Tax Glossary

50 tax, business, crypto, and bookkeeping terms explained in plain English. No jargon walls. Just clear definitions you can actually use.

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Tax Basics

Adjusted Gross Income (AGI)

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. I always tell clients to think of it as the starting line for your tax return.

Filing Status

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. Picking the right one can save you real money.

Standard Deduction

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 2025, it's $15,000 for single filers and $30,000 for married filing jointly.

Itemized Deductions

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. Since the SALT cap limits state and local tax deductions to $10,000, fewer people itemize than before.

Tax Bracket

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.

Marginal Tax 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 I look at when planning whether a deduction or strategy will actually move the needle for a client.

Effective Tax Rate

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's always lower than your marginal rate because of how brackets work. This gives you the real picture of your tax burden.

Tax Liability

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.

Tax Credit vs Tax Deduction

A deduction reduces your taxable income, while a credit reduces your actual tax bill dollar for dollar. If you're in the 22% bracket, a $1,000 deduction saves you $220. A $1,000 credit saves you a full $1,000. Credits are almost always more valuable, and I make sure clients claim every one they qualify for.

Estimated Quarterly Taxes

If you're self-employed or have income without withholding, the IRS expects you to pay taxes four times a year. The due dates are April 15, June 15, September 15, and January 15. Miss a payment or underpay, and you'll get hit with a penalty. I help clients figure out the right quarterly amount so there are no surprises.

Self-Employment Tax

Self-employment tax is the Social Security and Medicare tax that self-employed people pay. It's 15.3% on net earnings (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're on the hook for both halves. Technically, under IRC Section 1402(a)(12), you only pay SE tax on 92.35% of your net self-employment income, not the full amount. That 7.65% reduction approximates the employer-equivalent portion of FICA. For 2026, the Social Security wage base is $184,500, meaning the 12.4% portion stops there, but the 2.9% Medicare tax applies to all earnings with an additional 0.9% above $200K ($250K if married filing jointly).

FICA

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.

Business & Entity

Sole Proprietorship

A sole proprietorship is the simplest business structure. There's no separate legal entity. You and the business are the same thing in the eyes of the IRS. You report income on Schedule C of your personal return. It's easy to start, but you have no liability protection and you'll pay self-employment tax on all your profits.

LLC

A Limited Liability Company separates your personal assets from your business debts and lawsuits. By default, a single-member LLC is taxed as a sole proprietorship and a multi-member LLC is taxed as a partnership. The real power of an LLC is that you can elect to be taxed as an S-Corp, which can cut your self-employment tax significantly.

S-Corporation

An S-Corp is a tax election, not a business structure. You form an LLC or corporation, then file Form 2553 with the IRS to be taxed as an S-Corp. The main benefit is splitting income between salary (subject to FICA) and distributions (not subject to FICA). Done right, it can save thousands in self-employment tax each year. Most CPAs look for net business income consistently above $60,000 to $80,000 before recommending the election, because annual compliance costs (payroll, separate returns, NJ CBT-100S) typically run $2,000 to $5,000. Below that threshold, the FICA savings often don't cover the added costs.

C-Corporation

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.

Partnership

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. I've seen messy situations when partners don't document their profit splits and responsibilities upfront.

Schedule C

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.

EIN

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.

Reasonable Compensation

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 audit. Set it too high, and you lose the tax savings. I help clients find the right number based on their role, industry, and revenue to stay compliant while maximizing savings. In Watson v. Commissioner, the Tax Court ruled that an S-Corp owner who paid himself $24,000 on $200K+ of revenue was unreasonable. The general benchmark most tax professionals use is 40% to 60% of net business income, adjusted for geography, industry, and the owner's actual role in day-to-day operations.

Pass-Through Entity

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.

QBI Deduction (Section 199A)

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. It's one of the biggest tax breaks available to small business owners, but the rules are complicated. I always run the numbers to make sure clients get the full benefit. The One Big Beautiful Bill Act made QBI permanent (it was originally set to expire after 2025) and expanded the phase-out thresholds. For 2026, the SSTB phase-out begins at $203,250 (single) and $406,500 (married filing jointly). Note that NJ does not conform to QBI, so this deduction only reduces your federal tax.

Form 2553

Form 2553 is the IRS election to be taxed as an S-Corporation. It must be filed within 75 days of forming your entity or by March 15 for the current tax year. Miss the deadline and you'll have to wait until next year or request late election relief. In New Jersey, you also need a separate state-level S-Corp election, which trips people up.

Registered Agent

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.

NJ-Specific

NJ Gross Income Tax (GIT)

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.

NJ CBT-100S

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.

NJ BAIT Election

The Business Alternative Income Tax is New Jersey's workaround for the $10,000 federal SALT deduction cap. 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 I run the numbers for every eligible client. The BAIT uses a graduated rate schedule: 5.675% on the first $250K of distributive proceeds, scaling up through several brackets to 10.9% on income above $1 million. The election must be made annually and applies to all members of the entity for that tax year.

NJ Exit Tax

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.

NJ Capital Gains Treatment

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.

Urban Enterprise Zone

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.

NJ Sales Tax Certificate of Authority

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.

NJ Annual Report

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 anniversary of your formation, 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.

Crypto

Cost Basis

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 I see people overpay on crypto taxes.

FIFO

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

Specific identification lets you choose exactly which units of crypto you're selling. Instead of defaulting to FIFO, you can pick the lot with the highest cost basis to minimize your taxable gain. It requires detailed records, but it can save significant money. The IRS allows it as long as you can adequately identify the units sold.

Taxable Event

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

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. I offer a reconciliation service to make sure your 1099-DA matches your actual activity. Under IRS Notice 2024-56, brokers began reporting gross proceeds for tax year 2025 (forms issued in early 2026). Cost basis reporting phases in for tax year 2026 and beyond. DeFi front-ends and non-custodial platforms have a later compliance timeline. Wallet-by-wallet tracking is now the default method under Revenue Procedure 2024-28.

Wallet-by-Wallet Tracking

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.

Staking Rewards

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 Jarrett v. United States case challenged this position, arguing rewards create new property (not income), but the case was mooted after the IRS issued a refund, leaving the legal question unresolved.

DeFi

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.

Airdrop

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.

Hard Fork

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.

Bookkeeping

Chart of Accounts

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. I set these up for clients in QuickBooks Online regularly.

Bank Reconciliation

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

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

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. I help clients set up systems so nothing slips through the cracks.

Cash Basis vs Accrual

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, but the IRS requires accrual for businesses with over $30 million in average annual gross receipts.

GAAP

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, following GAAP ensures your books are taken seriously when you need a loan or want to bring on investors.

COGS

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

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. I always check both to make sure you're getting the right deduction at each level.