Industry Related Definitions
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E
Earned Income
Income
from personal services as distinguished from income generated by
property or other sources. Earned income includes all amounts received
as wages, tips, bonuses, other employee compensation, and
self-employment income, whether in the form of money, services, or
property.
Earned Income Credit
A
refundable tax credit for qualified taxpayers based on earned income
and modified adjusted gross income.
Education Expense
Employees
may deduct education expenses if the expenses are incurred either to
maintain or improve existing job-related skills or to meet the express
requirements of the employer or legal requirements to retain current
employment status. Such expenses are not deductible if the education
is required to meet the minimum educational requirements for the
taxpayer's job or if the education qualifies the taxpayer for a new
trade or business. Education expenses may also qualify the taxpayer
for the Hope scholarship credit or the lifetime learning credit, both
of which are defined elsewhere in this glossary.
Education IRA
A
tax-favored savings plan under which the taxpayer may contribute up to
$500 per year per eligible beneficiary. Contributions are
nondeductible. Earnings are tax free and withdrawals are also tax free
if used to pay for qualified higher education expenses.
Eminent Domain
The right
of a government authority to take private property for public use and
paying fair compensation to the owner.
Employee
For income
tax purposes, an employee is to be distinguished from an independent
contractor. This is important, because the withholding of income taxes
on wages applies only to employees. Also, employee status will affect
the manner and extent of some deductions and credits. The regulations
state that an employee is one who is subject to the will and control
of the employer not only as to what shall be done but also as to how
it shall be done.
Employee Stock Option
An option granted to an employee to purchase the employer's stock.
Employee stock options to which special income tax treatment is
accorded are known as statutory options.
Employer-Funded Retirement Plan
A pension
plan funded in full or in part by employer contributions on behalf of
employees.
Employment Expenses
Ordinary
and necessary expenses required to perform the duties for which the
taxpayer was hired.
Encumbrance
Anything, such as a mortgage, tax, or judgment
lien, an easement, a restriction on the use of the land or an
outstanding dower right that may diminish the value or use and
enjoyment of a property.
Energy Tax Credit--Business Property
An energy
tax credit allowed for the purchase of certain business-use property
utilizing solar, geothermal, or biomass energy.
Entertainment Expenses
Such
expenses are deductible by employees and self-employed taxpayers only
if the expenses are directly related to or associated with a trade,
business, or profession. To prevent abuses, various restrictions and
documentation requirements have been imposed on the deductibility of
entertainment expenses. The deduction for qualified business
entertainment is limited to 50 percent of cost.
Estate
A taxable
entity that is established upon the death of a taxpayer. It consists
of all the decedent's property and personal effects. The estate exists
until the final distribution of its assets to the heirs and other
beneficiaries. During the period of administration, the executor must
usually file a return.
Estimated Tax
The amount of tax a taxpayer expects to owe for the year after
subtracting expected amounts withheld and the amount of any expected
credits.
Estimated Tax Voucher
A
statement by an individual of (1) the amount of income tax he or she
estimates he or she will incur during the current taxable year on
income that is not subject to withholding, (2) the excess amount over
that withheld on income that is subject to withholding, and (3) his or
her estimated self-employment tax. Advance payment of tax may be
required (on as many as four payment dates) unless estimated tax due
after withholding and credits is less than $1,000.
Estimated (Useful) Life
The period
of time over which an asset will be used by a particular taxpayer.
Although that period cannot be longer than the estimated physical life
of an asset, it can be shorter if the taxpayer does not intend to keep
the asset until it wears out. The estimated useful life of an asset is
essential to determining the annual tax deduction for depreciation and
amortization.
Excess Social Security Tax Withheld
If a
taxpayer worked for more than one employer during 1999, and more than
$4,501.20 was withheld for social security tax, the excess over the
maximum is included in the Payments section of the return. The excess
amount has the same character as withholding tax.
Exchange
A transfer
of property for other property or services. Exchanges of like-kind
property are a popular method for deferring taxes.
Excludable Amount of Pension
The
portion of pension distributions that is not taxable.
Excluded Gain
Generally applies to gains realized on the sale of a principal
residence. For sales after May 6, 1997, a taxpayer may exclude up to
$250,000 ($500,000 MFJ) of gain on the sale if he or she owned and
occupied the residence for at least two of the five years prior to the
sale.
Exclusion
An amount
of income that is not included in adjusted gross income because the
tax Code excludes it.
Exclusion Percentage
Used to
establish the excludable amount of a pension under the general rule.
This percentage is determined by dividing the taxpayer's total
contribution by the expected return.
Exemption
An amount
($2,750 for 1999) allowed by law as a reduction of income that would
otherwise be taxed. There are two kinds of exemptions: personal and
dependency.
Expected Return
For a
lifetime pension, this is determined by multiplying the annual pension
by the taxpayer's expected life multiple from government actuarial
tables.
Expenses
For
federal income tax purposes, expenses are divided into four
categories: (1) trade or business expenses, (2) expenses in connection
with production of income, in connection with management,
conservation, or maintenance of property held for production of
income, (3) expenses in connection with the determination, collection,
or refund of any tax, and (4) personal, family, or living expenses.
Expenses in the first three categories are generally deductible in
determining taxable income. Expenses in the fourth category are not
deductible, except in a few cases (medical expenses, charitable
contributions, etc.) in which they are specifically allowed by law.
Expenses are to be distinguished from "capital
expenditures," defined elsewhere in this glossary.
Expenses of Sale
When paid
by the seller, these expenses reduce the sale price of property.
Examples are commissions to a broker or real estate agent, title
search, title insurance, legal fees, and transfer taxes.
Expensing
A term
used to refer to the section 179 expense deduction, defined elsewhere
in this glossary.
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