How to Speak "Tax"?
This time of year and into April, we begin to hear a different vocabulary come to life: “Credit.” “Exemption.” “Adjusted Gross Income.” It can seem as if your accountant speaks a different language from you.
While we’ll do our best to explain the tax terms we use during your appointment, we’ve compiled a list of them for those of you who’d like to be more “in the know.” Not only will this better equip you to keep up at your next social gathering, but it will allow you to ask the right questions when you meet with your tax professional.
TY = Tax Year
If you file your taxes on time, the tax year is always one year behind the year we’re in. In 2019, you will be filing your TY 2018 tax return.
FY = Fiscal Year
Fiscal year is a one-year period for accounting purposes. Most businesses make their fiscal year the same as the calendar year: January 1st through December 31st. Others run their business with start and stop dates different from the calendar year. A common fiscal year is July 1st to June 30th.
EIN = Employer Identification Number
This is a unique identification number assigned to a business by the IRS.
Form 8879 = IRS e-file Signature Authorization
This form must be signed for your return to be efiled, and it can be digitally signed.
Form 1040 = U.S. Individual Income Tax Return
This is the main form used when reporting individual income. It includes the taxpayer’s basic information, dependents, and tax calculations. If the taxpayer is a sole proprietor or a single-member LLC, their business activity is reported on their personal tax return.
Form 1120 = U.S. Corporation Income Tax Return
When reporting C corporation income, this form is used. S corporations are reported on Form 1120S.
AGI = Adjusted Gross Income
AGI is equal to your total income subject to income tax minus specific deductions you may be eligible to take. AGI is calculated before applying the standard or itemized deduction. Many credits are subject to AGI limitations, meaning that if your AGI is above a certain amount, you may be disqualified from certain deductions and credits.
MFJ = Married Filing Jointly
This is one of five possible filing status categories.
MFS = Married Filing Separate
This is another one of five possible filing status categories. You may see these acronyms frequently in tax articles explaining how new laws affect the different types of taxpayers.
TCJA = Tax Cuts and Jobs Act
The name bestowed upon the largest tax law changes approved by Congress, many of which went into effect for TY 2018.
SSTB = Specified Service Trade or Business
This term specifically relates to Section 199A, which is a new tax law that allows for up to a 20% deduction on “qualified business income” (“QBI”) for any “qualified trade or business” (“QTB”) other than a “specified trade or business” (“SSTB”). This deduction is available to sole proprietors and passthrough entities.
This list will get you started, and if you run across another tax term, feel free to reach out and ask us what it means.