Taxes For Dummies

Appendix

Glossary

Here we provide a list of common tax-related terms that you’ll find useful when preparing your taxes or speaking to a tax professional.

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accelerated depreciation:

This depreciation method yields larger deduction amounts for you — as opposed to the straight-line depreciation method. Depreciation amounts are larger in the early years and lesser in the later years. (See straight-line depreciation.)

accrual method:

This accounting method lets you report income in the year it has been earned, even if not yet received, and expenses when incurred, even if not yet paid. (See cash method.)

active participation:

This term is used to indicate whether you’re eligible to participate in your employer’s retirement savings or pension plan. If you’re eligible, your ability to deduct a regular Individual Retirement Account (IRA) contribution is based on your income (actually, your adjusted gross income).

adjusted basis:

The adjusted basis reflects your cost of property (see basis) plus the cost of improvements minus depreciation. You calculate your property’s adjusted basis when you sell your property so that you can figure your taxable profit or loss. If you acquire the property by inheritance, the property’s adjusted basis is its fair market value on the deceased’s date of death. If you acquire the property by gift, the property’s adjusted basis is the donor’s adjusted basis plus any gift tax paid by the donor on its transfer to the recipient.

adjusted gross income (AGI): ...