| Definitions
of tax terms: P-R |
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| One of the
hardest things about taxes is learning the language. You've
got all the forms and instructions, but it seems they're harder
to decipher than your VCR user manual! Here are some of the
more common tax terms to help you become tax fluent in no time. |
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| Passive
Activity |
An activity in
which you do not materially
participate. Real estate rentals and limited partnerships
are examples of passive activities. |
| Passive
Loss |
Loss from a passive
activity. Passive loss rules limit the amount of passive loss
you can deduct to the total of your other income from passive
activities. |
| Payroll
Taxes |
A tax based on
wages, tips and salaries paid. Part of the tax is deducted from
the employee's pay and the rest is paid by the employer. |
| Penalty
|
For taxes, a fine
charged by the IRS for paying or filing your taxes late. You
may be charged interest in addition to penalties. Tax penalties
are not deductible. |
| Personal
property taxes |
Personal property
taxes, also called property
taxes, can include real
property, intangible
or tangible
property tax. Personal property is generally defined as property
not permanently affixed to or part of the realty. Generally,
everything that is not real estate is considered personal property.
To differentiate between real property and personal property,
the tax assessing official must consider the manner in which
property is attached to or secured at the location, and the
tax official must consider the purpose for which the property
is used. Personal property has two categories: tangible and
intangible. |
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| Points |
A one-time charge
for the use of money, usually a percentage of the loan amount.
Also called a loan origination fee, loan discount or discount
point. Points are generally deductible if paid on a loan to
buy or build your primary residence. |
| Premature
Distribution |
If you take money
out of a qualified
retirement plan before you reach age 59½ it is classified
as a premature distribution. You must pay a penalty
on premature distributions unless you meet specific exceptions.
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| Progressive
Tax |
A tax
that uses higher rates at higher income levels. The U.S. federal
income tax system is based on the progressive tax, with rates
starting at 15 percent and rising to 39.6 percent for higher-income
taxpayers. |
| Property
Taxes |
Taxes figured on
the value of property you own, including real estate, boats,
cars, recreational vehicles and business inventories. |
| Proportional
Tax |
Proportional taxes
take the same percentage of income from everyone regardless
of how much or little a person earns. Also called a flat tax,
this type of taxation is not currently in use, but there is
continuing discussion as possible implementation. |
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| Qualified
Retirement Plan |
A retirement plan
approved by the IRS that allows for tax-deferred
accumulation of investment
income. Individual
retirement accounts, Keogh
plans and pensions are examples of qualified retirement
plans. |
| Qualified
Adoption Expenses |
For the adoption
credit, reasonable and necessary expenses for adopting your
child, including such expenses as adoption fees, attorney fees
and other expenses. However, expenses paid for a surrogate parenting
arrangement or expenses paid to adopt your spouse's child are
not allowed. |
| Qualifying
Widow/er |
You must not remarry
and have a dependent child living with you to qualify for this
status. This status is available for up to two years following
the year of your spouse's death. |
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| Real
Estate Investment Trust (REIT) |
A trust that invests
primarily in real estate and mortgages and passes income, losses
and other tax items to its investors. |
| Real
Property |
Permanent, nonmovable
property, such as land and buildings. |
| Recognized
Gain or Loss |
The amount of gain
or loss you report for
income tax purposes. You may be able to defer recognizing
gain or loss on certain property exchanges, such as like-kind
exchanges. |
| Redevelopment
or Enterprise Zone |
The government
can designate an area as a redevelopment or enterprise zone,
meaning that the area is in need of improvements and special
tax considerations may be given to those who develop these areas
or open businesses within their boundaries. |
| Refund
|
The excess of your
withholding
and estimated
tax payments for the year that you paid over your tax
liability. Federal income tax refunds are not taxable. State
income tax refunds may be taxable if you itemized your deductions
in the year the state taxes were paid or withheld. |
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| Relationship
or Member of Household Test |
One of the five
tests to see if you can claim someone as your dependent.
To pass the relationship test, the person must be related to
you in at least one of the following ways:
1. Lineal descendant (child, grandchild, great-grandchild;
step-lineal descendants such as stepchildren are included).
2. Brother or sister (including stepbrothers and stepsisters
and half-brothers and half-sisters).
3. Lineal ancestor (parent, grandparent, great-grandparent,
and on up the lineal trunk of the family tree; step-lineal ancestors
are included).
4. Niece, nephew, aunt or uncle (not including relations
by marriage).
5. In-law (father-in-law, mother-in-law, son-in-law,
daughter-in-law, brother-in-law, and sister-in-law).
6. Anyone else who is not related to you, but who lived
in your home for the entire year (and is not your spouse). |
| Resident
Alien |
A person who is
a permanent resident, but not a citizen, of the United States.
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| Rollover
|
For individual
retirement accounts, the tax-free reinvestment of a distribution
from one qualified
retirement plan into another within 60 days. |
| Royalty
Income |
Payment for the
use and exploitation of certain kinds of property, such as artistic
or literary works, patents and mineral rights. |
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| --Posted Oct. 29, 1999 |
