Tax Glossary

Your AGI is your total income minus specific adjustments like student loan interest, retirement contributions, and self-employment tax deductions. It's the number the IRS uses to determine your eligibility for most credits and deductions. 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 flat dollar amount the IRS lets you subtract from your income before calculating tax. Most filers take it because it's simple and often larger than what they'd get from itemizing. For TY2026 per Rev. Proc. 2025-32: $16,100 single/MFS, $32,200 MFJ, $24,150 head of household. (For TY2025 the figures were $15,750 single, $31,500 MFJ, $23,625 HoH.) NJ does not offer a standard deduction.

Itemizing means listing out your actual deductible expenses (mortgage interest, state taxes, charitable donations, medical costs) instead of taking the standard deduction. You'd only itemize if the total exceeds your standard deduction. The OBBBA (P.L. 119-21, §70120) raised the SALT cap to $40,000 for 2025 ($40,400 for 2026, indexed +1%/yr through 2029), which has made itemizing viable for more taxpayers in high-tax states like New Jersey. Important: the cap phases down by 30% of MAGI exceeding $500,000 (2025) / $505,000 (2026), with a $10,000 floor. At roughly $606,333 MAGI in 2026 the cap is fully phased back to $10,000. High-income NJ taxpayers should model their effective cap before assuming the full $40,400 deduction.

A tax bracket is a range of income that gets taxed at a specific rate. The U.S. uses seven federal brackets ranging from 10% to 37%. Your bracket doesn't mean all your income is taxed at that rate, though. Only the income within each bracket gets that bracket's rate.

Your marginal tax rate is the rate you'd pay on the next dollar you earn. It's the highest bracket your income falls into. This is the number that determines whether a deduction or strategy will actually move the needle on your tax bill.

Your effective tax rate is the actual percentage of your total income that goes to taxes. Divide your total tax by your total income, and that's it. It often differs from your marginal rate because it averages tax across the applicable brackets and adjustments; it is not necessarily lower in every edge case. This gives you the real picture of your tax burden.

Tax liability is the total amount of tax you owe for the year. It's calculated after applying your deductions, credits, and bracket rates. Your liability isn't what you pay on April 15. It's the full-year number. What you owe or get refunded is the difference between your liability and what you've already paid through withholding or estimated payments.

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, the IRS generally expects quarterly estimated payments - due April 15, June 15, September 15, and January 15. You can avoid an underpayment penalty through the safe harbors: pay in at least 90% of this year's tax or 100% of last year's (110% if your prior-year AGI was over $150,000) through withholding and estimates. Uneven income? The annualized-income method matches payments to when you actually earned. Calculating the right quarterly amount upfront prevents surprises at filing time.

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 and the 0.9% Additional Medicare Tax uses combined wage and self-employment thresholds of $200,000 single or $250,000 married filing jointly. 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. It's the combination of Social Security tax (6.2%) and Medicare tax (1.45%) withheld from employee paychecks. Employers match that amount, so the total is 15.3%. If you run payroll, you need to be on top of these deposits or the penalties add up fast.

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 default single-member LLC is disregarded and a default multi-member LLC is generally a partnership; an eligible entity 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 profits, and shareholders pay tax again on dividends. That's the "double taxation" you hear about. Most small businesses avoid it, but C-Corps make sense for companies planning to raise venture capital or retain significant earnings at the 21% corporate rate.

A partnership is a business owned by two or more people. It files its own return (Form 1065) but doesn't pay taxes itself. Instead, profits and losses pass through to each partner's personal return on Schedule K-1. Partnership agreements matter - messy situations arise when partners don't document their profit splits and responsibilities upfront.

Schedule C is the IRS form sole proprietors and single-member LLCs use to report business income and expenses. It's filed as part of your personal 1040. Your net profit from Schedule C flows into your AGI and is also subject to self-employment tax. Good recordkeeping throughout the year makes this form painless at tax time.

An Employer Identification Number is your business's tax ID, like a Social Security number for your company. You need one to open a business bank account, hire employees, or file certain tax returns. You can get one for free from the IRS website in about five minutes.

If you own an S-Corp, the IRS requires you to pay yourself a "reasonable" salary before taking distributions. Set it too low, and you're asking for an examination. The amount must be supportable under the owner's actual services, role, industry, geography, and other facts. Compensation is a compliance determination, not a target chosen to maximize a projected tax reduction. In David E. Watson, P.C. v. United States (668 F.3d 1008, 8th Cir. 2012), the Eighth Circuit affirmed that an accountant-owner who paid himself $24,000 while receiving $175K-$204K in S-Corp distributions had set an unreasonably low salary; the court accepted the IRS expert's $91,044 reasonable compensation valuation. (Watson was decided by the U.S. District Court for the Southern District of Iowa and affirmed by the 8th Circuit; the Supreme Court denied certiorari.) As a descriptive practitioner observation (not a court- or IRS-established safe harbor), upheld salaries tend to fall in the 40%-70% of net profit range, adjusted for geography, industry, and the owner's actual role in day-to-day operations.

A pass-through entity doesn't pay income tax at the business level. Instead, profits and losses "pass through" to the owners' personal returns. S-Corps, partnerships, LLCs, and sole proprietorships are all pass-throughs. Most small businesses in the U.S. are structured this way because it avoids double taxation.

The Qualified Business Income deduction lets owners of pass-through entities deduct up to 20% of their business income on their personal return. There are income limits and restrictions for certain service businesses. The deduction can be up to 20%, but taxable-income, SSTB, wage, property, and other limits can reduce or eliminate it. The complete computation establishes the allowable amount; no fixed benefit follows from business income alone. The One Big Beautiful Bill Act (OBBBA §70105) made QBI permanent (it was originally set to expire after 2025) and expanded the phase-in range. For TY2026, the §199A SSTB phase-in begins at $201,750 (single/HoH), $201,775 (MFS - asymmetric per Rev. Proc. 2025-32 §3.26), and $403,500 (MFJ). The phase-in occurs over $75,000 (single/HoH/MFS) or $150,000 (MFJ) of taxable income above the threshold, so the deduction is fully phased out at $276,750 (single/HoH) / $276,775 (MFS) / $553,500 (MFJ). Note that NJ does not conform to QBI, so this deduction only reduces your federal tax.

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 any time during the preceding tax year. A brand-new entity measures the window from the start of its first tax year. Miss it and you'll generally wait a year - or request late-election relief under Rev. Proc. 2013-30. NJ note: P.L. 2022, c.133 generally eliminated the old separate CBT-2553 for qualifying federal approval/effective dates and privilege periods, but recognition is not automatic from federal status alone. Confirm DORES registration as an '1120 Filer,' federal approval proof, Shareholder Jurisdictional Consent, and timely CBT-100S filing. Formation date is not the test; earlier privilege periods may require retroactive-election review.

A registered agent is a person or company designated to receive legal documents and official mail on behalf of your business. Every LLC and corporation in New Jersey is required to have one. You can serve as your own registered agent, but many business owners use a service so their home address isn't on public record.

New Jersey's Gross Income Tax is the state's personal income tax. Unlike the federal system, NJ doesn't allow most of the same deductions. The rates range from 1.4% to 10.75%, and the top rate kicks in at $1 million of income. NJ also taxes some things differently than the feds, like capital gains, which get no preferential 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 tax. There's a minimum tax based on gross receipts, and the filing deadline differs from the federal deadline. It catches a lot of new S-Corp owners off guard.

The Business Alternative Income Tax is New Jersey's workaround for the federal SALT deduction cap ($40,000 for 2025 and $40,400 for 2026 under OBBBA, up from the original $10,000). Pass-through entities can elect to pay state tax at the entity level, which becomes a deductible business expense. The owners then get a credit on their personal NJ return. It's a legitimate way to get around the SALT cap, and running the numbers is worth it for every eligible pass-through entity. 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 older 9.12% bracket for $1M-$5M income was eliminated by P.L. 2021, c.419 effective Jan 1, 2022.) The election must be made annually by March 15 (or the next business day if March 15 falls on a weekend) and applies to all members of the entity for that tax year.

When you sell your home and leave New Jersey, the state requires either a prepayment of estimated tax or the filing of a waiver. It's not technically a separate tax. It's an estimated payment on the gain from selling your NJ property. The amount is the greater of 2% of the sale price or your estimated tax on the gain. Proper planning before you sell can reduce this significantly.

Unlike the federal system, New Jersey doesn't give capital gains a lower tax rate. Long-term and short-term gains are all taxed as ordinary income under the GIT. That means NJ residents can face a combined federal and state rate that's higher than they expect on stock sales, crypto sales, and real estate gains.

New Jersey's Urban Enterprise Zone (UEZ) program offers tax incentives to businesses operating in designated economically distressed areas. Qualified businesses can charge a reduced sales tax rate of 3.3125% (half the standard rate) on certain in-person retail sales. It's a real benefit for brick-and-mortar businesses in eligible zones.

If you sell taxable goods or services in New Jersey, you need a Certificate of Authority from the Division of Revenue. It's your license to collect sales tax. You can't legally make retail sales without one. There's no fee to register, and you can do it online through the NJ Division of Revenue website.

Every LLC, corporation, and other registered entity in New Jersey must file an annual report with the Division of Revenue. It's due each year by the last day of your formation anniversary month, and the fee is $75 for most entities. Miss it and the state can revoke your business's good standing, which creates problems down the line.

Cost basis is what you originally paid for a crypto asset, including any fees. When you sell, your gain or loss is the sale price minus your cost basis. If you bought 1 ETH for $2,000 and sold it for $3,500, your gain is $1,500. Getting this wrong is the number one reason people overpay on crypto taxes.

FIFO stands for First In, First Out. It means when you sell crypto, the IRS assumes you're selling the oldest units you bought first. It's the default method most exchanges use. In a rising market, FIFO usually results in higher gains because your oldest coins likely had the lowest cost basis.

Specific identification permits adequately identified crypto units to determine the basis of units sold; different eligible lots can produce different reported gains. The catch is timing: you must identify the units no later than the time of the sale - with your broker for exchange-held assets, or in your own records for self-custody wallets - and identification works wallet-by-wallet. A timely standing instruction may qualify under the applicable identification rules. This definition describes tax mechanics only; Monaco CPA does not select lots, recommend trades, or monitor holdings. Identify lots after the fact and the IRS defaults you to FIFO.

A taxable event is any transaction that triggers a tax obligation. In crypto, selling for cash, trading one coin for another, spending crypto on goods or services, and receiving staking rewards are all taxable events. Simply holding or transferring between your own wallets is not taxable. Knowing the difference keeps you from reporting things you don't need to.

Form 1099-DA is the IRS form that crypto brokers and exchanges must issue starting in 2025 to report digital asset transactions. It's similar to a 1099-B for stocks. The form reports gross proceeds, and in later years, cost basis too. A reconciliation review compares client-supplied 1099-DA data with client-supplied activity records; it does not guarantee that every account, transaction, or document was supplied. Under the final broker reporting regulations (T.D. 10000), brokers began reporting gross proceeds for tax year 2025 (forms issued in early 2026), with cost basis reporting phasing in for tax year 2026 and beyond (IRS Notice 2024-56 separately provides transition penalty relief for good-faith filers). The IRS's DeFi/non-custodial 'broker' reporting rule was repealed by Congress under the Congressional Review Act (P.L. 119-5, signed April 10, 2025), so DeFi front-ends and non-custodial platforms have no 1099-DA reporting obligation. Wallet-by-wallet tracking is now the default method under the per-wallet basis rules (Treas. Reg. §1.1012-1(j)).

Wallet-by-wallet tracking means calculating your cost basis separately for each wallet or exchange account. Under current IRS rules, you can't move crypto between wallets and blend the cost basis together without proper documentation. This approach gives you the most accurate and defensible tax reporting.

When you stake crypto to help validate transactions on a blockchain, the rewards you earn are taxable income. You report them at fair market value on the date you receive them. If you later sell those staking rewards, you'll also owe capital gains tax on any price increase since you received them. The IRS confirmed this treatment in Rev. Rul. 2023-14, which states that staking rewards are includible in gross income in the tax year the taxpayer gains dominion and control over them. The first Jarrett v. United States suit challenged this position, arguing rewards create new property (not income), but it was mooted in 2022 after the IRS offered a refund. A second suit (Jarrett v. United States, 3:24-cv-01209, M.D. Tenn., filed October 2024) is now pending, with cross-motions for summary judgment pending and a bench trial scheduled for September 29, 2026. Separately, in Paschall v. Commissioner (T.C. Memo. 2026-46, June 4, 2026) the Tax Court held - on a pro-se record, under IRC Section 61 and Glenshaw Glass rather than Rev. Rul. 2023-14 - that staking rewards are gross income when received; commentators caution against over-reading its weak factual record. Rev. Rul. 2023-14 remains the governing IRS position while these cases proceed.

DeFi stands for Decentralized Finance. It covers lending, borrowing, liquidity pools, yield farming, and other financial activities on blockchain protocols without traditional intermediaries. The tax rules are still evolving, but the IRS treats DeFi transactions the same as any other crypto activity. Every swap, claim, and withdrawal can be a taxable event.

An airdrop is when a crypto project distributes free tokens to wallet holders. The IRS treats airdrops as ordinary income, taxable at the fair market value when you receive them. Your cost basis for future sales is that same value. Some airdrops are worth very little, but you still need to report them.

A hard fork happens when a blockchain splits into two separate chains, often creating a new token for existing holders. The IRS has said that if you receive new coins from a hard fork, it's taxable income at the fair market value when you gain control of the new tokens. The most famous example was Bitcoin Cash forking from Bitcoin in 2017.

Your chart of accounts is the list of every category your business uses to track money coming in and going out. Think of it as the filing system for your books. A well-organized chart of accounts makes bookkeeping faster, tax prep easier, and financial reports actually useful. In QuickBooks Online, this is one of the first things to configure properly.

Bank reconciliation is the process of matching your accounting records to your bank statement. It catches duplicate entries, missed transactions, and errors before they become bigger problems. I recommend doing it monthly. If your books and bank don't match, something's off, and you want to find out sooner rather than later.

Accounts receivable (AR) is money your customers owe you for products or services you've already delivered. It shows up as an asset on your balance sheet. Keeping AR organized and following up on late invoices is critical for cash flow. If you're not tracking it, you could be leaving money on the table.

Accounts payable (AP) is the money your business owes to vendors and suppliers. It shows up as a liability on your balance sheet. Staying on top of AP helps you avoid late fees, maintain good vendor relationships, and plan your cash flow. Documented systems can reduce omission risk, but they do not guarantee completeness.

Cash basis accounting records income when you receive payment and expenses when you pay them. Accrual accounting records income when you earn it and expenses when you incur them, regardless of when cash changes hands. Most small businesses use cash basis because it's simpler. The IRC Section 448 bar on the cash method applies only to C corporations, partnerships with a C corporation partner, and tax shelters whose average annual gross receipts exceed $32 million (TY2026, indexed) - other businesses can generally keep the cash method regardless of size, though separate rules (like inventory accounting) may still apply.

GAAP stands for Generally Accepted Accounting Principles. It's the standard set of rules and guidelines that govern how financial statements are prepared in the U.S. Banks, investors, and creditors expect GAAP-compliant financials. For small businesses, 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 direct cost of producing or purchasing the products you sell. It includes materials, labor directly tied to production, and manufacturing overhead. COGS gets subtracted from revenue to calculate gross profit. Tracking it accurately matters because it directly reduces your taxable income.

Depreciation lets you spread the cost of a business asset (equipment, vehicles, furniture) over its useful life instead of deducting it all at once. Section 179 and bonus depreciation can let you write off the full cost in year one, but NJ has different rules than the feds. Federal and NJ treatment must be computed separately; the review does not promise a particular deduction or tax result.