Taxation Legal Terms and Definitions

Electric and Clean-Fuel Vehicles For vehicles placed in service in 2004, the maximum clean-fuel vehicle deduction and qualified electric vehicle credit are scheduled to be reduced by 25%, as compared to 2003. Earned Income Credit A tax credit for certain people who work, meet certain requirements, and have earned income under a specified limit. Income taxes Taxes on income, both earned (salaries, wages, tips, commissions) and unearned (interest, dividends). Income taxes can be levied on both individuals (personal income taxes) and businesses (business and corporate income taxes). Dependent A person, other than the taxpayer or spouse, who entitles the taxpayer to claim a dependency exemption. Federal Insurance Contributions Act (FICA) Tax Provides benefits for retired workers and their dependents as well as for disabled workers and their dependents. Also known as the Social Security tax. Installment Agreements To be eligible for an installment agreement, all returns that are due must first be filed. Installment agreements generally require equal monthly payments. The amount of an installment payment will be based on the amount owed and on the taxpayer’s ability to pay that amount within the time legally available for the IRS to collect. Subchapter S The S-Corporation must complete and file IRS Form 1120s to report its annual income to the IRS each year. Dependency exemption Amount that taxpayers can claim for their eligible dependents. Each exemption reduces the income subject to tax. The exemption amount is a set amount that changes from year to year. Depreciation and Section 179 Expense 50% special depreciation allowance. For qualified property you acquire after May 5, 2003, you can take a special depreciation allowance that is equal to 50% of the property's depreciable basis. However, instead of claiming the 50% special allowance, you can elect to claim the 30% special allowance or elect not to claim any special allowance. Limited Liability Company An LLC may be classified for Federal income tax purposes either as a partnership, a corporation, or an entity disregarded as an entity separate from its owner by applying the rules in Regulations section 301.7701-3. See Form 8832, Entity Classification Election, for more details.

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	Did You Know?
	There are tax rules if change in accounting method is made Generally, the partnership must get IRS consent to change its method of accounting used to report income (for income as a whole or for any material item). To do so, it must file Form 3115, Application for Change in Accounting Method. See Form 3115 and Pub. 538, Accounting Periods and Methods.