The world of business taxes is full of specialized jargon and easily confused abbreviations.

Straight-line depreciation spreads the cost of an asset evenly over its useful life.

Here, we’ll demystify 26 tricky taxing terms you’re likely to encounter as a small-business owner:

  1. Audit
    An examination or review of an individual’s or organization’s financial records, tax returns, and related documents by a tax authority to verify the accuracy of tax reporting.
  2. Capital Gains Tax
    A tax on the profit that a business realizes from selling a capital asset, like cryptocurrency, stocks, bonds, and real estate.
  3. Corporate Income Tax
    A tax on the profits of corporations, paid by the corporation itself rather than individual shareholders or owners.
  4. Estimated Tax
    A system of paying taxes on income that is not subject to withholding tax, such as self-employment income or investment income.
  5. Excise Tax
    A tax on specific goods or services, such as gasoline, tobacco, or air travel.
  6. Federal Income Tax
    A tax on the income of individuals and businesses, levied by the federal government, and used to fund public services and programs.
  7. Federal Insurance Contributions Act (FICA)
    A federal payroll tax that is used to fund Social Security and Medicare programs. Both employees and employers are required to pay FICA taxes; self-employed people must pay both employee and employer sides.
  8. Federal Unemployment Tax Act (FUTA)
    A tax on employers that helps fund unemployment benefits for eligible workers who have lost their jobs due to no fault of their own.
  9. Indirect Tax
    A tax that is imposed on goods and services rather than on income or profits, such as a sales tax or value-added tax.
  10. Marginal Tax Rate
    The tax rate that applies to the last dollar of taxable income earned, typically a higher tax rate than the average tax rate.
  11. Payroll Tax
    A tax on the wages, tips, and salaries paid to employees, including local, federal, and state taxes, and FICA taxes.
  12. Progressive Tax
    A tax system in which the tax rate increases as an individual’s or household’s income increases. Higher-income earners pay a larger percentage of their income in taxes compared to lower-income earners.
  13. Property Tax
    A tax on the value of real property, such as land and buildings, that is assessed and collected by local governments.
  14. Proportional Tax
    A tax system in which everyone pays the same percentage of their income in taxes, regardless of their income level. Also known as a flat tax.
  15. Regressive Tax
    A tax system in which the tax rate decreases as an individual’s or household’s income increases. Lower-income earners pay a larger percentage of their income in taxes compared to higher-income earners.
  16. Sales Tax
    A tax on retail sales of goods and services that is typically imposed by state and local governments.
  17. Self-Employment Tax
    A tax on self-employment income, including income from a sole proprietorship or partnership, that is used to fund Social Security and Medicare benefits.
  18. State Income Tax
    A tax on the income of individuals and businesses, levied by state governments, and used to fund state-specific programs and services.
  19. State Unemployment Tax
    A tax on employers, levied by state governments, that helps fund unemployment benefits for eligible workers who have lost their jobs.
  20. Tax Credit
    A dollar-for-dollar reduction in the amount of tax owed, typically based on certain expenses or activities, such as child care expenses or energy-efficient home improvements.
  21. Tax Deduction
    An expense that can be subtracted from a taxpayer’s gross income, reducing their taxable income and, consequently, their tax liability.
  22. Tax Return
    A form used to report income, deductions, and tax owed or refund due from the government.
  23. Taxable Income
    The portion of income that is subject to taxation after deductions and exemptions are taken into account.
  24. Tax-Deferred
    A type of investment that allows for the deferral of taxes on investment gains until the gains are realized, such as a 401(k) retirement plan.
  25. Zero Bracket Amount (ZBA)
    The portion of income that is not subject to income tax, also known as the standard deduction. The ZBA varies based on filing status and other factors.

Defining Success

If you’re ready to put your knowledge into action, consult your financial institution.

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