Taxation Legal Terms and Definitions

Income taxes Taxes on income, both earned (salaries, wages, tips, commissions) and unearned (interest, dividends). Income taxes can be levied on both individuals (personal income taxes) and businesses (business and corporate income taxes). Installment Agreements To be eligible for an installment agreement, all returns that are due must first be filed. Installment agreements generally require equal monthly payments. The amount of an installment payment will be based on the amount owed and on the taxpayer’s ability to pay that amount within the time legally available for the IRS to collect. Meal Expense Deduction Generally, you can deduct only 50% of your business-re-lated meal expenses while traveling away from your tax home for business purposes. Also, you can generally de­duct only 50% of certain reimbursements you make to your employees for meal expenses they incur while traveling away from home on business. Family daycare providers A family daycare provider is a person engaged in the business of providing family daycare. Exemptions Amount that taxpayers can claim for themselves, their spouses, and eligible dependents. There are two types of exemptions-personal and dependency. Each exemption reduces the income subject to tax. The exemption amount is a set amount that changes from year to year. Compulsory payroll tax An automatic tax collected from employers and employees to finance specific programs. Work Opportunity Credit and Welfare-to-Work Credit The work opportunity credit and the welfare-to-work credit are scheduled to expire for wages paid to individuals who began working for you after 2003. Dependent A person, other than the taxpayer or spouse, who entitles the taxpayer to claim a dependency exemption. Federal income tax The federal government levies a tax on personal income. The federal income tax provides for national programs such as defense, foreign affairs, law enforcement, and interest on the national debt. Subchapter S The S-Corporation must complete and file IRS Form 1120s to report its annual income to the IRS each year.

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	Form 5471 is Information Return of U.S. Persons With Respect to Certain Foreign Corporations Report information with respect to certain foreign corporations. A domestic partnership may have to file Form 5471 if it: Controls a foreign corporation; or Acquires, disposes of, or owns 5% or more in value of the outstanding stock of a foreign corporation; or Owns stock in a corporation that is a controlled foreign corporation for an uninterrupted period of 30 days or more during any tax year of the foreign corporation, and it owned that stock on the last day of that year.