Tax Tips BlogTax Tips for Individuals and Small Businesses

Every wonder what all those tax terms mean but don’t want to ask?  Well here is your cheat sheet courtesy of JK Lasser.

AGI. Adjusted gross income (AGI) is gross income minus allowable adjustments (e.g., alimony payments and deductible IRA contributions).

AMT. The alternative minimum tax (AMT) is a tax triggered if certain write-offs reduce your regular tax below the tax figured for AMT purposes.

EFTPS. The electronic federal tax payment system (EFTPS) at www.eftps.gov is an online and phone option for transferring taxes to the U.S. Treasury.

EIN. An employer identification number (EIN) is the 9-digit number from the IRS that is used by employers, trusts, and other entities for tax reporting purposes.

ESA. A Coverdell education savings account (ESA) is a special account set up to fund education expenses of a student.

FBAR. A report of foreign bank and financial accounts (FBAR) is required annually by U.S. citizens and residents with an interest in or signature over such accounts.

FIFO. First-in, first-out (FIFO) is an ordering rule used for both inventory purposes which says that the first items acquired are treated as the first items sold; FIFO is also the default method for determining which shares of stock or a mutual fund are sold when shares are acquired at different prices and sell than the full holding is sold.

FSA. A flexible spending account (FSA) is an account funded by an employee with salary contributions to pay for medical or dependent care expenses on a pretax basis.

FICA. The Federal Insurance Contributions Act (FICA) is the federal tax paid by employees and employers to cover Social Security and Medicare taxes.

FUTA. The Federal Unemployment Tax Act (FUTA) is the federal unemployment tax paid by employers on employees’ wages.

HRA. A health reimbursement account (HRA) is an employer-established health account to provide tax-free reimbursements to employees for medical costs.

HSA. A health savings account (HSA) is a type of medical plan combining high-deductible medical insurance coverage with an IRA-type savings account to pay unreimbursed medical expenses.

IRA. An individual retirement account (IRA) is a type of tax-favored account used for retirement savings.

IRB. The Internal Revenue Bulletin (IRB) is a weekly publication containing IRS rulings, notices, announcements, and other official pronouncements, which can be found www.irs.gov/app/picklist/list/internalRevenueBulletins.html.

ISO. An incentive stock option (ISO) is an equity compensation plan under which the recipient of the option does not pay income tax until the stock acquired pursuant to the option is sold.

MACRS. The modified accelerated cost recovery system (MACRS) is a depreciation system that applies to assets placed in service after 1986.

MAGI. Modified adjusted gross income (MAGI), an amount used to determine limitations to certain deductions and credits, is AGI increased by certain items such as the foreign earned income exclusion.

MSA. An Archer medical savings account (MSA) is a type of medical plan combining high-deductible medical insurance coverage with an IRA-type savings account to pay unreimbursed medical expenses.

OID. Original issue discount (OID) is a discount from the par value at the time a bond is issued; OID is reported annually and is taxed as interest income.

PIN. The Personal Identification Number (PIN) is a 5-digit that you select if you e-file; the PIN ensures that your electronically submitted tax return is authentic.

QDRO. A qualified domestic relations order (QDRO) is a court-ordered direction to qualified retirement plans directing that a share of benefits be paid to a spouse, child, or other named person (called an alternate payee) rather than to the plan participant.

REIT. A real estate investment trust (REIT) is trust that invests primarily in real estate and mortgages and passes through income to its investors.

RMD. A required minimum distribution (RMD) is the amount that must be distributed from a qualified retirement plan or IRA, usually starting at age 70¹/₂, in order to avoid a 50% penalty.

SEP. A simplified employee pension (SEP) is an IRA-like retirement plan set up by an employer or a self-employed individual.

SIMPLE. A savings incentive match plan for employees (SIMPLE) is a type of retirement plan to which both employees and employers make contributions; SIMPLEs function much like 401(k) plans but with lower contribution limits.

TIN. The tax identification number (TIN), which is the number used for income tax reporting purposes, usually is an individual’s Social Security number.

VAT. A valued added tax (VAT) is a tax imposed on each stage of production and distribution of products. Currently, there is no VAT in the United States.