| Term |
Definition |
| Calendar Year |
A year that begins
January 1 and ends December 31. |
| Call |
An option to purchase
stock at a fixed price within a specified period
of time. |
| Callable |
A bond issue, all or
part of which may be redeemed before maturity by
the issuing corporation under specific conditions.
The term also applies to preferred shares of
stock, which may be redeemed by the issuing
corporation. |
| Capital Asset |
Broadly speaking, all
assets are capital assets except those
specifically excluded by the tax Code. Major
categories of noncapital assets include property
held for resale in the normal course of business
(inventory), trade accounts and notes receivable,
depreciable property, and real estate used in a
trade or business. |
| Capital Expenditure |
An expenditure made for
assets with useful lives of more than one year.
Usually capital expenditures may not be deducted
in the year they are paid, even if they are paid
in connection with a trade or business. In other
words, they are capitalized and generally may be
depreciated or amortized. |
| Capital Gain |
The gain from the sale
or exchange of a capital asset. |
| Capital Gain
Distributions |
Amounts paid by mutual
funds, regulated investment companies, and real
estate investment trusts. These amounts represent
the shareholder's portion of gain from the sale
of capital assets owned by these investment
companies. Capital gain distributions are taxed
in the year constructively received and are
always considered to be held long term. |
| Capital Gain or Loss
Holding Period |
The length of time a
capital asset is owned by the taxpayer. Assets
owned 12 months or less are held short term;
those owned more than 12 months are held long
term. |
| Capital Improvement |
An improvement made to
extend the useful life of a property or add to
its value. Major repairs such as the replacement
of a roof are capital improvements. The costs of
capital improvements to business property must be
capitalized and may be depreciated. |
| Capitalize |
To treat the cost of
additions and improvements to property as a
capital improvement. |
| Capital Loss |
The loss from the sale
or exchange of a capital asset. Up to $3,000 of
net capital loss is deductible annually with the
excess carried forward to future years. Losses on
personal-use assets are not deductible. |
| Capital Stock |
Shares of stock that
represent ownership of a portion of the
corporation. |
| Carryback/Carryover |
Provisions in the tax
Code that allow certain losses or credits to be
used in a tax year other than the tax year
incurred. A carryover is to a future year. A
carryback is to a prior year. |
| Cash Equivalent
Doctrine |
Generally, a cash-basis
taxpayer does not report income until cash is
constructively or actually received. Under the
cash equivalent doctrine, cash-basis taxpayers
are required to report income if the equivalent
of cash (property, for example) is received in a
taxable transaction. |
| Cash Method of
Accounting |
One of the two most
common methods of accounting, the other being the
accrual method defined elsewhere in this glossary.
Under the cash method of accounting, income is
reported in the tax year actually or
constructively received and expenses are deducted
in the tax year paid. |
| Casualty |
The complete or partial
destruction of property resulting from an
identifiable event of a sudden, unexpected, or
unusual nature. |
| Casualty Loss |
A casualty is the
complete or partial destruction of property
resulting from an identifiable event of a sudden,
unexpected, or unusual nature. Examples are
floods, storms, fires, earthquakes, and auto
accidents. Individuals may deduct a casualty loss
only if the loss is incurred in a trade or
business, in a transaction entered into for
profit, or is a personal loss arising from a
disaster such as those mentioned above.
Individuals deduct personal casualty losses as
itemized deductions on Schedule A, subject to a $100
nondeductible amount and a reduction of the loss
by 10 percent of the taxpayer's AGI. Use of Form
4684 is required. |
| Certificate |
The actual piece of
paper that is evidence of ownership of stock in a
corporation. |
| Certified Historic
Structure |
A structure listed on
the National Register of Historic Places or
located in a designated historic area. The IRS
Code provides tax incentives for the
rehabilitation of such structures. |
| Change in Accounting
Method |
A change from one method
to another, which usually requires prior approval
from the IRS. A change generally requires
adjustments to avoid omissions or duplications. |
| Change in Accounting
Period |
A change from one period
to another. Income for the short period created
by the change must be annualized to calculate the
tax for that period. |
| Charitable
Contributions |
Money or property
donated to a qualified charitable organization.
Such donations are deductible on Schedule A as an
itemized deduction. |
| Child and Dependent
Care Credit |
A tax credit of 20-30
percent of employment-related child and dependent
care expenses for amounts of up to $4,800 is
available to individuals who are employed and
maintain a household for a dependent child or
disabled spouse or dependent. The credit is
computed on Form 2441 for Form 1040 filers and on
Schedule 2 for Form 1040A filers. |
| Child Support
Payments |
Payments pursuant to a
court order, divorce decree, or other legal
obligation. Payments for child support do not
constitute alimony and are not includable in
gross income by the recipient or deductible as
alimony by the payer. |
| Child Tax Credit |
A nonrefundable credit
of up to $500 per dependent child under age 17 at
the end of the tax year. |
| CLADR |
See Class Life Asset
Depreciation Range. |
| Claim of Right |
A term used in the tax
Code in connection with money or other property
received as income that the recipient holds, but
that he or she is required to restore to the
payer in whole or in part in a later year because
it develops that he or she did not have an
unrestricted right to it. |
| Class Life Asset
Depreciation Range (CLADR) |
This system of
depreciation was used for assets placed in
service prior to January 1, 1981, and must
continue to be used for assets whose depreciation
was set up under that system. The CLADR system
provided guidelines for depreciation lives for
the assets listed in each guideline class. |
| Closed Year |
A tax year for which the
statute of limitations has expired. The taxpayer
can't claim a refund and the IRS can't collect
additional taxes (with certain exceptions). |
| Commission |
(1) The broker's fee for
purchasing or selling securities or property for
a client. (2) An allowance paid to a salesperson
or agent for services rendered. |
| Commodity Futures |
Contracts to buy or sell
some fixed amount of a commodity (wheat or soy
beans, for example) for a fixed price at a future
date. |
| Common-Law State |
A state in which the
laws governing property rights are based on
British common law. The property and income of
each spouse belongs to him or her separately. |
| Common Stock |
Shares in the ownership
of a corporation that are entitled to residual
dividends, after bonds and preferred stock have
first received interest and dividends. A common
stockholder usually has a vote in deciding
company affairs, including the election of a
corporation's board of directors. |
| Community Income |
Income of a married
couple, living in a community property state,
which is considered to belong equally to each
spouse, regardless of which spouse receives the
income. |
| Community Property |
Property considered to
belong in equal shares to a husband and wife.
This concept of ownership for property acquired
after marriage is followed in Arizona,
California, Idaho, Louisiana, New Mexico, Nevada,
Texas, Washington, and Wisconsin. |
| Commuting |
Traveling from one's
residence to one's regular place of business and
back to the residence. |
| Compensation |
Wages, commissions,
tips, professional fees, and net self-employment
income from services rendered; that is, earned
income. |
| Condemnation |
The taking of property
by a public authority. The property is condemned
as the result of legal action and the owner is
compensated by the public authority. The power to
condemn property is known as the right of eminent
domain. |
| Condemnation Award |
Payment in money or
replacement property that is received for
property condemned by a government authority. |
| Constructive Receipt |
A cash-basis taxpayer is
taxed on income only as it is received. But if
the income was unreservedly subject to his or her
demand and he or she could have received it but
chose not to do so, it is regarded as having been
constructively received by him or her and is
taxable. For example, interest credited to a
savings account is constructively received even
if the taxpayer hasn't withdrawn it. |
| Contract Price |
An amount payable to the
seller and equal to the gross selling price when
no mortgages are involved. If a mortgage is
assumed, the contract price is the gross selling
price minus the amount of the mortgage plus the
excess (if any) of the mortgage over the seller's
basis and expenses of sale. |
| Contributions |
(1) Gifts to qualified
charitable organizations as opposed to gifts to
private individuals. Such contributions are
generally deductible on Schedule A. |
| Convention Expenses |
Travel expenses incurred
in attending a convention are deductible if the
meetings are related to a taxpayer's trade or
business or job-related activities. If, however,
the convention trip is primarily for pleasure or
for investment purposes, no deduction for travel
expenses is permitted. Limitations may apply to
foreign convention expenses. |
| Convertible |
A bond or preferred
stock that may, under specified conditions, be
exchanged for common stock or another security,
usually of the same corporation. |
| Copyright |
The exclusive legal
right to sell, reproduce, or publish a literary,
musical, or artistic work. |
| Corporation |
For income tax purposes,
this term includes associations, trusts that have
a majority of corporate characteristics, joint
stock companies, and insurance companies. |
| Cost |
(1) Cash and/or the
value of property given to acquire the property
received. |
| Cost Depletion |
A method for recovering
the taxpayer's investment in natural resources or
timber. The cost is recovered ratably as the
resource is extracted or the timber harvested.
Total cost depletion cannot be claimed in excess
of basis. Percentage depletion, the other method
for computing depletion of natural resources, is
defined elsewhere in this glossary. |
| Cost Method of
Inventory Valuation |
Valuing inventory
purchased during the year at cost; that is, the
invoice price less any discounts plus
transportation or other costs incurred in
acquiring the merchandise. |
| Cost of Goods Sold |
Beginning inventory plus
direct purchases, direct labor costs, and
overhead costs less withdrawals for personal use
and ending inventory. Sole proprietors compute
their cost of goods sold in Part III of Schedule
C. |
| Cost of Maintaining a
Home |
Expenses necessary to
maintain a taxpayer's residence. These costs
include rent or mortgage interest and real estate
taxes, fire and casualty insurance on the
dwelling, upkeep and repairs, utilities, paid
domestic help, and food consumed in the home. |
| Cost or Market,
Whichever Is Lower |
This phrase is used in
reference to inventory valuations. Most taxpayers
prefer to use "cost or market, whichever is
lower" as a basis for valuing their
inventories because this method affords an
opportunity to take advantage of a drop in the
market so that profits can be reduced accordingly
before disposition of the goods. If "cost"
only is used, a drop in the market cannot affect
the income until the merchandise is sold. Either
method is acceptable, but the one adopted must be
followed unless the IRS grants permission for a
change. |
| Cost Recovery |
The writing off of the
capital cost of qualified assets over a specified
time period. See also Accelerated Cost Recovery
System (ACRS) and Modified Accelerated Cost
Recovery System (MACRS). |
| Coupon Bond |
A bond with interest
coupons attached. The coupons are clipped as they
come due and are presented by the bond holder for
payment of accrued interest. |
| Credits |
Reductions of tax
liability that Congress has decided should be
allowed for various purposes to taxpayers who
meet the qualifications. Some credits are
refundable; that is, the IRS will send the
taxpayer a check for any amount in excess of the
tax liability. Most credits are not refundable,
but some credits may be carried to other tax
years. |
| Custodial Parent |
The parent with whom a
child lives for more than half the year. |
