Taxation Glossary
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Ability To Pay
A concept of tax fairness that states that people with different amounts of wealth or different amounts of income should pay tax at different rates. Wealth includes assets such as houses, cars, stocks, bonds, and savings accounts. Income includes wages, interest and dividends, and other payments.
Accelerated Depreciation
A depreciation method that allows larger deductions in the early years of an asset's "life" and smaller deductions at the end of the period. (See "Straight-line depreciation.")
Accrual Basis
One of two main accounting methods for determining when a transaction has tax significance. The accrual method says that a transaction is taxed when an obligation to pay or a right to receive payment is created (for example, at the time products are delivered, services rendered, billings sent, etc.). This method is used by all but the smallest businesses. (See "Cash method (or cash basis).")
Adjusted Basis
The cost of property (or a substitute figure-see "Basis") with adjustments made to account for depreciation (in the case of business property), improvements (in the case of real estate), withdrawals or reinvestment (in the case of securities, funds, accounts, insurance or annuities), etc. Adjusted basis is part of the computation for determining gain or loss on a sale or exchange and for depreciation.
Adjusted Gross Income
The amount of income considered actually "available" to be taxed. Adjusted gross income is gross income reduced principally by business expenses incurred to earn the income and other specified reductions (such as alimony).
Alternative Minimum Tax
An alternative tax system that says: your tax shall not go below this level. The alternative minimum tax works by negating (or minimizing) the effects of tax preferences or loopholes.
Amortization
The write-off of an amount spent for certain capital assets, similar to depreciation. This tax meaning is different from the common meaning of the term that describes, for example, payment schedules of loans.
Amount Due
Money that taxpayers must pay to the government when the total tax is greater than their total tax payments.
Appeal
To call for a review of an IRS decision or proposed adjustment.
Applicable Federal Rates (AFRs)
Minimum interest rates that must be charged on various transactions that involve payments over a number of years. If the parties to a transaction do not adhere to these rates, the IRS will impute the interest. (See "Imputed interest.")
At-risk Rules
Rules that limit an investor's deductible losses from an investment to the amount invested. Complications arise when investors finance their investment through loans that they are not personally on the hook for (nonrecourse financing). Without these rules, investors could raise their deduction limit considerably without being at-risk for the actual loss.
Authorized IRS e-file Provider
A business authorized by the IRS to participate in the IRS e-file Program. The business may be a sole proprietorship, a partnership, a corporation, or an organization. Authorized IRS e-file Providers include Electronic Return Originators (EROs), Transmitters, Intermediate Service Providers, and Software Developers. These categories are not mutually exclusive. For example, an ERO can at the same time, be a Transmitter, a Software Developer, or an Intermediate Service Provider, depending on the function being performed.
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