Tax Glossary

A B C D E F G H I J K L M N O P Q R S T U V W X Y Z
Salvage value

The estimated value of an asset at the end of its useful life. Salvage value is ignored by ACRS and MACRS rules.

S corporation

A corporation that elects S status in order to receive tax treatment similar to that of a partnership.

Section 179 deduction (or First-year expensing)

A deduction allowed for investments in depreciable business equipment in the year the property is placed in service.

Section 457 plan

Deferred compensation plan set up by a state or local government, or tax-exempt organization, which allows tax-free deferrals of salary.

Section 1231 property

Depreciable property used in a trade or business and held for more than a year. All Section 1231 gains and losses are netted; a net gain is treated as capital gain, a net loss as an ordinary loss.

Self-employed person

An individual who operates a business or profession as a proprietor or independent contractor and reports self-employment income on Schedule C.

Self-employment tax

Tax paid by self-employed persons to finance Social Security coverage. In 2007, there are two rates. A 12.4% rate applies to a taxable earnings base of $95,700 or less and a 2.9% rate applies to all net earnings.

Separate return

Return filed by a married person who does not file a joint return. Filing separately may save taxes where each spouse has separate deductions, but certain tax benefits require a joint return.

Short sale

Sale of borrowed securities made to freeze a paper profit or to gain from a declining market.

Short tax year

A tax year of less than 12 months. May occur with the startup of a business or change in accounting method.

Short-term capital gain or loss

Gain or loss on the sale or exchange of a capital asset held one year or less.

Simplified employee plan (SEP)

IRA-type plan set up by an employer, rather than the employee. Salary-reduction contributions may be allowed to plans of small employers set up before 1997.

Standard deduction

A fixed deduction allowed to taxpayers who do not itemize deductions. The amount depends on filing status, age, and blindness.

Standard mileage rate

A fixed rate allowed by the IRS for business auto expenses in place of deducting actual expenses.

Statutory employees

Certain employees, such as full-time life insurance salespersons, who may report income and deductions on Schedule C, rather than on Schedule A as miscellaneous itemized deductions.

Stock dividend

A distribution of additional shares of a corporation’s stock to its shareholders.

Stock option

A right to buy stock at a fixed price.

Straddle

Taking an offsetting investment position to reduce the risk of loss in a similar investment.

Straight-line method

A method of depreciating the cost of a depreciable asset on a pro rata basis over its cost recovery period.

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