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, especially for ISO exercises.

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.

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, often with a lookback feature.

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.

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.

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.

Limited Liability Company (LLC)

A flexible legal entity that combines personal liability protection with passthrough taxation by default.

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.

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; income passes through to the owners.

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).

Qualified Business Income (QBI) Deduction

A 20% deduction on qualified business income from passthrough entities, available to most small business owners.

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.

S-Corporation (S-corp)

A passthrough entity that allows owner-employees to split income between salary (subject to FICA) and distribution (not).

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

IRS form reporting a partner's, S-corp shareholder's, or trust beneficiary's share of income, deductions, and credits.

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%) owed by self-employed individuals on net earnings.

Single-Member LLC (SMLLC)

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

Wayfair (South Dakota v. Wayfair)

The 2018 Supreme Court decision that established economic nexus for sales tax, eliminating the physical-presence requirement.

Accrual Basis Accounting

An accounting method that records revenue when earned and expenses when incurred, regardless of cash timing.

Amortization

The systematic expensing of an intangible asset's cost over its useful life, depreciation's counterpart for assets you can't touch.

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.

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.

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.

1099-NEC

IRS form used to report payments to non-employee contractors and freelancers.

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)

Federal payroll taxes funding Social Security and Medicare, split between employer and employee.

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)

Federal unemployment insurance tax paid by employers, separate from FICA.

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.

W-2

IRS form reporting wages, tips, and tax withholding for employees.

13-Week Cash Forecast

A weekly projection of cash inflows, outflows, and ending balance over a rolling 13-week period.

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.

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 = average days customers take to pay you. DPO = average days you take to pay vendors. Together they reveal working-capital health.

EBITDA

Earnings Before Interest, Taxes, Depreciation, and Amortization: a proxy for operating cash generation.

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.

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.

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.

Working Capital

Current assets minus current liabilities, the cash and near-cash needed to fund day-to-day operations.

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 applied to minority interests in private companies to reflect the fact that a non-controlling owner cannot direct the company's strategy, dividend policy, capital structure, or sale.

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.