| Term |
Definition |
| Partly Taxable
Pensions |
Pensions funded through
employer plans to which both the employer and
employee contribute. |
| Partnership |
A form of business in
which two or more persons join their money and
skills in conducting the business. Partnerships
are treated as a conduit and are not subject to
taxation. Various items of partnership income,
expenses, gains, and losses flow through to the
individual partners and are reported on their
personal income tax returns. |
| Passive Income |
Passive income is income
from business activities in which the taxpayer
does not materially participate, and all rental
activities (except those of qualified real estate
professionals). See also Active Income and
Portfolio Income. |
| Patent |
The exclusive right of
an inventor to make, use, or sell his invention
for a period of years. A patent is an intangible
asset that may be depreciated over its remaining
life. The sale of a patent usually results in
long-term capital gain treatment. |
| Patronage Dividend |
A rebate from a
cooperative to its members of a portion of the
purchase price of merchandise. Patronage
dividends received on the purchase of personal-use
property are not taxable. Patronage dividends
received on the purchase of business-use property
may be taxable or may reduce the basis of the
property purchased. |
| Penalties |
For tax purposes,
amounts that the IRS may assess at a statutory
rate as an addition to a tax deficiency and
interest. The tax Code provides for penalties for
various infractions, such as underpayment of
estimated tax, late filing of a return, late
payment of tax, substantial understatement of
tax, negligent or intentional disregard of rules,
and fraud. |
| Pension |
Payments made
periodically of (generally) a definite amount for
a specified period (usually life) from an
employer-funded plan to workers who have met the
stated requirements. Its primary purpose is to
provide retirement income. |
| Pension/Annuity
Starting Date |
The first day of the
first period for which an amount is due as a
pension/annuity payment under the contract. |
| Percentage Depletion |
A specified percentage
of the gross income from the property not
exceeding 50 percent of the taxable income from
the property before depletion allowance (increased
by section 1245 gains--see definition of section
1245 property). In each year, the method that
results in the greater deduction is used. (See
also Cost Depletion.) Percentage depletion is
allowed for nearly all natural resources, except
timber. |
| Periodic Payments |
A requirement for
alimony paid under pre-1985 agreements to be
deductible. The amount to be paid or the duration
of payment must be indefinite for a payment to
qualify as periodic. |
| Permanent and Total
Disability |
A disability that
prevents an individual from engaging in any
substantial gainful activity because of a
medically determined physical or mental
impairment that is expected to result in death,
or that has lasted or is expected to last for a
continuous period of not less than 12 months. |
| Personal and
Dependency Exemptions |
The tax Code provides a
$2,750 exemption (for 1999) for each individual
taxpayer and an additional $2,750 exemption for
his spouse if a joint return is filed. An
individual may also claim a $2,750 dependency
exemption for each dependent providing certain
tests are met. Taxpayers who may be claimed as
dependents on other taxpayers' returns may not
claim their own personal exemptions. The
exemption amount is phased out for taxpayers
whose adjusted gross incomes exceed certain
levels. |
| Personal Expenses |
Expenses of an
individual for personal reasons are not
deductible unless stated to be deductible under
tax Code. |
| Personal Property |
Generally, all property
other than real estate. |
| Personal Residence |
The property in which
the taxpayer lives and to which he or she returns
after temporary absences. A taxpayer may have one
or more residences such as a main home and a
vacation house. A residence is not limited to a
house. Condominiums, cooperative apartments,
townhouses, mobile homes, and houseboats can all
qualify as residences. |
| Personal-Use Property |
Property owned for
personal well-being and enjoyment includes a
taxpayer's home, vehicles, furniture, clothing,
and other property. |
| Physical Custody |
The taxpayer with whom a
child lives is considered to have physical
custody. |
| Points |
A loan-origination fee (one-time
charge paid for the use of money) that a buyer
generally may deduct as interest; fully in the
year paid if for the purchase or improvement of a
principal residence or, if not, then ratably over
the term of the loan. |
| Portfolio Income |
Income from such sources
as dividends, interest, capital gains, and
royalties. See also Active Income and Passive
Income. |
| Prepaid Expenses |
Cash-basis as well as
accrual-basis taxpayers usually are required to
capitalize prepayments for rent, insurance, etc.
that cover more than one year. Deductions are
taken for the period during which the benefits
are received. |
| Prepaid Interest |
Interest paid in advance
is deductible as an interest expense only as it
accrues. The one exception to this rule involves
the interest element when a cash-basis taxpayer
pays points to obtain financing for the purchase
or improvement of a principal residence if the
payment of points is an established business
practice in the area in which the indebtedness is
incurred and the amount involved is not excessive.
Points paid to refinance a principal residence,
however, must be deducted over the life of the
loan. |
| Principal Payments |
Payments received on the
contract price. |
| Principal Place of
Business |
The main place where
work is performed or business is transacted.
Taxpayers who engage in more than one business
can have more than one principal place of
business. For purposes of the home-office
deduction, a principal place of business may also
be an area of a taxpayer's home that is used for
the management and recordkeeping portions of the
business, provided there is no other fixed
location where the taxpayer performs such
functions. |
| Principal Residence |
Regular, permanent abode. |
| Prizes and Awards |
The fair market value of
a prize or award generally is includable in gross
income. An exception applies when a qualified
recipient of an award for charitable and like
achievements designates that the prize is to be
transferred by the payer to a governmental unit
or to certain charitable, educational, or
religious organizations. Another exception is
made for certain employee achievement awards such
as the traditional gold watch presented upon
retirement. |
| Production Taxes |
Taxes levied by state
governments on the value or quantity of
production or extraction of natural resources. |
| Proprietor |
The sole owner of a
trade or business. |
| Proprietorship |
A business controlled
and operated by one person. |
| Public Retirement
System |
A retirement system
established by the United States, a state,
territory, or possession of the United States, or
their political subdivisions. |
| Puts and Calls |
These are option
contracts. A put gives its holder the option to
sell a particular stock at a fixed price within a
specified period of time. A call gives its holder
the right to buy stock under the same conditions.
Put and call contracts can last up to several
months and usually specify a price close to the
market value of the stock at the time they are
drawn. Puts are purchased by investors who think
the price of the stock will fall; calls are
purchased by investors who think the price will
rise. |
