85 Tax & Accounting Terms Defined
Stop nodding along when your accountant speaks. Plain-English definitions of AGI, basis, depreciation, passive activity, and 80+ terms you need to know at tax time.
A guide by Taxstra Tax & Accounting — CPA-led tax strategy for business owners
Bookmark This Page
Keep this glossary handy when reviewing financial statements or meeting with your CPA.
Context Matters
These are general definitions. Your specific situation may have nuances — when in doubt, ask a professional.
Missing a Term?
Reach out and let us know — we're constantly expanding this resource based on client feedback.
Top 5 Misunderstood Concepts
These five concepts come up in nearly every tax planning conversation — and they're consistently misunderstood.
Basis vs. Fair Market Value
The "Cost" vs. The "Price"
Basis is what you paid for an asset (plus improvements). FMV is what you could sell it for today. The IRS cares about Basis. If you buy a house for $500k (Basis) and it's worth $800k (FMV), you technically have $0 gain until you sell.
Depreciation Recapture
The "Gotcha" Tax
Depreciation isn't a free lunch; it's a loan from the IRS. When you sell a rental property for a profit, the IRS wants that "loan" back. You pay tax on the total depreciation you claimed (or could have claimed) at a flat 25% rate.
Passive Activity Rules
The "Walled Garden"
The IRS puts income into buckets. "Passive" losses (like from most rentals) generally cannot offset "Active" income (like your W-2 job). They are trapped in their own bucket until you have passive income to unlock them.
QBI Deduction (Section 199A)
The 23% Discount
Created in 2017 and increased to 23% by the OBBBA starting 2026, this allows pass-through owners (S-Corps, LLCs, Sole Props) to deduct up to 23% of their business income. It literally vanishes income before tax is calculated.
Why Understanding These Terms Matters
Accounting and tax terminology can feel like a foreign language. But understanding these concepts isn't just about sounding smart in meetings — it's about protecting your money. When you understand what "basis" means, you can catch errors on your tax return. When you know the difference between a tax credit and a deduction, you make smarter financial decisions.
We've curated this glossary specifically for business owners, real estate investors, and self-employed professionals. These are the terms that come up most often in tax planning conversations, financial reviews, and IRS communications. Master these, and you'll be able to hold your own in any financial discussion.
All Terms (A–Z)
Showing all terms
84 termsAccelerated Depreciation
A method of depreciation that allows for larger deductions in the early years of an asset's life compared to the straight-line method.
Accounting Period
The timeframe for which financial statements are prepared, typically a calendar year (Jan 1 - Dec 31) or a fiscal year.
Accounts Payable (AP)
Money a business owes to suppliers or vendors for goods or services received but not yet paid for.
Accounts Receivable (AR)
Money owed to a business by customers for goods or services delivered but not yet paid for.
Accrual Accounting
A method where income and expenses are recorded when they incur, regardless of when cash is exchanged.
Adjusted Gross Income (AGI)
Gross income minus specific deductions (like student loan interest or IRA contributions). It determines eligibility for many tax credits.
Amortization
The process of spreading out the cost of an intangible asset (like a patent or startup costs) over its useful life.
Asset
Anything of value owned by a business or individual, such as cash, inventory, equipment, or real estate.
Audit
An examination of financial records to verify their accuracy, conducted by an internal team, external firm, or the IRS.
Augusta Rule
A tax rule (IRC Section 280A) allowing homeowners to rent their home for up to 14 days per year without reporting the income.
Balance Sheet
A financial statement that shows a company's assets, liabilities, and equity at a specific point in time.
Basis
The amount of your capital investment in property for tax purposes. It's used to determine gain or loss on sale and depreciation.
Bonus Depreciation
A tax incentive that allows a business to immediately deduct a large percentage of the purchase price of eligible assets.
Bookkeeping
The daily recording of financial transactions, including sales, purchases, and receipts.
Boot
Cash or other non-like-kind property received in a 1031 exchange. Boot is generally taxable.
Capital Gain/Loss
The profit or loss realized from the sale of a capital asset like stocks, bonds, or real estate.
Capital Expenditure (CapEx)
Funds used by a company to acquire, upgrade, and maintain physical assets such as property, plants, or equipment.
Cash Flow
The net amount of cash and cash-equivalents being transferred into and out of a business.
Cash Method Accounting
A method where income is recorded when received and expenses are recorded when paid.
Chart of Accounts
A listing of all accounts used in the general ledger of an organization.
Cost of Goods Sold (COGS)
The direct costs attributable to the production of the goods sold in a company.
Cost Segregation Study
A strategic engineering study used to accelerate depreciation deductions on real estate.
Current Asset
Assets that can be converted to cash within one year, such as inventory or accounts receivable.
Current Liability
Debts or obligations due within one year.
Deductible
An expense that can be subtracted from adjusted gross income to reduce taxable income.
Deferred Tax
A tax liability or asset that will be realized in a future accounting period.
Depreciation
The allocation of the cost of a tangible asset over its useful life.
Depreciation Recapture
The gain realized on the sale of depreciable capital property that must be reported as ordinary income.
Dividend
A distribution of a portion of a company's earnings to its shareholders.
Double Entry Accounting
A system where every entry to an account requires a corresponding and opposite entry to a different account.
EBITDA
Earnings Before Interest, Taxes, Depreciation, and Amortization. A measure of a company's overall financial performance.
EIN (Employer Identification Number)
A unique nine-digit number assigned by the IRS to business entities.
Entity Structure
The legal organization of a business (e.g., Sole Prop, LLC, S-Corp, C-Corp) which determines tax treatment.
Equity
The remaining value of an owner's interest in a company after all liabilities have been deducted.
Estimated Taxes
Quarterly tax payments required for income not subject to withholding (like self-employment income).
Expense
The cost accumulated to generate revenue.
Fiduciary
A person or organization that acts on behalf of another person or persons, putting their clients' interests ahead of their own.
Fiscal Year
A one-year period that companies use for financial reporting and budgeting, which may not match the calendar year.
Fixed Asset
A long-term tangible piece of property or equipment that a firm owns and uses in its operations.
General Ledger
The master set of accounts that summarize all transactions occurring within an entity.
Gross Income
The total income earned before any deductions or taxes.
Intangible Asset
An asset that is not physical in nature, such as brand reputation, trademarks, and patents.
Inventory
Raw materials, work-in-process goods, and completely finished goods that are considered to be the portion of a business's assets that are ready or will be ready for sale.
Itemized Deductions
Eligible expenses that individual taxpayers can claim on federal income tax returns to decrease their taxable income.
Journal Entry
A record of a financial transaction in a journal.
Liability
Something a person or company owes, usually a sum of money.
Like-Kind Exchange (1031)
A transaction allowing for the disposal of an asset and the acquisition of another similar asset without generating a current tax liability.
Liquidity
The efficiency or ease with which an asset or security can be converted into ready cash without affecting its market price.
LLC (Limited Liability Company)
A business structure that protects its owners from personal responsibility for its debts or liabilities.
Material Participation
A set of IRS tests used to determine if a taxpayer heavily involved in a business activity can deduct losses against other income.
Net Income
A company's total earnings (or profit); calculated by taking revenues and subtracting the costs of doing business.
Operating Income
Profit realized from a business's own operations, excluding operating expenses and taxes.
Overhead
Ongoing business expenses not directly attributed to creating a product or service.
Passive Activity
Any rental activity or business in which the taxpayer does not materially participate.
Payroll Tax
Taxes imposed on employers and employees, usually calculated as a percentage of the salaries that employers pay their staff.
Profit and Loss Statement (P&L)
A financial statement that summarizes the revenues, costs, and expenses incurred during a specified period.
Pro Forma
Financial statements based on projections and assumptions rather than actual historical data.
Qualified Business Income (QBI) Deduction
A tax deduction (Section 199A) allowing eligible self-employed and small-business owners to deduct up to 23% of their qualified business income (increased from 20% to 23% by the OBBBA starting in 2026).
Real Estate Professional Status (REPS)
A tax status that allows qualifying real estate investors to deduct rental losses against their non-passive income.
Retained Earnings
The cumulative net earnings or profit of a firm after accounting for dividends.
ROI (Return on Investment)
A performance measure used to evaluate the efficiency of an investment.
S-Corporation
A closely held corporation that elects to be taxed under Subchapter S of the Internal Revenue Code, passing income directly to shareholders.
Section 179
An IRS code that allows businesses to deduct the full purchase price of qualifying equipment and/or software purchased or financed during the tax year.
Self-Employment Tax
Social Security and Medicare taxes paid by individuals who work for themselves.
Short-Term Capital Gain
Profit from the sale of an asset held for one year or less.
Sole Proprietorship
An unincorporated business owned and run by one individual with no distinction between the business and the owner.
Standard Deduction
A specific dollar amount that reduces the income you're taxed on.
Stepped-Up Basis
The readjustment of the value of an appreciated asset for tax purposes upon inheritance.
Suspended Losses
Capital losses that cannot be used in the current tax year because of passive activity limitations.
Tax Credit
An amount of money that taxpayers can subtract directly from taxes owed to the government.
Tax Liability
The total amount of tax debt owed by an individual, corporation, or other entity to a taxing authority.
Tax Shelter
A legal method of minimizing or decreasing an investor's taxable income and, therefore, his or her tax liability.
Trial Balance
A bookkeeping worksheet in which the balance of all ledgers are compiled into debit and credit account column totals that are equal.
Unrealized Gain/Loss
A potential profit or loss that exists on paper, resulting from an investment that has yet to be sold.
Useful Life
An estimate of the number of years an asset is likely to remain in service for the purpose of cost-effective revenue generation.
Variable Cost
Corporate expense that changes in proportion to production output.
W-2 Form
The form that an employer must send to an employee and the IRS at the end of the year to report the employee's annual wages and taxes withheld.
W-4 Form
An IRS form that tells an employer how much tax to withhold from an employee's paycheck.
W-9 Form
Used by businesses to request a taxpayer identification number (TIN) from a contractor or vendor.
Wash Sale
Selling a security at a loss and repurchasing the same or substantially identical security within 30 days.
Working Capital
The difference between a company's current assets and current liabilities.
Write-Off
An expense that can be claimed as a tax deduction.
Year-End Closing
The process of reviewing, reconciling, and verifying that all financial transactions for the fiscal year have been recorded and reports generated.
Zero-Based Budgeting
A method of budgeting in which all expenses must be justified for each new period.
Now That You Know the Lingo...
Turn your understanding of these concepts into real tax savings.
Schedule C Explained
Line-by-line breakdown of the Schedule C form for self-employed professionals.
Learn MoreTax Questions Hub
Deep dives into common tax topics like S-Corp benefits, the STR loophole, and more.
Explore TopicsS-Corp Calculator
See if converting to an S-Corp makes financial sense for your business.
Run the NumbersStill Confused by the Numbers?
Definitions are a great start, but real tax savings come from strategy. If you're ready to move beyond understanding terms and start implementing them for maximum benefit, we're here to help.
Find Out What You're Overpaying in Taxes
Book a free 30-minute call to walk through your situation. We'll tell you exactly how our CPA-led team can help — and whether we're the right fit.