FAQ: Tax Law

Glossary of Business Taxations Terms

Glossary of Business Taxations Terms

Accounting methods:

Methods of accounting under which taxpayers regularly compute their income in keeping their books.

Accrual. Under the accrual method, income is reported as earned, and expenses are deducted when incurred.

Cash. Under the cash method, income is reported as received, and expenses are deducted when paid.

Employer identification number. A nine-digit number used to identify the tax account of employers, sole proprietors, corporations, partnerships, estates, certain trusts, and other entities. This number is required if you pay wages to one or more employees; you are a withholding agent who is required to withhold taxes on income other than wages paid to a nonresident alien; you file Schedule C, Profit or Loss From Business, Schedule C-EZ, Net Profit From Business, or Schedule F; you file a Profit or Loss From Farming, or Form 1040, U.S. Individual Income Tax Return, and have a Keogh plan; or you are required to file employment, excise, alcohol, tobacco, or firearms tax returns. Apply for an EIN using Form SS-4.

Employment tax. Federal income tax withholding, Social Security tax, Medicare tax, and federal unemployment tax that an employer must submit on behalf of employees.

Excise tax. Tax paid if a business manufactures, sells, or uses certain products or tax imposed on a particular occupation or activity.

Information tax returns. A return filed by an entity to report some economic information other than tax liability - includes a return that reports the income or loss of an entity that is not subject to tax (e.g. partnerships).

Sales tax. State or local taxes on the retail sale of goods and services.

Self-employment tax. Social Security and Medicare tax paid on the net earnings of individuals who work for themselves.

Tax year. An annual accounting period for reporting income and keeping records. There are three types of tax years. A calendar year runs from January 1 until December 31. A fiscal year generally runs for twelve consecutive months ending on the last day of any month except December. A taxpayer who regularly computes income based on an annual period, which varies from 52 to 53 weeks, can elect a 52-53 week year. A 52-53 week year always ends on the same day of the week and always on whatever date the day last occurs in a calendar month or on whatever date the day falls which is nearest to the last day of the of a calendar month.

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