Tax Terms, Words, & Phrases
Dictionary
Here are the meanings and definitions of important tax terms,
tax words, and
tax phrases.
1031 Tax Free Exchange: See the Tax-Free Real Estate
Exchange definition provided below.
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Accelerated Depreciation: an accounting method for calculating,
recognizing, and deducting higher amounts of depreciation in the earlier
years and lower amounts in the later years of a fixed asset's life. This is
contrast to straight line depreciation in which the annual depreciation
amount/deduction is the same each year, with the annual depreciation amount
being calculated by the simple division of the asset purchase price (less
the estimated scrap value at the end of the asset's life) by the estimated
and projected numbers of years of service expected for that particular
asset.
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Business Trust:
"A
'business trust' is an unincorporated business association which is created
by a trust instrument, pursuant to common law or enabling legislation, under
which property is held, managed, administered, controlled, invested,
reinvested, or operated, or business or professional activities for profit
are carried on, by a trustee or trustees for the benefit and profit of such
person or persons as are or may become the holders of transferable
certificates, issued pursuant to the provisions of the trust instrument,
which have either restricted or unrestricted transferability, evidencing
beneficial interests in the trust estate, including but not limited to a
trust of the type known at common law as a business trust, or Massachusetts
trust..."---Indiana
Business Trust Act at IC 23-5-1-2.
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Depreciation Tax Deduction: The Internal Revenue Code allows an annual
tax deduction for wear and tear and loss of utility of both personal
property and buildings and land improvements which are used in the operation
of a business investment. This tax deduction is allowed without the
requirement of a cash payment, thus providing an important benefit to real
estate investors or owners of personal property utilized in a business.. A
tax depreciation deduction may be claimed even when the property's market
value stays the same in value or even increases.
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Ground Rent:
The rent earned by leased land. Ground rent received is taxable as ordinary
income when received. If the lease is considered a financing device,
portions of the rent may be treated as interest, gain, and nontaxable
recovery of investment. If ground rent is a financing device, it is treated
as a mortgage payment.
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Ground Rent or Lease Tax
Deduction: One of the most valuable and continuing big tax deductions year in and year
out is to for the owner of an income-producing building and land
improvements to pay annual ground rent to the landowner for the privilege of
keeping the owner's buildings and improvements on the leased land. This
ground rent tax saving strategy is of especially-high value when the
landowner is a taxpayer in in a lower tax bracket (such as minor children,
an irrevocable trust, a tax-free pension plan, or an offshore entity in a no
or small tax haven.
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Home Office Deduction:
The Internal Revenue Code allows a pro-rate income tax deduction for that
portion of a home's operational expenses that are used regularly and
exclusively for business purposes. The home office deduction can be a
pro-rata share of such expenses as home rent, utilities, phone and internet
access, and depreciation expense.
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International
Business Trust:
An international business trust is created in
an asset haven and it is funded by one or more persons (creators or
transferors) transfer the legal title of property, capital, and/or a
business to trustee(s) of the international business trust, with power vested in the trustee(s) to manage and
control the property, capital, and/or business and to pay the profits of the
enterprise to the creators/transferors of the trust and/or their heirs, assigns,
and successors.
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Limited Liability Partnership: A partnership
agreement and entity that limits the liability of the limited partners to
the amount of their invested capital in the partnership.
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Limited Liability Limited Partnership: A partnership agreement and
entity that: limits the liability of both the limited partners and general
partners to the amount of their invested capital in the partnership.
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Loophole: An ambiguity, omission, or exception (as in a
law or other legal document) that provides a way to avoid a rule without
violating its literal requirements; esp., a tax-code provision that allows a
taxpayer to legally avoid or reduce income taxes. Black's Law Dictionary,
764 (Abridged 7th ed. 2004).
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Offshore Limited Liability Partnership: A
partnership agreement and entity that: (1) limits the liability of the
limited partners to the amount of their invested capital in the partnership;
and (2) is organized and domiciled offshore in an asset haven such as
Belize.
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Offshore Limited Liability Limited Partnership: A partnership
agreement and entity that: (1) limits the liability of both the limited
partners and general partners to the amount of their invested capital in the
partnership; and (2) is organized and domiciled offshore in an asset haven
such as Belize.
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Private Annuity:
A private annuity agreement is an effective method of selling or
transferring an asset whereby the seller (“transferor” or “annuitant”) sells
or transfers the asset to the buyer (transferee) in exchange for the
buyer/transferee agreeing to make certain, fixed-amount payments to the
seller/annuitant until the seller dies. To qualify as a private annuity for
U.S. tax purposes, in addition to other requirements, the buyer (obligor to
make the annuity payments) must not be in the business of issuing annuities.
This requirement does not affect non-U.S. residents and non-U.S. citizens.
The transferee can be one or more individuals, a general or limited
partnership, a trust (domestic or overseas), or a corporation (domestic or
overseas). Thus, the basic essence of a private annuity is that a person, called the
“transferor,” transfers property or money to a second person or trust
(domestic or foreign), called the “transferee,” in exchange for the
transferee’s unsecured promise to pay a lifetime income to the transferor.
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Straight Line Depreciation: the annual depreciation
amount/deduction is the same each year, with the annual depreciation amount
being calculated by the simple division of the asset purchase price (less
the estimated scrap value at the end of the asset's life) by the estimated
and projected numbers of years of service expected for that particular
asset. This method is in contrast to the Accelerated Depreciation
method:, which is an accounting method for calculating, recognizing, and
deducting higher amounts of depreciation in the earlier years and lower
amounts in the later years of a fixed asset's life.
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Tax Avoidance: Income tax planning and estate planning that legally
reduces tax liabilities by utilizing lawful year-round income tax planning
strategies and advanced estate planning techniques.
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Tax Credit: A direct reduction in the amount of taxes owed.
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Tax Deduction:
The deductible amount subtracted from a a taxpayer's adjusted gross income
to reduce the amount of taxable income because tax deductions are subtract
from gross income to calculate adjusted gross income (AGI).
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Tax Deductible: The expenditure amount that can be deducted from
gross income or business revenue to determine the remaining amount that is
subject to income taxes.
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Tax Evasion: Utilizing illegal methods and strategies to reduce tax
payments.
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Tax Exempt: Not liable to pay taxes.
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Tax Haven: A nation that imposes no taxes or a low rate of taxes on
the income earned by legal entities (such as business trusts, asset
protection trusts, international business companies, offshore limited
liability companies, etc.) organized and/or domiciled in that nation.
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Taxable Income: the amount of an individual's or a business's
income or revenue that is subject to income taxation after the deduction of
any tax deductions to which the individual or business is entitled.
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Tax Lien: A publicly-recorded tax claim by a taxing authority against
a person or legal entity for the non-payment of taxes.
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Tax Loophole: An ambiguity, omission, discrepancy, uncertainty,
vagueness, or exception (as in a tax law, tax regulation, tax ruling, and
tax court case or decision) that provides a way to avoid a specific tax
without violating its literal requirements; esp., a tax-code provision that
allows a taxpayer to legally avoid or reduce income taxes; an omission or
discrepancy that facilitates the non-payment of taxes that would otherwise
be payable if the loophole did not exist.
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Tax Rebate: A repayment of a tax already paid by the governmental tax
collection agency to the taxpayer.
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Tax-Free Real Estate
Exchange:
Real estate ownership equity owners (and not the holder of a mortgage
receivable or of a leasehold interest) can exchange their real estate equity
in one property tax-free for the real estate equity in another real estate
property provided that both the traded properties are held for business or
investment purposes (and not for personal residential use) by the exchange
partners. This tax-free exchange of investment or business real estate is
tax-free under Internal Revenue Code Section 1031 up to the extent of the
amount of real estate equity value actually exchanged. If either party to
the transaction receives cash money in addition to the incoming traded
property, that cash is called "boot", and it is subject to the imposition of
income taxes (capital gains taxes on capital gains and ordinary tax on the
recapture of depreciation expenses taken previously by the party receiving
the boot).
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