapture is the rule that taxes part of the gain on a sale of depreciated business property as ordinary income.
Domicile: Domicile is the place you regard as your permanent home and intend to return to whenever you are away.
Double-trigger RSU: A double-trigger RSU is a restricted stock unit that vests only after a service period and a liquidity event, usually an IPO or acquisition.

E

Effective tax rate: An effective tax rate is your total income tax divided by your income, which gives the average rate you paid.
EFIN: An EFIN (Electronic Filing Identification Number) is the number the IRS assigns to a firm it accepts as an Authorized IRS e-file Provider.
EIN: An employer identification number (EIN) is the nine-digit number the IRS assigns to a business or other entity for its tax filings.
Engagement letter: An engagement letter is a firm’s written agreement with a client on the services, the scope, the fees and each side’s responsibilities.
Enrolled agent: An enrolled agent (EA) is a tax practitioner licensed by the IRS, with unlimited rights to represent taxpayers before the IRS.
Exempt individual: An exempt individual is someone whose US days are left out of the substantial presence test, the day count for US tax residency.

F

Fair market value (FMV): Fair market value (FMV) is the price at which property, such as stock, would change hands between a willing buyer and a willing seller.
Fair value accounting: Fair value accounting is a method that values an asset at what it would sell for on each reporting date, not at its cost.
FICA: FICA is the federal payroll tax for Social Security and Medicare, named for the Federal Insurance Contributions Act that imposes it.
Foreign housing exclusion: The foreign housing exclusion lets Americans who qualify for the foreign earned income exclusion also exclude housing costs above a base amount.
Form 1040-ES: Form 1040-ES is the IRS form individuals use to figure and pay estimated tax on income that has no tax withheld.
Form 2848 (power of attorney): Form 2848 is the power of attorney you sign to authorize an eligible individual to represent you before the IRS.
Form 4868: Form 4868 is the IRS form you use to get an automatic 6-month extension to file your individual income tax return.
Form 7004: Form 7004 is the IRS application for an automatic extension of time to file business returns such as Forms 1120, 1120-S and 1065.
Form 8879: Form 8879 is the IRS form you sign so the firm that e-files your individual return can enter your PIN as your signature.
Form 940: Form 940, the Employer’s Annual Federal Unemployment (FUTA) Tax Return, is the return on which an employer reports its federal unemployment tax each year.
Form 941: Form 941 is the return employers file each quarter to report wages, income tax withheld, and Social Security and Medicare tax.
Franchise tax: A franchise tax is a state tax on a company’s right to exist, or to do business, in that state.
Fringe benefit: A fringe benefit is a form of pay for services, such as a company car or an employee discount.

G

Grantor trust: A grantor trust is a trust whose income is taxed to its creator, the grantor, because they keep certain powers or benefits.
Green card test: The green card test makes you a US tax resident in any calendar year you are a lawful permanent resident, even for one day.

H

Hard fork: A hard fork is a change to a cryptocurrency’s rules that permanently splits its blockchain, sometimes creating a new coin.

I

Income sourcing (equity compensation): Income sourcing for equity compensation is how a state sets its share of your RSU, option or ESPP income, usually by your workdays there.
Itemized deductions: Itemized deductions are the expenses you list one by one on Schedule A, instead of taking the standard deduction.

L

Lockup period: A lockup period is a set time after an IPO when company insiders, including employees, have agreed not to sell their shares.

M

Marginal tax rate: A marginal tax rate is the rate on your next dollar of taxable income, set by your top tax bracket.
Maximum account value: On the FBAR, the maximum account value is a reasonable approximation of the highest value a foreign account reached during the calendar year.
Modified adjusted gross income (MAGI): Modified adjusted gross income (MAGI) is your adjusted gross income with certain items added back or left out, which vary by rule.
Month-end close: Month-end close is the routine of finishing a month’s books, from recording each transaction to producing that month’s financial statements.

N

Net CFC tested income (NCTI): Net CFC tested income (NCTI) is a US shareholder’s share of tested income from the controlled foreign corporations they own, minus those CFCs’ tested losses.
Non-willful: For the IRS, non-willful conduct is conduct due to negligence, inadvertence or mistake, or to a good faith misunderstanding of what the law requires.

P

Pass-through entity: A pass-through entity is a business whose income is taxed on its owners’ returns.
Passive foreign investment company (PFIC): A passive foreign investment company (PFIC) is a foreign corporation with 75% or more passive gross income, or 50% or more passive assets.
Permanent place of abode: A permanent place of abode is a home suitable for year-round use that you maintain, whether or not you own it.
Pro-rata rule: The pro-rata rule treats all your traditional, SEP and SIMPLE IRAs as one, so each dollar you convert carries the same taxable share.
PTIN: A PTIN (preparer tax identification number) is the IRS number anyone paid to prepare federal tax returns must have.

Q

Qualified dividends: Qualified dividends are the dividends taxed at the same 0%, 15% or 20% rates as long-term capital gains.
Qualified research expenses: Qualified research expenses (QREs) are the costs a business can use to figure its federal research credit under Section 41.
Qualified tips: Qualified tips are voluntary cash tips you can deduct through 2028, received in an occupation Treasury lists as customarily and regularly tipped before 2025.
QuickBooks ProAdvisor: QuickBooks ProAdvisor is Intuit’s free program for accounting professionals, offering training, product certifications, software and support.

R

Realized gain: A realized gain is what you receive when you sell or otherwise dispose of an asset, minus your adjusted basis.
Reciprocity agreement: A reciprocity agreement lets residents of one state who work in another pay income tax on their wages only to their home state.
Reportable transaction (Form 5472): A reportable transaction, for Form 5472, is a sale, loan, fee or similar dealing between a foreign-owned company and a related party.
Resident alien: A resident alien is a non-citizen taxed as a US resident, usually because they hold a green card or pass the substantial presence test.

S

Safe harbor (estimated tax): The estimated tax safe harbor is an amount you can pay during the year that protects you from the underpayment penalty.
SAFE (simple agreement for future equity): A simple agreement for future equity (SAFE) is a contract that sells an investor the right to a startup’s future shares.
SAFT: A SAFT (simple agreement for future tokens) is a contract in which an investor pays now for crypto tokens to be delivered later.
Saving clause: A saving clause is a tax treaty provision that lets the US tax its citizens and residents under its own law, except for listed articles.
Schedule C: Schedule C is the Form 1040 schedule a sole proprietor uses to report the business’s income, expenses and net profit or loss.
Schedule SE: Schedule SE is the Form 1040 schedule that figures self-employment tax, the Social Security and Medicare tax on your net earnings from self-employment.
Section 7216: Section 7216 of the tax code bars preparers from sharing client return information, or using it for another purpose, without consent or legal permission.
Self-custody wallet: A self-custody wallet is a crypto wallet where you hold your own private keys, instead of an exchange holding them.
Specific identification: Specific identification is naming which units of a coin or stock you sell, so their cost and purchase date set your gain or loss.
Specified foreign financial asset: A specified foreign financial asset is an asset Form 8938 reports: a foreign financial account, or a foreign investment held outside any account.
Stablecoin: A stablecoin is a digital asset designed to hold a fixed value, usually one US dollar per coin.
Standard deduction: The standard deduction is a flat amount you subtract from your adjusted gross income (AGI) if you do not itemize.
Statutory resident: A statutory resident is taxed as a state’s resident, though domiciled elsewhere, for keeping a home there and spending over half the year there.
Step-up in basis: A step-up in basis resets inherited property’s tax basis to its fair market value on the day the owner died.
Strike price: The strike price is the fixed price per share you pay to buy stock when you exercise an employee stock option.
Supplemental wages: Supplemental wages are wages your employer pays apart from your regular pay, such as bonuses and RSU income.

T

Tax home: Your tax home is your regular or main place of business, employment or post of duty, wherever you keep your family home.
Tax transcript: A tax transcript is a free IRS summary of your tax records, such as the return you filed.
Taxable event: A taxable event is a transaction that gives you income, or a gain or loss, to report on your return.
Third-party settlement organization: A third-party settlement organization, such as a payment app or online marketplace, is the company bound by contract to pay its network’s sellers.

U

US person: A US person is a US citizen or resident, or a domestic entity such as a US corporation, partnership, trust or estate.

V

Vesting cliff: A vesting cliff is the waiting period before any part of an equity award vests.

W

W-8BEN: Form W-8BEN is the IRS form a foreign individual gives a payer to certify foreign status and, where eligible, claim a treaty rate.
W-9: Form W-9 is the IRS form you use to give your taxpayer identification number to someone who will pay you.
Wallet-by-wallet accounting: Wallet-by-wallet accounting is tracking the cost basis of your crypto separately for each wallet and exchange account.
Wash sale: A wash sale is selling stock or securities at a loss and buying substantially identical ones within 30 days before or after the sale.