Tax Glossary

Your AGI is your gross income minus specific allowable adjustments, such as student loan interest, deductible contributions to eligible retirement plans, and the deductible portion of self-employment tax. Depending on the rule, AGI or a benefit-specific modified AGI (MAGI) can affect a credit, deduction, exclusion, tax, or account limit. Think of it as the starting line for your tax return.

Your filing status tells the IRS your household situation: Single, Married Filing Jointly, Married Filing Separately, Head of Household, or Qualifying Surviving Spouse. It determines your standard deduction amount, tax bracket thresholds, and which credits you can claim. Eligibility rules determine the permitted status; the resulting tax difference is computed on the full return, not promised in advance.

The standard deduction is a set dollar amount subtracted from income in place of itemizing, and the published figures are the basic amounts for taxpayers who are not dependents: for TY2026 per Rev. Proc. 2025-32, $16,100 single/MFS, $32,200 MFJ, and $24,150 head of household (TY2025: $15,750 single, $31,500 MFJ, $23,625 HoH). A taxpayer who can be claimed as a dependent is instead limited to the greater of $1,350 or earned income plus $450, not to exceed the otherwise applicable basic amount. An additional $1,650 is added for each qualifying age-65-or-older or blind condition, or $2,050 for an unmarried filer who is not a qualifying surviving spouse. NJ does not offer a standard deduction.

Itemizing means listing deductible expenses such as mortgage interest, state and local taxes, charitable contributions, and qualifying medical costs instead of taking the standard deduction. The OBBBA (P.L. 119-21, §70120) raised the SALT cap to $40,000 for 2025 and $40,400 for 2026 ($20,000 and $20,200 MFS), indexed through 2029. The cap phases down by 30% of MAGI above $500,000 for 2025 or $505,000 for 2026 (half those thresholds for MFS), with a $10,000 floor ($5,000 MFS). Taxpayers should compare supported itemized deductions with the applicable standard deduction rather than assume itemizing is beneficial.

A tax bracket is a range of federal individual ordinary taxable income that is taxed at a specific rate, and the ordinary schedule runs through seven rates from 10% to 37%. Falling into a bracket does not mean all of your income is taxed at that rate: only the income within each bracket gets that bracket's rate. Net long-term capital gain and qualified dividends use a separate 0%, 15%, and 20% schedule, and corporate, trust, estate, and other special regimes have their own rate structures.

Your marginal tax rate is the rate applied to the next dollar of a specified base under a specified tax, most often the highest federal ordinary bracket your taxable income reaches. It is one input to a full-return marginal-effect calculation, not the whole answer: bracket stacking, credit and deduction phaseouts, the alternative minimum tax, the net investment income tax, payroll and self-employment tax, the QBI computation, and state tax can all change what an additional dollar actually costs. The complete return establishes what a deduction or planning step is worth.

An effective tax rate is a ratio, so it means nothing until the numerator, denominator, jurisdiction, and period are identified - for example, federal total income tax divided by AGI for a single tax year. Computed that way it usually differs from your marginal rate because it averages tax across the applicable brackets and adjustments; it is not necessarily lower in every edge case. Adding payroll tax, state tax, or using total income instead of AGI produces a different rate for the same taxpayer, so state which definition is being used before comparing.

Tax liability is the total tax computed for the year after deductions, credits, and bracket rates are applied. It is the full-year figure, not the amount you happen to remit with the return in April. Whether you owe more or receive a refund is the difference between total tax and everything credited against it - withholding, estimated payments, refundable credits, and any other allowable payments or credits - so a refund is possible even when total tax is zero.

A deduction reduces your taxable income, while a credit reduces your actual tax bill dollar for dollar. In a simplified example where the entire deduction falls in a 22% bracket, a $1,000 deduction reduces calculated tax by $220 before other limits and interactions. A $1,000 credit cuts your tax bill by up to the full $1,000 - though a nonrefundable credit can't take your tax below zero, so you need at least $1,000 of tax liability to capture all of it. Refundable credits (like the earned income credit or the refundable part of the child tax credit) can even exceed what you owe. Credit eligibility, refundability, phaseouts, and interactions must be verified on the complete return.

If you expect to owe at least $1,000 in federal tax after withholding and credits, quarterly estimated payments may apply - generally due April 15, June 15, September 15, and January 15. Federal required-payment computations generally compare 90% of current-year tax with 100% of prior-year tax (110% for certain higher-income taxpayers), while timing and withholding still matter. For uneven income, the annualized-income method may reduce or eliminate an installment underpayment on the taxpayer's facts; it does not guarantee a penalty or filing result.

Self-employment tax is the Social Security and Medicare tax that self-employed people pay. The regular combined rate is 15.3% (12.4% Social Security up to the wage base, plus 2.9% Medicare). As an employee, your employer covers half; when you're self-employed, you pay both halves. For an ordinary nonfarm sole proprietor, Schedule C net profit is generally multiplied by 92.35% to compute Schedule SE line 4a before the remaining line 4c adjustments. For 2026, the Social Security wage base is $184,500, while the 2.9% Medicare component has no wage-base cap. Form 8959 separately applies the 0.9% Additional Medicare Tax using combined Medicare wages and self-employment income: $200,000 for single, head-of-household, or qualifying-surviving-spouse filers; $250,000 for married filing jointly; and $125,000 for married filing separately. Medicare wages reduce the threshold applied to self-employment income, but not below zero; RRTA compensation is tested separately. You can deduct the employer-equivalent half of regular SE tax as an above-the-line adjustment on Schedule 1.

FICA stands for the Federal Insurance Contributions Act, the source of the Social Security tax (6.2%) and Medicare tax (1.45%) withheld from employee wages, with the employer paying a matching share. The 15.3% figure is the regular combined rate before the wage-base and Additional Medicare rules: the Social Security component applies only up to the annual wage base ($184,500 for 2026), while the 1.45% Medicare component has no wage-base cap. The 0.9% Additional Medicare Tax applies to wages above the Form 8959 thresholds, is withheld from the employee only, and is not matched by the employer. If you run payroll, correct withholding, deposit, and reporting are the employer's responsibility.

A sole proprietorship generally has no separate federal income-tax entity; an individual ordinarily reports its trade-or-business income on Schedule C. State-law liability, licensing, insurance, and formation consequences require an attorney or other qualified legal provider. Self-employment tax depends on the Schedule SE rules and the taxpayer's complete facts.

A Limited Liability Company is a state-law entity. Liability effects depend on formation, governance, conduct, contracts, insurance, and applicable law, so use a qualified attorney or formation provider. For federal income tax, a domestic eligible entity with one owner is generally disregarded unless it elects corporate classification; with two or more owners, it is generally a partnership unless it elects corporate classification. An eligible entity that satisfies the requirements may elect S-Corp tax treatment. Any tax difference requires a full-return comparison and is not guaranteed.

An S-Corp is a federal tax classification available to an eligible existing entity through Form 2553; entity formation is separate state-law work. Supportable salary is subject to FICA while qualifying distributions are not wages. There is no universal income threshold or promised savings result: payroll taxes, deductions, QBI, income tax, NJ requirements, benefits, and recurring compliance costs must be modeled on the full return. Monaco CPA analyzes tax classification only after an entity exists and does not form entities or provide legal services.

A C-Corp is its own taxpaying entity: it pays corporate income tax on its profits, and shareholders are taxed again on dividends they receive, which is the "double taxation" you hear about. The 21% federal corporate rate is one component of a full model rather than a conclusion, and the accumulated earnings tax under Section 531 can apply where earnings are retained beyond the reasonable needs of the business. Entity choice depends on the specific facts and requires a complete legal, tax, and financing analysis with qualified counsel.

A partnership generally files Form 1065 and reports each partner's distributive share on Schedule K-1, whether or not cash is distributed. It ordinarily does not pay federal income tax on that passed-through income, but federal audit adjustments, withholding regimes, and state entity-level or elective pass-through taxes can create partnership-level liabilities. Legal rights and allocations depend on the governing agreement and applicable law.

Schedule C reports profit or loss from an individual trade or business and is attached to Form 1040. A single-member LLC generally uses it only when the LLC is disregarded for federal income-tax purposes and the activity belongs on Schedule C. Net earnings from the activity are generally considered under Schedule SE, subject to the statutory exclusions and adjustments; the Schedule C amount itself is not always the self-employment-tax base.

An Employer Identification Number is a federal taxpayer-identification number assigned to an entity or business. It is required in circumstances such as having employees or filing certain entity, employment, excise, or retirement-plan returns; a bank or state agency may also request one. Eligible applicants can obtain an EIN from the IRS without a fee, but the available application method and processing time depend on the applicant's facts. Monaco CPA does not obtain EINs; the IRS assigns them directly to eligible applicants.

An S-Corp must report supportable compensation for shareholder-employees before treating additional payments as distributions. If reported wages are not supportable, the IRS may reclassify payments on the record presented, but no salary level or ratio alone predicts an examination. Compensation is a facts-and-circumstances compliance determination based on services performed, source of receipts, training, duties, time devoted, geography, and comparable pay. David E. Watson, P.C. v. United States illustrates reclassification on its specific record and does not create an IRS-endorsed percentage safe harbor.

A pass-through regime generally reports specified income, deductions, gains, losses, and credits at owner level. Partnerships and S corporations are common federal pass-through entities; an LLC's treatment depends on its owners and tax elections, while a sole proprietorship is not a separate federal income-tax entity. Pass-through status does not mean the business can never owe tax: state minimum, franchise, elective PTE, withholding, payroll, excise, and certain federal entity-level taxes may still apply.

Section 199A may allow a noncorporate taxpayer a deduction based on qualified business income and certain qualified REIT dividends or publicly traded partnership income. The ordinary computation is up to 20% of qualified business income, subject to taxable-income, specified-service-business, wage, property, loss, and other rules that can reduce or eliminate it - but that ordinary result is floored by a statutory minimum. Beginning in 2026, Section 199A(i) allows a minimum deduction of $400 to a taxpayer with at least $1,000 of aggregate qualified business income from one or more active trades or businesses in which the taxpayer materially participates under Section 469(h); both the $400 and the $1,000 are inflation-adjusted after 2026. The complete computation establishes the allowable amount; no fixed benefit follows from business income alone. P.L. 119-21 §70105 made Section 199A permanent and expanded the phase-in ranges. For TY2026, the threshold is $201,750 (single/HoH), $201,775 (MFS), and $403,500 (MFJ), with a $75,000 range ($150,000 MFJ). Above the end of that range, an SSTB's income is excluded from QBI, while a non-SSTB remains subject to the wage/property limitation. New Jersey does not allow the federal Section 199A deduction in computing NJ gross income.

Form 2553 is the IRS election to be taxed as an S-Corporation. The deadline is tied to the tax year you want the election to take effect: file no more than 2 months and 15 days after the start of that tax year (March 16, 2026 for calendar-year businesses electing for 2026, since March 15 falls on a Sunday), or during the preceding tax year. NJ's statute applies to privilege periods beginning after December 22, 2022; for calendar-year taxpayers, that means January 1, 2023. NJ procedural FAQ/TB-105 also describe the rule as on or after December 22, 2022; unusual short periods beginning December 22 need Division confirmation. For a covered period, NJ recognizes a valid federal S election unless the entity opts out; registration and filing requirements remain separate.

A registered agent is a person or company designated to receive legal documents and official mail on behalf of a business. New Jersey LLCs and corporations generally must maintain one. A service can keep a home address out of the registered-agent field, but other public formation, annual-report, officer, manager, owner, or business-address fields may still disclose an address.

New Jersey's Gross Income Tax is the state's personal income tax, and unlike the federal system it does not allow most of the same deductions. The rates range from 1.4% to 10.75%, and the 10.75% rate applies to New Jersey taxable income over $1,000,000 under the applicable filing-status schedule. NJ also computes several categories differently from the federal return, including capital gains, which receive no preferential NJ rate.

The CBT-100S is the New Jersey Corporation Business Tax return for S-Corporations. Even though S-Corps are pass-throughs for federal purposes, NJ imposes a separate entity-level return and tax, including a minimum tax determined by New Jersey gross receipts. The New Jersey due date and the federal due date are set separately, so confirm both for the filing year rather than assuming they match.

The Business Alternative Income Tax is New Jersey's elective pass-through entity tax. A qualifying entity-level payment generally may be deducted by the entity under current federal guidance, while eligible owners claim the prescribed NJ member credit. Eligibility alone does not establish a benefit: the entity and owner returns, distributive-proceeds base, allocation, QBI, SALT usage, resident credits, payment timing, cash flow, and compliance costs determine the result. Current BAIT rates (N.J.S.A. 54A:12-3(b), 2025 PTE-100 Instructions) use a three-bracket schedule: 5.675% on the first $250,000 of distributive proceeds; 6.52% on $250,001-$1,000,000; and 10.9% on income over $1,000,000. The election is annual and must follow the original-due-date and electronic-filing rules in the current PTE-100 instructions; no deduction, credit usability, or savings result is promised.

Unlike the federal system, New Jersey does not give capital gains a preferential rate: taxable net gains are reported in the applicable gross-income category and taxed at the same graduated GIT rates regardless of how long the asset was held. What is taxable is a separate question, since the principal-residence exclusion ($250,000, or $500,000 for qualifying joint filers), interest and gains on exempt obligations, and New Jersey basis rules can each reduce or eliminate the amount included. Within a category, same-year gains and losses are netted and the result cannot go below zero; New Jersey does not permit netting across categories or carrying a loss to another year.

New Jersey's Urban Enterprise Zone (UEZ) program offers tax incentives to businesses operating at certified locations in designated economically distressed areas. A qualified business at an authorized location can charge a reduced sales tax rate of 3.3125% (half the standard rate) on certain in-person retail sales. Whether the program may benefit an authorized location depends on certification, the mix of qualifying sales, and the business's own facts.

A seller required to collect New Jersey sales tax must hold a Certificate of Authority, which the Division of Taxation issues after the business registers on Form NJ-REG through the Division of Revenue and Enterprise Services. There is no fee to register, registration can be completed online, and the certificate must be displayed at the place of business. Whether the collection duty applies at all is fact-dependent: physical presence, the remote-seller economic thresholds, marketplace-facilitator rules that shift collection to the marketplace, resale and exemption certificates, and the casual-sale rules can each change the answer.

Domestic and foreign corporations, LLCs, LPs, LLPs, and nonprofit corporations registered in New Jersey generally must file an annual report with the Division of Revenue and Enterprise Services; religious organizations incorporated under Title 16 are an exception. It is due each year by the last day of the formation or authorization anniversary month, and the fee is $75 for most entities and $30 for a nonprofit corporation. Revocation ordinarily follows two consecutive missed reports, and reinstatement then requires filing the missed reports plus additional fees.

Cost basis generally starts with the amount paid for a crypto asset and may include eligible acquisition costs, subject to the transaction and applicable basis rules. A disposition's gain or loss generally compares amount realized with adjusted basis. Missing or incorrect basis can overstate or understate a reported gain or loss; the complete transaction record and return determine the tax effect.

FIFO stands for First In, First Out. For digital assets, adequately identified units use their own basis; when units are not adequately identified, the applicable default-order rules generally dispose of the earliest acquired units in the relevant wallet or account. A broker's platform setting does not by itself establish the taxpayer's federal identification. FIFO's result depends on the actual basis of the earliest units and does not always produce a larger gain.

Specific identification permits adequately identified crypto units to determine the basis of units sold; different eligible lots can produce different reported gains. Under the ordinary rule for broker-custodied units, identification must be timely communicated to the broker. For eligible broker-custodied units sold, disposed of, or transferred from January 1, 2025 through December 31, 2026, Notice 2025-7 as extended by Notice 2026-20 instead permits identification in the taxpayer's books and records no later than the transaction time, or through a sufficiently specific standing order recorded before the transaction. Self-custody identification follows the separate own-record rule, and all identification works wallet-by-wallet. This definition describes tax mechanics only; Monaco CPA does not select lots, recommend trades, or monitor holdings. An untimely identification can leave the regulatory default-order rule controlling.

A tax-relevant crypto event can create income, gain, loss, a deduction, or a reporting obligation; it does not necessarily produce tax due. Selling for cash, exchanging one asset for another, or spending crypto generally disposes of property and requires a gain-or-loss computation. A transfer between wallets under the same beneficial ownership generally is not a disposition, but basis, holding-period, fee, and transfer records still matter. Receipts such as rewards require a separate timing and character analysis.

Form 1099-DA reports specified broker-effected digital-asset sales. Reporting brokers generally began reporting gross proceeds for 2025 digital-asset sales; because covered status requires an acquisition after 2025, every lot sold in 2025 was noncovered and basis reporting for those sales was voluntary. For sales after 2025, mandatory basis reporting generally applies only to covered assets acquired after 2025 through a qualifying acquisition and retained in broker custody; reporting basis for noncovered assets remains voluntary. A reconciliation compares the actual form with supported activity records and does not guarantee completeness. Congress repealed the separate rule that would have treated specified noncustodial trading front-end services as brokers (P.L. 119-5); the repeal does not categorically exempt every DeFi-labeled transaction or intermediary. Treas. Reg. §1.1012-1(j) supplies the continuing wallet-by-wallet basis rule.

The digital-asset basis rules generally apply account by account or wallet by wallet. A transfer between accounts under the same beneficial ownership generally carries the transferred units' adjusted basis and holding period rather than combining all units into one universal pool. Records must connect the transferred units, basis, dates, and any transaction fee; missing transfer information can affect later broker reporting and lot identification.

Rev. Rul. 2023-14 addresses a cash-method taxpayer that receives additional native cryptocurrency as a reward for validating transactions on a proof-of-stake blockchain. On those facts, the fair market value is ordinary income when the taxpayer gains dominion and control. The ruling does not classify every staking, liquid-staking, custodial, or DeFi arrangement. A later disposition generally requires a separate gain-or-loss and character computation.

DeFi stands for Decentralized Finance and can include lending, borrowing, liquidity pools, yield farming, swaps, and other protocol activity. Federal character and timing depend on the specific transaction, rights received or surrendered, dominion and control, and applicable authority; the IRS has not issued one rule that classifies every DeFi action. Preserve transaction-level records and analyze each event rather than assuming every deposit, claim, or withdrawal is automatically taxable.

An airdrop is a distribution of digital assets to wallet addresses. Rev. Rul. 2019-24 holds that new cryptocurrency received through an airdrop following a hard fork is ordinary income when the taxpayer has dominion and control; a hard fork without receipt of new units does not create income under that ruling. Promotional and other distributions require their own Section 61, dominion-and-control, compensation, gift, and basis analysis rather than a blanket result.

A hard fork is a protocol change that may create a permanent divergence in a distributed ledger. Rev. Rul. 2019-24 concludes that a hard fork alone does not create gross income when the taxpayer receives no new cryptocurrency; an airdrop following a hard fork can create ordinary income when the taxpayer receives the new units and has dominion and control. Other distributions require their own facts-and-law analysis.

Your chart of accounts is the organized list of general-ledger accounts your business uses to record its activity: assets, liabilities, equity, revenue, expenses, and any gains or losses. It is the structure behind every report the books produce, so how it is set up determines what the financial statements can show. A well-organized chart of accounts can support faster bookkeeping, easier tax preparation, and more usable reports, though the result depends on how consistently transactions are coded.

Bank reconciliation is the process of agreeing accounting records to a bank statement for a defined period. The cadence depends on the accepted scope, transaction volume, records, and reporting needs. A difference between the two balances is not automatically an error: deposits in transit, outstanding checks, and uncleared payments can be timing items. After documented timing items are accounted for, an unexplained difference should be investigated because it may reflect a duplicate, omitted, or misposted transaction.

Accounts receivable (AR) is money your customers owe you for products or services you've already delivered. Under the accrual method it is recorded as an asset on the balance sheet when the revenue is earned; a cash-method business instead recognizes the income when payment is actually or constructively received, so it does not carry receivables on the same basis. Keeping AR organized and following up on unpaid invoices supports cash flow and makes the books easier to close, though whether a given balance is collected depends on the customer.

Accounts payable (AP) is the money a business owes to vendors and suppliers for goods or services already received. Under the accrual method it is recorded as a liability when the obligation is incurred; a cash-method business instead records the expense when it pays, subject to applicable timing rules. An AP process records obligations, due dates, approvals, and payments; actual fees, vendor terms, cash timing, and completeness depend on the underlying records and controls.

Cash-method taxpayers generally recognize items when actually or constructively received or paid, subject to exceptions; accrual-method timing generally turns on all-events and economic-performance rules. Section 448 generally bars the cash method for tax shelters regardless of gross receipts. It also bars C corporations and partnerships with a C-corporation partner unless an exception applies. For a 2026 tax year, a non-tax-shelter corporation or partnership satisfies the indexed Section 448(c) gross-receipts test when its average annual gross receipts for the three preceding tax years do not exceed $32 million; qualified personal service corporations and other specific rules require separate analysis. Sections 446, 447, 451, 461, 263A, and 471 can require different timing even when Section 448 does not bar the cash method.

GAAP stands for Generally Accepted Accounting Principles, the accounting standards that govern how financial statements are prepared in the U.S. Which standard setter applies depends on the reporting entity: the FASB Accounting Standards Codification governs nongovernmental entities, while the GASB sets standards for state and local governments. A bank, investor, or creditor may require or prefer GAAP financial statements depending on the engagement and financing terms, and many small businesses report instead under an accepted special-purpose framework such as the tax or cash basis. GAAP-compliant reporting may improve consistency and usability, but it does not guarantee a loan, investment, or other financing result.

Cost of goods sold is the recovered cost assigned to inventory sold during the period and is used to compute gross profit. Depending on the taxpayer and applicable inventory and capitalization rules, it can include purchase or production costs, direct labor, and allocable indirect costs. Purchases do not automatically become current COGS, and a change in COGS does not necessarily change taxable income dollar for dollar after other limitations and adjustments.

Depreciation generally recovers the supported basis of qualifying business or income-producing property over its applicable recovery period, so rental and other income-producing property can be depreciable even though it is not used in a trade or business. The narrower provisions are where business-use tests bite: eligible property may receive a Section 179 election or Section 168(k) bonus depreciation only after its basis, acquisition and placed-in-service dates, property class, qualified business use, elections, and applicable investment, taxable-income, listed-property, vehicle, and recapture limits are established. New Jersey has separate conformity and basis rules, so federal and NJ treatment must be computed separately.