Tax Glossary

Interest deemed earned on seller-financed sales or low-interest loans, where the parties’ stated interest rate is below the applicable IRS federal rate.

Option meeting tax law tests that defers tax on the option transaction until the obtained stock is sold.

Based on an IRS table, an amount that reduces a business deduction taken for payments on an auto leased for a minimum of 30 days.

Income earned by a person before death but taxable to an estate or heir who receives it.

One who controls his or her own work and reports as a self-employed person.

A retirement account to which up to $4,000 (or $5,000 if you are 50 or over) may be contributed for 2007, but deductions for the contribution are restricted if you are covered by a company retirement plan. Earnings accumulate tax free.

A sale of property that allows for tax deferment if at least one payment is received after the end of the tax year in which the sale occurs. The installment method does not apply to year-end sales of publicly traded securities. Dealers may not use the installment method. Investors with very large installment balances could face a special tax.

Intangible assets that come within Section 197, such as goodwill, are amortizable over a 15-year period.

A trust created during the lifetime of the person who created the trust. If irrevocable, income on the trust principal is generally shifted to the trust beneficiaries.

The total cost investment in an annuity. When annuity payments are made, the portion allocable to the cost investment is tax free.

Interest on debt used to carry investments, but not including interest expense from a passive activity. Deductions are limited to net investment income.

Forced disposition of property due to condemnation, theft, or casualty. Tax on gain from involuntary conversions may be deferred if replacement property is purchased.

Items, such as interest, state and local income and sales taxes, charitable contributions, and medical deductions, claimed on Schedule A of Form 1040. Itemized deductions are subtracted from adjusted gross income to arrive at taxable income. The amount of itemized deductions is also subject to a reduction when adjusted gross income exceeds certain limits.