| Term |
Definition |
| Earned Income |
Income from personal
services as distinguished from income generated
by property or other sources. Earned income
includes all amounts received as wages, tips,
bonuses, other employee compensation, and self-employment
income, whether in the form of money, services,
or property. |
| Earned Income Credit |
A refundable tax credit
for qualified taxpayers based on earned income
and modified adjusted gross income. |
| Education Expense |
Employees may deduct
education expenses if the expenses are incurred
either to maintain or improve existing job-related
skills or to meet the express requirements of the
employer or legal requirements to retain current
employment status. Such expenses are not
deductible if the education is required to meet
the minimum educational requirements for the
taxpayer's job or if the education qualifies the
taxpayer for a new trade or business. Education
expenses may also qualify the taxpayer for the
Hope scholarship credit or the lifetime learning
credit, both of which are defined elsewhere in
this glossary. |
| Education IRA |
A tax-favored savings
plan under which the taxpayer may contribute up
to $500 per year per eligible beneficiary.
Contributions are nondeductible. Earnings are tax
free and withdrawals are also tax free if used to
pay for qualified higher education expenses. |
| Eminent Domain |
The right of a
government authority to take private property for
public use and paying fair compensation to the
owner. |
| Employee |
For income tax purposes,
an employee is to be distinguished from an
independent contractor. This is important,
because the withholding of income taxes on wages
applies only to employees. Also, employee status
will affect the manner and extent of some
deductions and credits. The regulations state
that an employee is one who is subject to the
will and control of the employer not only as to
what shall be done but also as to how it shall be
done. |
| Employee Stock Option |
An option granted to an
employee to purchase the employer's stock.
Employee stock options to which special income
tax treatment is accorded are known as statutory
options. |
| Employer-Funded
Retirement Plan |
A pension plan funded in
full or in part by employer contributions on
behalf of employees. |
| Employment Expenses |
Ordinary and necessary
expenses required to perform the duties for which
the taxpayer was hired. |
| Energy Tax Credit--Business
Property |
An energy tax credit
allowed for the purchase of certain business-use
property utilizing solar, geothermal, or biomass
energy. |
| Energy Tax Credit--Residential
Property |
Prior to 1986, taxpayers
were eligible for a credit against the cost of
energy-saving devices or renewable energy source
property installed in their principal residences.
Residential energy credits claimed in prior years
must be subtracted from the basis of the
residence. |
| Entertainment
Expenses |
Such expenses are
deductible by employees and self-employed
taxpayers only if the expenses are directly
related to or associated with a trade, business,
or profession. To prevent abuses, various
restrictions and documentation requirements have
been imposed on the deductibility of
entertainment expenses. The deduction for
qualified business entertainment is limited to 50
percent of cost. |
| Estate |
A taxable entity that is
established upon the death of a taxpayer. It
consists of all the decedent's property and
personal effects. The estate exists until the
final distribution of its assets to the heirs and
other beneficiaries. During the period of
administration, the executor must usually file a
return. |
| Estimated Tax |
The amount of tax a
taxpayer expects to owe for the year after
subtracting expected amounts withheld and the
amount of any expected credits. |
| Estimated Tax Voucher |
A statement by an
individual of (1) the amount of income tax he or
she estimates he or she will incur during the
current taxable year on income that is not
subject to withholding, (2) the excess amount
over that withheld on income that is subject to
withholding, and (3) his or her estimated self-employment
tax. Advance payment of tax may be required (on
as many as four payment dates) unless estimated
tax due after withholding and credits is less
than $1,000. |
| Estimated (Useful)
Life |
The period of time over
which an asset will be used by a particular
taxpayer. Although that period cannot be longer
than the estimated physical life of an asset, it
can be shorter if the taxpayer does not intend to
keep the asset until it wears out. The estimated
useful life of an asset is essential to
determining the annual tax deduction for
depreciation and amortization. |
| Excess Social
Security Tax Withheld |
If a taxpayer worked for
more than one employer during 1999, and more than
$4,501.20 was withheld for social security tax,
the excess over the maximum is included in the
Payments section of the return. The excess amount
has the same character as withholding tax. |
| Exchange |
A transfer of property
for other property or services. Exchanges of like-kind
property are a popular method for deferring taxes. |
| Excludable Amount of
Pension |
The portion of pension
distributions that is not taxable. |
| Excluded Gain |
Generally applies to
gains realized on the sale of a principal
residence. For sales after May 6, 1997, a
taxpayer may exclude up to $250,000 ($500,000 MFJ)
of gain on the sale if he or she owned and
occupied the residence for at least two of the
five years prior to the sale. |
| Exclusion |
An amount of income that
is not included in adjusted gross income because
the tax Code excludes it. |
| Exclusion Percentage |
Used to establish the
excludable amount of a pension under the general
rule. This percentage is determined by dividing
the taxpayer's total contribution by the expected
return. |
| Exemption |
An amount ($2,750 for
1999) allowed by law as a reduction of income
that would otherwise be taxed. There are two
kinds of exemptions: personal and dependency. |
| Expected Return |
For a lifetime pension,
this is determined by multiplying the annual
pension by the taxpayer's expected life multiple
from government actuarial tables. |
| Expenses |
For federal income tax
purposes, expenses are divided into four
categories: (1) trade or business expenses, (2)
expenses in connection with production of income,
in connection with management, conservation, or
maintenance of property held for production of
income, (3) expenses in connection with the
determination, collection, or refund of any tax,
and (4) personal, family, or living expenses.
Expenses in the first three categories are
generally deductible in determining taxable
income. Expenses in the fourth category are not
deductible, except in a few cases (medical
expenses, charitable contributions, etc.) in
which they are specifically allowed by law.
Expenses are to be distinguished from "capital
expenditures," defined elsewhere in this
glossary. |
| Expenses of Sale |
When paid by the seller,
these expenses reduce the sale price of property.
Examples are commissions to a broker or real
estate agent, title search, title insurance,
legal fees, and transfer taxes. |
| Expensing |
A term used to refer to
the section 179 expense deduction, defined
elsewhere in this glossary. |
