Taxation Legal Terms and Definitions

Dependency exemption Amount that taxpayers can claim for their eligible dependents. Each exemption reduces the income subject to tax. The exemption amount is a set amount that changes from year to year. Income taxes Taxes on income, both earned (salaries, wages, tips, commissions) and unearned (interest, dividends). Income taxes can be levied on both individuals (personal income taxes) and businesses (business and corporate income taxes). Exemptions Amount that taxpayers can claim for themselves, their spouses, and eligible dependents. There are two types of exemptions-personal and dependency. Each exemption reduces the income subject to tax. The exemption amount is a set amount that changes from year to year. Form W-4, Employee's Withholding Allowance Certificate Completed by the employee and used by the employer to determine the amount of income tax to withhold. Subchapter S The S-Corporation must complete and file IRS Form 1120s to report its annual income to the IRS each year. Depreciation and Section 179 Expense 50% special depreciation allowance. For qualified property you acquire after May 5, 2003, you can take a special depreciation allowance that is equal to 50% of the property's depreciable basis. However, instead of claiming the 50% special allowance, you can elect to claim the 30% special allowance or elect not to claim any special allowance. Federal income tax The federal government levies a tax on personal income. The federal income tax provides for national programs such as defense, foreign affairs, law enforcement, and interest on the national debt. Acquisition The purchase of one corporation by another, through either the purchase of its shares, or the purchase of its assets. Employee Works for an employer. Employers can control when, where, and how the employee performs the work. Gross income Money, goods, services, and property a person receives that must be reported on a tax return. Includes unemployment compensation and certain scholarships. It does not include welfare benefits and nontaxable Social Security benefits.

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	Did You Know?
	There are tax rules if change in accounting method is made Generally, the partnership must get IRS consent to change its method of accounting used to report income (for income as a whole or for any material item). To do so, it must file Form 3115, Application for Change in Accounting Method. See Form 3115 and Pub. 538, Accounting Periods and Methods.