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

An additional first-year depreciation allowance for qualifying property, currently phasing down through 2027.

Bonus Depreciation

Additional first-year depreciation deduction allowed on qualifying property, currently phasing down from 100% to 0% by 2027.

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.

Employee Stock Purchase Plan (ESPP)

A program letting employees buy company stock at a discount, often with a lookback feature.

Form 1065 (Partnership Return)

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

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.

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 — required for losses to be non-passive.

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.

Pass-Through Entity Tax (PTET)

A state-level tax election that lets passthrough entities pay state tax at the entity level, sidestepping the SALT cap.

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.

QSBS (Qualified Small Business Stock, §1202)

A tax provision excluding up to $10M of capital gain on qualifying small business stock held 5+ years.

Qualified Business Income (QBI) Deduction

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

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).

SALT Cap

The $10,000 federal cap on the deduction for state and local taxes paid by individuals.

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 Expense Capitalization)

The IRS rule requiring R&D expenses to be capitalized and amortized over 5 years (US) or 15 years (foreign), instead of expensed immediately.

Section 179 (Immediate Expensing)

Tax provision letting businesses immediately deduct the cost of qualifying equipment and software, up to an annual cap.

Section 179 Expensing

A tax election to immediately expense the full cost of qualifying equipment in the year placed in service.

Self-Employment Tax

Combined Social Security + Medicare tax (15.3%) owed by self-employed individuals on net earnings.

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.

ASC 606 (Revenue from Contracts with Customers)

The U.S. accounting standard for recognizing revenue — when, how much, and from which performance obligation.

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.

Cash Basis Accounting

An accounting method that records revenue when cash arrives and expenses when cash leaves.

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.

FICA (Social Security & Medicare Tax)

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

FUTA (Federal Unemployment Tax)

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

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.

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.

Gross Margin

(Revenue − Cost of Goods Sold) ÷ Revenue. The single most diagnostic operating metric on a 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.

Runway

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

Working Capital

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

Discount for Lack of Control (DLOC)

A valuation discount applied to minority interests in private companies to reflect their inability to direct the company.

Discount for Lack of Marketability (DLOM)

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