Tax Glossary

The nationality of a taxpayer may affect the way he is taxed and the nature of his tax burden, but comprehensive income tax treaties commonly provide that foreign taxpayers should not suffer discriminatory taxation by reason of their nationality.

A helpful and appropriate expense for a field of trade, business, or profession; it does not have to be indispensable to be considered necessary.

A proposed system of providing financial aid to poverty-level individuals and families, using the mechanisms already in place to collect income taxes. Low-income persons or families would receive a direct subsidy, called a negative income tax.

Failure to act as a reasonable and ordinarily prudent person would under the given circumstances.

The amount by which the net long-term capital gain for the year exceeds the net short-term capital loss.

Net income is gross income of less deductible income-related expenses. Many countries levy income tax on this basis.

Generally, the amount by which allowable deductions exceed gross income.

The year in which an NOL occurred.

Difference between receipts from business transactions and deductible business expenses, subject to any adjustments for tax purposes.

Ratio of operating profits to gross income or revenue.

The increase in the value of securities while held in trust.

Current assets minus current liabilities.

The taxable base for resident taxpayers is normally the taxpayer's worldwide net worth, i.e. total assets minus liabilities along with deductions and exemptions specially allowed by tax laws.

Often a requirement in tax law for determination of taxability or deductibility. For example, expenses are deductible if they have a “nexus” with gross income. In the US, the taxable income of a multistate corporation may be apportioned to a specific state only if the corporation has a sufficient nexus in the state.

Amount of capital that is defined as such in the articles of incorporation. Usually, a certain minimum amount of nominal capital is required to establish a legal entity.

An individual who receives income in their name that actually belongs to someone else.

Tax treaties frequently contain a "non-discrimination" article which stipulates that citizens or nationals of one country resident in the other country may not be subjected to local taxation which is different from or more burdensome than the tax to which citizens and nationals of the host country are subjected under the same circumstances (including as to residency).

A stock option that does not meet the incentive stock option requirement under US tax law. The spread is taxed as ordinary income.

Broadly speaking, a person who spends most of the calendar year outside his country of domicile. Non-residents are usually taxed on income derived from sources within the taxing jurisdiction whereas residents may be taxed on worldwide income.

A non-resident individual who is not a citizen or national of the taxing jurisdiction.

A reimbursement or allowance arrangement under which an employer reimburses an employee or provides the employee an expense allowance regardless of whether the employee meets any of the requirements of an accountable plan.

The parent who has custody of a child for the shorter part of the year or who does not have custody at all.

Income from earnings or wages, active business participation, dividends, interest, or capital gains.

A payment or distribution from a retirement plan that does not recur on a regular basis.

A plan that does not meet the IRS requirements for qualified retirement plans.

The net section 1231 losses for the previous five years that have not been applied against a net section 1231 gain by treating the gain as ordinary income.

A debt for which the debtor is not personally liable.

Financing for which the taxpayer is not personally liable.

A credit that cannot be more than the tax liability on the taxpayer's tax return.

Most real property (real estate) other than residential rental property.

An exchange in which any gain is not taxed and any loss cannot be deducted.

Generally, an activity that has not produced a profit in at least three of the last five tax years, including the current year.

The written decision of the tax authorities after a review of a taxpayer's return, whereby the amount of taxable income is determined and the amount of tax due is calculated.