The terms you'll run into.

1031 Exchange (Like-Kind Exchange)

A tax-deferral mechanism letting real-estate investors swap one investment property for another without recognizing capital gain.

Alternative Minimum Tax (AMT)

A parallel federal tax system that can require additional tax beyond the regular calculation. Post-TCJA it hits far fewer taxpayers, but ISO exercises can still generate a large surprise bill on paper gains.

At-Risk Rules (IRC §465)

Tax rules limiting deductible losses to the amount an owner has actually 'at risk' in the business: cash invested plus recourse debt they're personally liable for.

Basis Tracking

Recording and updating each owner's adjusted basis in a passthrough entity, necessary to determine taxable gain on distributions, deductible losses, and exit-event tax.

Bonus Depreciation

A 100% first-year depreciation deduction for qualifying property, permanently restored by OBBBA for post-January 19, 2025 acquisitions.

C-Corporation (C-corp)

A corporation taxed as its own taxpayer at a flat 21%, with a second layer of tax when profits are distributed to shareholders as dividends.

Capital Gains

Profit from selling a capital asset (stock, a business, real estate), taxed at preferential rates when the asset was held more than one year.

Constructive Receipt

The doctrine that income is taxable when it's made available to you, regardless of whether you actually deposit the check or accept the payment.

Cost Segregation

An engineering-based tax study that reclassifies portions of a real-estate purchase into shorter-lived asset classes for faster depreciation.

CP14 Notice

The IRS's first balance-due notice, issued after a filed return posts with tax owed. The initial demand for payment and the start of the automated collection sequence.

CP2000 Notice

An IRS underreporter notice proposing additional tax when the third-party income data the IRS holds (W-2, 1099, K-1) does not match what you reported on your return.

Deferred Tax Asset (DTA)

A future tax benefit sitting on the balance sheet, most often a net operating loss carryforward or a timing difference between how income shows up on the books and on the tax return.

Employee Stock Purchase Plan (ESPP)

A program letting employees buy company stock at a discount, typically 10–15%, often with a lookback that uses the lower of the offering-date or purchase-date price. One of the most reliable equity-comp wins available at public companies for eligible employees.

Enrolled Agent (EA)

A federally licensed tax professional authorized by the U.S. Department of the Treasury to represent taxpayers before the IRS in all 50 states, on any matter, at any level.

Estimated Tax Payments

Quarterly tax payments owners and corporations send in throughout the year to cover income and self-employment tax the IRS expects them to owe. Try our quarterly estimated tax calculator to compute the four safe-harbor installments.

Form 1040 (Individual Income Tax Return)

The annual federal income tax return filed by individuals, the hub where wages, business income, investments, and deductions all come together.

Form 1065 (Partnership Return)

The IRS form filed by partnerships and multi-member LLCs to report income, deductions, and allocations to partners.

Form 1120 (C-Corporation Return)

The annual federal income tax return filed by C-corporations to report the entity's own income, deductions, and tax due; the corp pays tax at 21%.

Form 1120-S (S-Corporation Return)

The IRS form filed by S-corporations to report income, deductions, and allocations to shareholders.

Form 2848 (Power of Attorney and Declaration of Representative)

The IRS form that authorizes a Circular 230 practitioner (attorney, CPA, or Enrolled Agent) to represent a taxpayer before the IRS for specified tax matters and periods.

Imputed Interest

Interest the IRS treats as having been paid on below-market or no-interest loans, most often relevant to loans between businesses and owners or family members.

Incentive Stock Option (ISO)

An employee stock option with favorable tax treatment if specific holding requirements are met.

IRC Section 465 (At-Risk Rules)

Federal tax rules that limit how much loss a passthrough owner can deduct to the amount they actually have at risk in the activity: cash contributed, adjusted basis of property contributed, and personally-guaranteed recourse debt.

IRS Installment Agreement

A monthly payment plan with the IRS that satisfies a tax debt over time, in three main flavors: streamlined (under a threshold, minimal disclosure), partial-pay (below-full monthly, disclosure required), and non-streamlined (full-disclosure, larger balances).

Limited Liability Company (LLC)

A flexible legal entity that combines personal liability protection with passthrough taxation by default. The default legal form for most U.S. small businesses because it separates owner liability from business liability without triggering C-corp double taxation.

LT11 / L1058 Notice (Final Notice of Intent to Levy)

The IRS's last-chance notice before it can levy wages, bank accounts, and other property. Also grants Collection Due Process rights, a 30-day window to file Form 12153 and pause the levy while an appeal runs.

Material Participation

An IRS test determining whether an owner participates in a business activity regularly, continuously, and substantially, which is required for losses to be non-passive.

Multi-State Apportionment

The formula that divides your business income among the states you operate in so each one taxes only its share.

Net Operating Loss (NOL)

A tax-deductible loss carried forward from a year when your business's deductions exceeded its income, usable to offset taxable income in future years.

Nexus

The connection between a business and a state that creates a tax filing or registration obligation.

Non-Qualified Stock Option (NSO)

A stock option whose spread at exercise is taxed as ordinary W-2 income (with payroll tax) and reported through the employer's paycheck. The default option type at private companies for non-employees and for grants that don't qualify as ISOs.

Offer in Compromise (OIC)

An agreement with the IRS that settles a federal tax liability for less than the full amount owed, on the basis that the IRS is unlikely to collect the full balance within the collection statute.

Owner Distribution

Cash or property transferred from a passthrough business (LLC, S-corp, partnership) to its owners against their equity capital, not as wages or compensation for services.

Pass-Through Entity Tax (PTET)

A state-level tax election that lets passthrough entities pay state tax at the entity level, sidestepping the federal SALT cap. Enacted in most states with income tax, including California, New York, and Massachusetts.

Passive Activity Loss (PAL) Rules

IRC §469 rules limiting deductibility of losses from rental real estate and other passive activities against non-passive income.

Passthrough Entity

A business entity that doesn't pay federal income tax at the entity level; income passes through to the owners on K-1s and is taxed on their personal returns. Covers partnerships, S-corps, and most LLCs — the default tax shape for U.S. small businesses.

Penalty and Interest Abatement

The IRS's process for removing (abating) failure-to-file, failure-to-pay, and accuracy-related penalties, either administratively under first-time abatement rules or on written reasonable-cause grounds.

Phantom Income

Taxable income allocated to you without any cash arriving, most commonly K-1 income a passthrough entity earned but didn't distribute.

QSBS (Qualified Small Business Stock, §1202)

A tax provision excluding up to $15M of capital gain on qualifying small business stock (stock issued after July 4, 2025; $10M for earlier stock). Structured well, one of the most powerful tax breaks in the code for founders and early employees.

Qualified Business Income (QBI) Deduction

A 20% federal deduction on qualified business income from passthrough entities (S-corps, partnerships, sole proprietorships). Available to most small business owners below the income thresholds, with special limits for professional services.

Qualifying Disposition

A sale of ISO or ESPP shares that meets the holding-period tests (held more than 1 year after purchase/exercise AND 2 years after grant), unlocking the favorable tax treatment.

Real Estate Professional (§469(c)(7))

A tax status that recategorizes rental real estate from passive to non-passive, letting losses offset other income without the PAL limits.

Reasonable Compensation

The market-rate wage an S-corp owner-employee must pay themselves before taking distributions, required by the IRS to prevent payroll-tax avoidance.

Restricted Stock Unit (RSU)

A grant of company shares that vests over time and is taxed as ordinary income at vest, at the market value of the shares delivered. The dominant equity comp instrument at public companies and later-stage private companies.

S-Corporation (S-corp)

A passthrough tax election (not an entity type) that lets owner-employees split income between salary (subject to FICA and Medicare) and distribution (not). The most common tax structure for profitable, single-owner and family-owner U.S. businesses.

Sales Tax

A state and local tax on retail sales that businesses collect from customers and remit; you're the collector, not the taxpayer.

SALT Cap (State and Local Tax Deduction Cap)

The $10,000 federal cap on the individual itemized deduction for state and local taxes (income, property, and sales combined), introduced by the 2017 Tax Cuts and Jobs Act. Materially reduces the deductibility of state taxes for high-income residents of high-tax states.

Schedule C (Profit or Loss from Business)

The Form 1040 attachment where sole proprietors and single-member LLC owners report business income and expenses.

Schedule E (Rental Real Estate, Royalties, Partnerships, S-corps)

The IRS form reporting income or loss from rental real estate, royalties, partnerships, S-corps, estates, and trusts.

Schedule K-1

The IRS form a partnership, S-corp, or trust issues to each owner or beneficiary allocating their share of the entity's income, deductions, and credits. The single source document behind millions of personal returns each spring.

Schedule SE (Self-Employment Tax)

The IRS form computing self-employment tax (Social Security + Medicare) for sole proprietors, partners, and LLC members.

Section 174 (R&D Expensing)

The tax treatment of R&D costs: domestic R&D is immediately deductible again under §174A (OBBBA); foreign R&D is still amortized over 15 years.

Section 179 Expensing

A tax election that lets a business immediately expense the full cost of qualifying equipment, software, and certain real-property improvements in the year placed in service, up to an annual dollar cap that phases out at higher spend levels.

Section 199A

The Internal Revenue Code section behind the QBI deduction: up to 20% off qualified passthrough business income, made permanent by OBBBA.

Self-Employment Tax

Combined Social Security + Medicare tax (15.3% on the first $184,500 of net earnings in 2026, 2.9%+ above that) owed by self-employed individuals — sole proprietors, single-member LLC owners, partners, and gig workers.

Single-Member LLC (SMLLC)

An LLC with one owner, legally a separate entity, but by default invisible for federal income tax ('disregarded entity').

Tax Resolution

The set of services that resolve an existing federal or state tax problem — an unpaid balance, an unfiled return, an audit, a lien or levy, an incorrect notice — as distinct from tax preparation, which files a current-year return.

Wayfair (South Dakota v. Wayfair)

The 2018 Supreme Court decision that established economic nexus for sales tax, eliminating the physical-presence requirement. Turned every remote seller into a potential multi-state sales-tax filer overnight.

Accrual Basis Accounting

An accounting method that records revenue when earned and expenses when incurred, regardless of when cash moves. The GAAP-required foundation for meaningful monthly financials.

Amortization

The systematic expensing of an intangible asset's cost over its useful life. Depreciation's counterpart for assets you can't touch, and the mechanism that turns an acquisition purchase price into years of P&L expense.

ASC 606 (Revenue from Contracts with Customers)

The U.S. accounting standard for recognizing revenue: when to record it, how much, and from which performance obligation. Cash collected before revenue is earned sits on the balance sheet as deferred revenue and releases into revenue as the obligation is satisfied.

ASC 718 (Stock Compensation)

The accounting standard for recording expense from stock options, RSUs, ESPPs, and other equity-based compensation.

ASC 842 (Lease Accounting)

The accounting standard requiring most operating leases to appear on the balance sheet as a right-of-use asset and lease liability.

Audit (Financial Statement Audit)

An independent CPA's examination of a company's financial statements, resulting in an opinion on whether they fairly present the business under GAAP.

Audit Readiness

The state your books, records, and processes are in when you can withstand a lender, insurance, or IRS exam without a scramble.

Audit Readiness

The state of a small business's books, controls, and documentation being in shape for an external financial-statement audit or investor / buyer financial due diligence, so the process is fast, clean, and the numbers hold up.

Cash Basis Accounting

An accounting method that records revenue when cash arrives and expenses when cash leaves. The simplest method, the default for many small businesses, and often the right choice below meaningful complexity.

COGS (Cost of Goods Sold)

The direct cost of producing or delivering what your business sells, which sits above operating expenses on the P&L and drives your gross margin.

Deferred Revenue

Cash collected before the work is delivered — a liability on the balance sheet that converts to revenue as you perform. Governed by ASC 606, the revenue recognition standard.

Depreciation

The systematic expensing of a long-lived asset's cost over its useful life. The mechanism that turns a large equipment purchase into a series of P&L deductions matched to the years the asset produces value.

GAAP (Generally Accepted Accounting Principles)

The U.S. standard set of accounting rules used in audited financial statements, set by FASB and required for most lender, investor, and audit contexts. The reference frame that makes financials comparable across businesses.

1099-NEC (Nonemployee Compensation)

The IRS form businesses issue to independent contractors paid $600 or more in a calendar year. The counterpart to a W-2 for anyone your business paid but did not employ.

1099-NEC vs 1099-MISC

1099-NEC reports payments to independent contractors for services; 1099-MISC covers other payments like rent, royalties, prizes, and legal settlements.

Backup Withholding

A mandatory 24% federal tax withholding a business must take out of payments to a payee who won't provide a valid taxpayer ID.

Employer of Record (EOR)

A third-party company that legally employs your workers in a state or country where you have no entity, handling payroll, taxes, and compliance while the worker reports to you day-to-day.

FICA (Social Security & Medicare Tax)

The federal payroll taxes funding Social Security and Medicare, split between employer and employee. Total combined rate is 15.3% on wages up to the Social Security wage base, then 2.9% (plus surtax) on additional wages.

Form 940 (FUTA Return)

The annual federal return employers file to report and pay federal unemployment (FUTA) tax.

Form W-9

The IRS form a business collects from every vendor and contractor to capture their legal name, entity type, and taxpayer ID before paying them.

FUTA (Federal Unemployment Tax)

The federal unemployment-insurance tax paid by employers on the first $7,000 of each employee's wages. Effective rate is 0.6% for most employers after the SUTA credit, capping at $42 per employee per year.

SUTA (State Unemployment Tax)

State-level unemployment insurance tax paid by employers, with rates that vary by state and by each employer's layoff history.

Tax Withholding

Income and payroll tax an employer takes out of each paycheck and remits to the government on the employee's behalf. A high-precision planning lever for owners, not just a paperwork line.

W-2 (Wage and Tax Statement)

The IRS form employers issue to each employee reporting the year's wages, tips, and tax withholding. The single most important document in a wage-earner's tax file.

13-Week Cash Forecast

A weekly projection of cash inflows, outflows, and ending balance over a rolling 13-week period. The standard short-term liquidity tool used by CFOs, lenders, and turnaround professionals.

ACH vs Wire Transfer

ACH is a batch bank-to-bank transfer that settles in 1 to 3 business days for a few cents; a wire settles the same day for $15 to $50. See our full ACH vs wire transfer guide for when to use each.

Burn Rate

The monthly net cash outflow of a business: how much cash leaves the bank each month after collections. The primary liquidity gauge for businesses operating at a deficit, whether by choice (growth investment) or accident (margin compression).

Cash Conversion Cycle (CCC)

How many days between paying for inputs and receiving cash from customers: Days Inventory + Days Sales Outstanding − Days Payables Outstanding.

Contribution Margin

Revenue minus variable costs, the dollars each sale contributes toward covering fixed costs and profit.

Customer Concentration

The percentage of revenue coming from your top customers, a key risk metric for lenders, buyers, and insurers.

DSO and DPO (Days Sales / Payables Outstanding)

DSO minus DPO is the gap you're financing with your own cash. DSO is the average days customers take to pay you; DPO is the average days you take to pay vendors. Bring DSO down or DPO up and you free operating cash without borrowing. The formulas, healthy ranges, and how to shift each lever.

EBITDA

Earnings Before Interest, Taxes, Depreciation, and Amortization: a proxy for operating cash generation. The most common valuation metric in small-business M&A because it isolates operating performance from financing and accounting decisions.

FDIC Limits ($250K)

FDIC insurance protects deposits up to $250,000 per depositor, per insured bank, per ownership category, with straightforward ways to stack coverage.

Gross Margin

(Revenue − Cost of Goods Sold) ÷ Revenue. The single most diagnostic operating metric on a P&L — the earliest signal of pricing pressure, cost creep, or a shifting customer mix.

Interchange Fees

The fee your business's bank pays to the card-issuing bank on every credit or debit transaction, typically 1.5% to 3% of the sale, embedded in your processing rate. Often the second- or third-largest line on a small business P&L.

Operating Leverage

The degree to which a business's costs are fixed; high operating leverage means small revenue changes amplify into large profit changes.

Phantom Equity

A contractual bonus plan that pays key employees as if they owned shares (value tied to the company's equity) without giving them actual ownership.

Runway

How many months of operations the business can sustain at the current cash balance and net burn rate.

Sweep Account

A bank arrangement that automatically moves cash above a target balance out of your low-yield checking account into a higher-yielding investment vehicle every night.

Treasury Management

The discipline of managing your business's cash: where it sits, how it earns yield, how it moves, and how it is protected from bank and counterparty risk. Sharp treasury practice can add materially to the bottom line without changing anything about the business.

Working Capital

Current assets minus current liabilities: the cash and near-cash needed to fund day-to-day operations. A small business's most-underappreciated liquidity gauge.

Business Valuation

The process of estimating what a business or ownership interest is worth, using income, market, and asset approaches, for purposes ranging from sale to tax to divorce.

DCF (Discounted Cash Flow)

A valuation method that estimates what a business is worth today by projecting its future cash flows and discounting them back at a rate reflecting their risk.

Discount for Lack of Control (DLOC)

A valuation discount, typically 15-25%, applied to minority interests in private companies because a non-controlling owner cannot direct strategy, dividends, capital structure, or sale. Load-bearing in owner buy-sell valuations, estate and gift filings, and defensible fair-market-value opinions.

Discount for Lack of Marketability (DLOM)

A valuation discount applied to private company shares to reflect their illiquidity.

Valuation Multiple

A ratio (like 4× EBITDA or 1.2× revenue) used to translate a business's earnings into an estimated value based on what comparable businesses sell for.