Tax Glossary- Tax Terms using S
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Safe Harbor
Tax regulations that allow a (usually) simpler method of determining a tax
consequence than is available following the precise language of the Code or
regulations. An example is the simplified method for determining the
taxable portion of pension distributions.
Salvage Value
The estimated value that will be realized upon the sale or other
disposition of an asset at the end of its useful life.
Schedules
Official IRS forms used to report various types of income, deductions,
and/or credits.
Scholarships and Fellowships
Scholarships and fellowships received by degree candidates for the
payment of tuition, fees, books, supplies, and equipment are generally
excluded from gross income. Amounts received for room and board as well as
scholarship and fellowship money received by non-degree candidates must be
included in income.
S Corporations
An elective provision permitting certain small business corporations and
their shareholders to elect special income tax treatment. Of major
significance is the fact that S corporation status usually avoids the
corporate income tax and corporate losses can be claimed by the
shareholders.
Section (followed by a number)
The section of the tax Code in which particular laws are given.
Section 125 Plan
See Cafeteria Plan.
.Section 179 Expense Deduction
An election to treat the cost of certain qualified property as a currently
deductible expense rather than as a capital expenditure. A maximum
deduction of $20,000 may be claimed for qualified assets placed in service
in 2001. This is also referred to as expensing.
Section 1231
Section 1231 assets are depreciable assets and real estate used in a
trade or business and held for more than one year. Under certain
circumstances, the classification also includes timber, coal, domestic iron
ore, livestock (held for draft, breeding, dairy, or sporting purposes), and
unharvested crops.
Section 1231 Gains and Losses
If the combined gains and losses from the taxable dispositions of
section 1231 assets is a gain, such gains are treated as long-term capital
gains. In arriving at section 1231 gains, however, the depreciation
recapture provisions (for example, sections 1245 and 1250) are first
applied to produce ordinary income. If the net result of the combination is
a loss, such gains and losses for section 1231 assets are treated as
ordinary.
Section 1245
Section 1245 assets are depreciable business use personal property and
certain nonresidential real property. If the sale of these assets results
in a gain, section 1245 of the Code requires the gain to be treated as
ordinary income to the extent of depreciation allowed or allowable. That
is, the depreciation must be recaptured. Any gain in excess of the amount
required to be recaptured is section 1231 gain, potentially taxable as
long-term capital gain.
Section 1250
The section that requires that gain on disposition of real property be
treated as ordinary income to the extent of the depreciation claimed in
excess of straight line. Any gain in excess of this ordinary income is
section 1231 gain.
Securities
In general, any evidence of (1) an interest in corporate stock or stock
rights or (2) an interest in any note, bond, debenture or other evidence of
indebtedness issued by a government or corporation. For certain tax
purposes, however, the definition is more limited.
Self-Employed Individuals
Taxpayers who work for themselves. They decide when, how, and where to
work, obtain their own jobs or sales, pay their own expenses, and receive
social security and Medicare coverage through payment of self-employment
tax.
Self-Employment Income
Self-employed individuals are taxed on their net income from
self-employment and are entitled to social security and Medicare benefits
through the payment of self-employment tax.
Self-Employment Tax
For 2001, self-employed persons are subject to social security tax of 12.4
percent on net earnings of up to $80,400 and medicare tax of 2.9 percent on
all net earnings. If a self-employed individual receives wages from an
employer that are subject to social security tax, the amount of
self-employment income subject to social security tax may be reduced.
Self-employment tax is computed on Schedule SE.
Separate Maintenance Payments
Amounts paid to one spouse by the other spouse under a court order or
agreement while they live apart.
Service Business
A business in which income is produced chiefly by personal services
rendered.
Severance Damages
Payment received because part of a property is condemned and the value
of the retained part is thereby decreased.
Shareholder
An individual or entity that owns shares of capital stock.
Short Sale
A sale in which the seller borrows the stock certificates or other
property delivered to the buyer. At a later date, the seller either
purchases similar stock or property necessary to "cover" the sale, and
delivers it to the lender or delivers to the lender stock or property that
he or she already held but did not wish to transfer at an earlier date. For
income tax purposes, there is no gain or loss on the transaction until the
short sale is covered by purchase and transfer. Special rules apply in
determining whether the gain or loss on a short sale is a long-term or
short-term capital gain or loss.
Short-Term Gain or Loss
Gain or loss on the sale or exchange of a capital asset held one year or
less.
SIMPLE Retirement Plan
Small employers may establish a savings incentive match plan for
employees retirement plan. A SIMPLE plan can be either an IRA for each
employee or a cash or deferred arrangement, such as a 401(k) plan.
Simplified Employee Pension (SEP)
An arrangement under which an employer makes contributions to an
employee's individual retirement account (IRA), or a self-employed person
contributes to his own plan.
Simplified Method
The method of computing the taxable and non taxable portions of a
qualified employer plan by which the cost is recovered over a specified
number of periodic payments. The number of payments is determined by
finding a factor on a simple table. The method replaced the general rule
for eligible pensions, which was considerably more complex.
Single
The filing status used by an unmarried taxpayer who does not qualify
for any other filing status.
Single-Purpose Agricultural Building
An agricultural structure used for only one purpose. Examples are
milking sheds and greenhouses. Such buildings may be contrasted with, for
example, barns. Barns are generally used for a variety of farming
purposes.
Snail Mail
A term often used by Internet aficionados to describe traditional ground
mail via the U.S. Postal Service, referring to its relatively slow speed of
delivery compared to e-mail.
Social Security and Medicare Taxes Withheld
The employee's share of these taxes that was withheld and submitted
along with the employer's share to the IRS by the employer.
Social Security Tips
The amount of tips reported to an employer by an employee that is
subject to this tax. Tips are also subject to Medicare tax.
Social Security Wages
Total wages paid to an employee that are subject to this tax. This
amount does not include tips. Wages are also subject to Medicare tax.
Special 10-Year Averaging
This is a special method available to determine the tax on a qualified
lump-sum distribution for any taxpayer who was born before 1936 and meets
the other requirements. The tax computed using special 10-year averaging is
based on 1986 rates for a single individual. The computation is done on
Form 4972.
Special Needs Child
For the adoption credit, a child determined by the state to be difficult to
adopt due to factors such as racial or ethnic background, age, a condition
that requires special care, or whether the child has siblings. A special
needs child must be a U.S. citizen.
Spousal IRA
An IRA set up by a taxpayer whose spouse has little or no
compensation for the benefit of that spouse. The designation "spousal" is
significant for tax purposes only. There is no connection between a Spousal
IRA and the other spouse's IRA, and no IRA may be jointly owned.
Standard Deduction
A base amount of income not subject to tax. The regular standard deductions
for 2001 is $4,550 for single taxpayers, $6,650 for heads of household,
$7,600 for married couples filing joint returns and qualifying widow(er)s,
and $3,800 for married persons filing separately. Taxpayers who are blind
and/or age 65 or older have higher standard deductions. Taxpayers who may
be claimed as dependents on other taxpayers' returns may have reduced
standard deductions.
Standard Mileage Rate
An annual deduction based on a set number of cents per mile for qualified
business use of the taxpayer's vehicle. The standard mileage rate for 2001
is 34.5 cents per mile.
Statements
Explanations of various types of income, deductions, and/or credits
reported on a schedule or directly on Form 1040. Statements may or may not
be official IRS forms.
State and Local Income Tax Withheld
The amounts withheld from income and submitted to the state or local
tax division as an advance payment of the taxpayer's state or local income
tax.
Statutory Employee
A worker who is treated as an employee for social security and Medicare
tax purposes and as self-employed for income tax purposes. The "Statutory
employee" box on such a worker's Form W-2 should be marked.
Stock Dividend
Additional shares of stock distributed to shareholders at no cost. The
number of shares received are a percentage of the shares owned. The basis
of the original shares is generally apportioned equally to the total shares
owned after the distribution.
Stock in Trade
Property held primarily for sale to customers in the ordinary course of
business.
Stock Split
Additional shares of stock distributed to shareholders at no cost. The
number of shares received are a ratio of the shares owned. The basis of the
original shares is generally apportioned equally to the total shares owned
after the split.
Straddle
A combination of a call and a put (both of which are defined elsewhere
in this glossary) written at the same time on the same number of shares of
a security at the same price during the same period of time. The call and
put parts of a straddle are generally bought by different holders.
Straight-Line Depreciation Method
The most commonly used method of depreciation prior to 1981. Basis less
salvage value or land value divided by useful life equals depreciation
deduction.
Student Loan Interest Deduction
An adjustment to income (limited to $2,500 for 2001) for interest paid
during the year on qualified higher-education loans.
SUB Pay
Supplemental unemployment benefits. These benefits are generally
received from a company-financed fund and are fully taxable as wages.
Support
The total amount provided on behalf of an individual. Support includes
food, lodging, and other necessities as well as recreation and other
nonessential expenditures. Support is not limited to necessities and can be
as lavish as the taxpayer can afford.