Industry Related Definitions
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P
Partly Taxable Pensions
Pensions
funded through employer plans to which both the employer and employee
contribute.
Partnership
A form of
business in which two or more persons join their money and skills in
conducting the business. Partnerships are treated as a conduit and are
not subject to taxation. Various items of partnership income,
expenses, gains, and losses flow through to the individual partners
and are reported on their personal income tax returns.
Passive Income
Passive
income is income from business activities in which the taxpayer does
not materially participate, and all rental activities (except those of
qualified real estate professionals). See also Active Income and
Portfolio Income.
Patent
The
exclusive right of an inventor to make, use, or sell his invention for
a period of years. A patent is an intangible asset that may be
depreciated over its remaining life. The sale of a patent usually
results in long-term capital gain treatment.
Patronage Dividend
A rebate
from a cooperative to its members of a portion of the purchase price
of merchandise. Patronage dividends received on the purchase of
personal-use property are not taxable. Patronage dividends received on
the purchase of business-use property may be taxable or may reduce the
basis of the property purchased.
Penalties
For tax purposes, amounts that the IRS may assess at a statutory rate
as an addition to a tax deficiency and interest. The tax Code provides
for penalties for various infractions, such as underpayment of
estimated tax, late filing of a return, late payment of tax,
substantial understatement of tax, negligent or intentional disregard
of rules, and fraud.
Pension
Payments
made periodically of (generally) a definite amount for a specified
period (usually life) from an employer-funded plan to workers who have
met the stated requirements. Its primary purpose is to provide
retirement income.
Pension/Annuity Starting Date
The first
day of the first period for which an amount is due as a
pension/annuity payment under the contract.
Percentage Depletion
A
specified percentage of the gross income from the property not
exceeding 50 percent of the taxable income from the property before
depletion allowance (increased by section 1245 gains--see definition
of section 1245 property). In each year, the method that results in
the greater deduction is used. (See also Cost Depletion.) Percentage
depletion is allowed for nearly all natural resources, except timber.
Periodic Payments
A
requirement for alimony paid under pre-1985 agreements to be
deductible. The amount to be paid or the duration of payment must be
indefinite for a payment to qualify as periodic.
Permanent and Total Disability
A
disability that prevents an individual from engaging in any
substantial gainful activity because of a medically determined
physical or mental impairment that is expected to result in death, or
that has lasted or is expected to last for a continuous period of not
less than 12 months.
Personal and Dependency Exemptions
The tax
Code provides a $2,750 exemption (for 1999) for each individual
taxpayer and an additional $2,750 exemption for his spouse if a joint
return is filed. An individual may also claim a $2,750 dependency
exemption for each dependent providing certain tests are met.
Taxpayers who may be claimed as dependents on other taxpayers' returns
may not claim their own personal exemptions. The exemption amount is
phased out for taxpayers whose adjusted gross incomes exceed certain
levels.
Personal Expenses
Expenses
of an individual for personal reasons are not deductible unless stated
to be deductible under tax Code.
Personal Property
Generally,
all property other than real estate.
Personal Residence
The
property in which the taxpayer lives and to which he or she returns
after temporary absences. A taxpayer may have one or more residences
such as a main home and a vacation house. A residence is not limited
to a house. Condominiums, cooperative apartments, townhouses, mobile
homes, and houseboats can all qualify as residences.
Personal-Use Property
Property
owned for personal well-being and enjoyment includes a taxpayer's
home, vehicles, furniture, clothing, and other property.
Physical Custody
The
taxpayer with whom a child lives is considered to have physical
custody.
Points
A
loan-origination fee (one-time charge paid for the use of money) that
a buyer generally may deduct as interest; fully in the year paid if
for the purchase or improvement of a principal residence or, if not,
then ratably over the term of the loan.
Portfolio Income
Income from such sources as dividends, interest, capital gains, and
royalties. See also Active Income and Passive Income.
Posting
The
process of transferring the accounting entries from the journal to the
ledger.
Preferred
stock
A
class of capital stock with special rights or restrictions compared
with other classes of stock of the same company. The preference
generally involves the distribution of dividends at a stipulated rate.
Such stock usually carries no voting rights to elect the company's
directors.
Prepaid Expenses
Cash-basis
as well as accrual-basis taxpayers usually are required to capitalize
prepayments for rent, insurance, etc. that cover more than one year.
Deductions are taken for the period during which the benefits are
received.
Prepaid Interest
Interest
paid in advance is deductible as an interest expense only as it
accrues. The one exception to this rule involves the interest element
when a cash-basis taxpayer pays points to obtain financing for the
purchase or improvement of a principal residence if the payment of
points is an established business practice in the area in which the
indebtedness is incurred and the amount involved is not excessive.
Points paid to refinance a principal residence, however, must be
deducted over the life of the loan.
Principal Payments
Payments
received on the contract price.
Principal Place of Business
The main
place where work is performed or business is transacted. Taxpayers who
engage in more than one business can have more than one principal
place of business. For purposes of the home-office deduction, a
principal place of business may also be an area of a taxpayer's home
that is used for the management and recordkeeping portions of the
business, provided there is no other fixed location where the taxpayer
performs such functions.
Principal Residence
Regular,
permanent abode.
Prizes and Awards
The fair
market value of a prize or award generally is includable in gross
income. An exception applies when a qualified recipient of an award
for charitable and like achievements designates that the prize is to
be transferred by the payer to a governmental unit or to certain
charitable, educational, or religious organizations. Another exception
is made for certain employee achievement awards such as the
traditional gold watch presented upon retirement.
Production Taxes
Taxes levied by state governments on the value or quantity of
production or extraction of natural resources.
Proprietor
The sole owner of a trade or business.
Proprietorship
A business
controlled and operated by one person.
Public Retirement System
A
retirement system established by the United States, a state,
territory, or possession of the United States, or their political
subdivisions.
Puts and Calls
These are
option contracts. A put gives its holder the option to sell a
particular stock at a fixed price within a specified period of time. A
call gives its holder the right to buy stock under the same
conditions. Put and call contracts can last up to several months and
usually specify a price close to the market value of the stock at the
time they are drawn. Puts are purchased by investors who think the
price of the stock will fall; calls are purchased by investors who
think the price will rise.
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