Glossary: Taxation and Accounting Terms

Accounting methods:

Accrual. Income is reported in the year it is earned, and expenses are deducted in the year they are incurred.

Cash. Income is reported in the year it is received, and expenses are deducted in the year they are paid.

Employer identification number. A number used to identify the tax account of employers, sole proprietors, corporations, partnerships, and limited liability companies. This number is required if you have employees, have a Keogh plan, operate a corporation, partnership, or limited liability company or file employment, excise, alcohol, tobacco, or firearms tax returns.

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 or sells certain products or uses certain kinds of equipment, facilities, or products.

Information tax returns. A return that reports the income or loss of a business that is not subject to tax itself (e.g. partnerships, S Corporations, limited liability companies).

Sales tax. State and local government taxes on the sale and purchase of goods.

Self-employment tax. Social Security and Medicare tax paid by individuals who work for themselves.

Tax year. An annual accounting period for reporting income and keeping records. There are two types of tax years. A calendar year runs from January 1 until December 31. A fiscal year runs for twelve consecutive months ending on the last day of any month except December.