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Tax Definitions

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A
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Accruals
Provisions for income earned but not yet billed, or for expenses incurred but not yet paid. Examples are the amount of sales you have made but which you have not yet been paid for, and the cost of electricity which you have used but have not paid for, even if you have not yet been billed for it.

Accruals basis of accounting
The method of accounting which adjusts for accruals at the beginning and end of the accounting period, so that the income included in the accounts is that earned during the accounting period, and the expenses are those incurred during the accounting period. For example you should include sales you have made but which you have not yet been paid for, and the cost of electricity which you have used but have not paid for, even if you have not yet been billed for it.

Accrued income
The accrued income scheme applies to Treasury Stock, Building Society Permanent Interest Bearing Shares (PIBS) and so on. You are only taxed on the amount of interest earned over the period for which you hold the Treasury Stock, PIBs and so on. You may need to make an adjustment to the interest you actually receive to calculate the amount of interest liable to tax.

Accumulation units or shares
You receive extra units or shares instead of a cash distribution. You need to declare the dividend as though you received it in cash. This amount is the capital gains tax base cost of the extra units or shares that you have received.

ACH credit
The Automated Clearing House (ACH) credit method allows you to transfer funds by instructing your financial institution to debit your account and credit the states bank account.

ACH debit
The Automated Clearing House (ACH) debit method allows you to transfer funds by instructing the state to electronically debit a bank account you control for the amount you report to the states data collector. FTB recommends the ACH debit method because of the simplicity and cost savings to the taxpayer.

Adjusted gross income (AGI)
Your federal adjusted gross income from all sources reduced or increased by all California income adjustments.

Adopted Child
An adopted child is a child you have legally adopted. After legal adoption, the child is considered your child by blood. Before legal adoption, a child is considered your child for head of household purposes if, during the tax year, he or she was placed with you for adoption by an authorized agency and was a member of your household.

Alimony
A payment made to a former spouse following divorce or a legal separation.

Annual percentage rate (APR)
This is a formula intended to give you the true cost of borrowing money. It is calculated as the interest that would be charged over the course of a year.

Annual Report
Summary of our major program activities during the calendar year and statistical profile of California individual and business taxpayers.

Annulment
If you were married in the tax year but the marriage was later annulled, you are treated as having been unmarried during the year.

Asset
Something that you own. An asset could be anything from a stamp collection, antique, shares in a company or property or even something intangible.

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Bad debts
If a customer of a business fails to pay the bill for goods or services received, the unpaid amount is a "bad debt". Although the sale is included in the declared turnover, the bad debt is an allowable expense. Where tenants fail to pay rent due, the bad debts are allowable rental expenses.

Basis of accounting cash
The method of accounting which only includes income actually received during the accounting period and expenses actually paid during the accounting period. Some business use a modified cash basis, including income when it is received, but including expenses on an accruals basis.

Board of Equalization (BOE)
California State agency that administers sales and use, property, and special taxes.

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CalFile
Direct e-file for California resident personal income tax returns.

Capital gains
If you sell a chargeable asset for a profit (after deducting expenses and reliefs see capital gains calculation) you make a capital gain.

Casualty
A casualty occurs when property is damaged as a result of a disaster such as a hurricane, fire, car accident or similar event. Generally, you may deduct a casualty loss only in the tax year in which the loss occurred. However, if you have a casualty loss from a disaster that occurred in an area declared by the President or the Governor as a disaster area, the loss may be claimed for the year in which the disaster occurred, or the year immediately before the loss.

Corporate bonds
These are issued by companies when they want to raise capital. They are loans to the company which are repayable at or between set dates.

Customer Service Number (CSN)
A 4-digit authentication number the Franchise Tax Board assigns each taxpayer every year. The combination of the CSN and the taxpayers social security number ensures confidentiality and security when conducting business electronically with us.

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Disposable Earnings
An employees total earnings minus lawful deductions. Lawful deductions include: * Federal income tax * Social security * State income tax * State disability

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E-File
Allows you to file your return electronically using software.

Earned income
Includes wages, salaries, tips, professional fees, net self-employment income, and other compensation received for personal services.

Earned Income Tax Credit
The Earned Income Tax Credit (EIC) is a refundable credit for taxpayers who earn low or moderate incomes. This credit is meant to supplement the income you have earned through working, whether for yourself (self-employed) or for someone else. If you qualify for the Earned Income Tax Credit you can reduce your taxes and increase your tax refund. In general, the EIC allows more working people and their families to keep more of their hard-earned money.

Earnings Withholding Order
An Earnings Withholding Order is a continuing levy on a percentage of an individuals earnings. We issue an Earnings Withholding Order for individuals who owe an unresolved delinquent vehicle registration amount or court-ordered debt.

Earnings Withholding Orders for Taxes (for employers)
An Earnings Withholding Order for Taxes is a continuing levy on a percentage of a taxpayers earnings. We issue an Earnings Withholding Order for Taxes for taxpayers who owe an unresolved delinquent tax debt.

Economic Development Areas (EDAs)
California currently has four types of Economic Development Areas (EDAs) that have related tax incentives. These areas are: Enterprise Zones (EZs), Local Agency Military Base Recovery Areas (LAMBRAs), Manufacturing Enhancement Areas (MEAs), and Targeted Tax Areas (TTAs). Taxpayers who conduct business activities within the boundaries of one of these areas or zones may qualify for special state tax incentives.

Electronic Funds Transfer (EFT)
A method of payment. It is convenient, helps prevent installment agreement defaults, and saves processing costs.

Employee contributions
If you are employed and make payments into a pension scheme, these payments are called employee contributions. This applies to contributions to your employers pension scheme, or to your own retirement annuity contract or personal pension plan.

Employee loans
Loans made by a company to an employee. These loans might be interest free or at a low interest rate.

Employment Development Department (EDD)
A California state agency that manages California payroll taxes.

Entertainment Expense
Hospitality provided, such as dinners, parties, business lunches etc.

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Financial Hardship
If you cannot pay the full amount due with your income tax return, you can ask to make monthly installment payments. However, you will be charged interest and may be charged a late payment penalty on the tax not paid by the due date, even if your request to pay in installments is granted. If your request is granted, you must also pay a fee. To limit interest and penalty charges, pay as much of the tax as possible with your return. But before requesting an installment agreement, you should consider other less costly alternatives, such as a bank loan.

Franchise Tax Board (FTB)
An administrative agency of the State of California that is responsible for collecting California personal and business income taxes.

Fringe benefits
Benefits provided to you by an employer in addition to your salary.

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Goodwill
The value put on a businesss customer base and organization. It is the difference between the total of the values of the individual business assets and the value of the business as a going concern.

Gratuities and tips
Amounts paid to you by customers as a reward for your services. Often received by waiters and waitresses, hairdressers and so on. Tips and gratuities should be included in your taxable income even when not paid by your employer.

Gross
The amount of money (wages for example) you receive before tax is then deducted. Some income may be received gross, without tax having been deducted.

Gross Earnings
Wages, salary, commissions, bonuses, vacation pay, or anything an employer pays an employee for personal services.

Gross income
All income you received in the form of money, goods, property, and services from all sources that are not exempt from tax. Gross income does not include any adjustments or deductions.

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Head of Household
Although you are the head of your house, you may not qualify for the head of household filing status under state and federal tax laws. The legal requirements are more complicated than simply being the head of the house.

Higher Order
A levy sent to an employer from a state agency other than the Franchise Tax Board or from the federal government. For the priority order for withholding, see /individuals/ewot.shtml.

Home office
If you mainly work from home, you may have set aside a room which you normally use as an office.

I
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Innocent Spouse
Generally, when a joint tax return is filed, each spouse is equally liable for all the tax, penalties, and interest for the particular joint tax year. This means the entire amount of tax, penalties, and interest may be collected from either spouse, even if only one spouse earned all of the income. However, a spouse who meets certain legal requirements may qualify as an innocent spouse and be fully or partially relieved of the liability to pay joint tax, penalties, and interest.

Installment agreement
If you cannot pay your taxes in full, you may request to make monthly installment payments. If we approve your request, we agree to let you pay the tax you owe in monthly installments instead of immediately paying the amount in full. Once we accept your online installment agreement application, you should receive a written notice within 30 days. You can only make one request per year.

Internal Revenue Service (IRS)
An administrative agency of the U.S. Department of the Treasury that is responsible for collecting federal personal and business income taxes and federal payroll taxes.

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Joint tenancy
If you own land and property with one or more persons, your ownership is normally a joint tenancy. On the death of a joint tenant, their share automatically passes to the other joint tenants. Alternatively you may own the property as tenants in common. In this case you can leave your share of the property to someone else in your Will.

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Lease or rental expenses
Where property or land is let, you can set most expenses for the letting and upkeep of the land against the rental income. Expenses include some legal costs, accountancy fees, repairs and so on.

Legal expenses
Some legal costs qualify as allowable expenses for income tax or capital gains tax purposes. You should ask your solicitor or a Tax Adviser for help if you are not sure what legal costs qualify.

Levy
A legal court order that compels a third party to withhold part of an individuals wages to satisfy a debt. (A levy is also referred to as a wage garnishment or a wage assessment.)

Liens
A lien is a legal claim against real or personal property to satisfy a debt.

Life insurance
A life insurance policy will probably only pay out following your death. Some policies have a death and investment content. If the death benefits are written under trust, they are not included in your estate for Inheritance Tax purposes.

Loans written off
A loan is written off where it is agreed that the debt will never be collected. If a company makes a loan to you and writes it off, a tax charge may arise. If you make a loan to a company and the company collapses, you might be able to claim a capital gains tax loss.

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Main residence
The place where you normally live and consider to be your home. You can only have one main residence for capital gains tax purposes.

Mandatory e-file
California law requires tax practitioners who prepare more than 100 California individual income tax returns annually and prepare one or more using tax preparation software to e-file all personal income tax returns.

Manufacturers Investment Credit (MIC)
The Manufacturers Investment Credit was repealed as of January 1, 2004. Use Form 3540 to claim any remaining carryovers for this credit.

Market value
The price which you can obtain for an asset if you sold it freely on the open market.

Mileage allowance
An allowance paid to you by your employer for traveling. It is based on the number of business miles you travel and is paid at a rate fixed by your employer.

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National
A U.S. national is an individual who, although not a U.S. citizen, owes allegiance to the U.S. This includes American Samoans and Northern Mariana Islanders who chose to become U.S. nationals instead of U.S. citizens. For more information, refer to federal Publication 519, U.S. Tax Guide for Aliens at www.irs.gov, or contact your local Office of the Immigration and Naturalization Service.

Net income
The amount received after the deduction of tax. May also be used to refer to income after the deduction of expenses.

Nonrefundable Renters Credit
The Nonrefundable Renters Credit is a personal income tax credit that can only be used to offset your tax liability; therefore, you must have a tax liability to claim the credit. Please see this page for more information.

Nonresident Alien
If you were a nonresident alien during any part of the year, you cannot qualify for head of household filing status even though you may meet all of the other rules for the filing status.

Notice Codes
You can view an explanation of the adjustments made to your California Personal Income Tax Return by clicking on the CODE that matches the CODE on your notice.

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Offer in Compromise (OIC)
The program is for taxpayers who do not have, and will not have in the foreseeable future, the income, assets or means to pay their tax liability. It allows a taxpayer to offer a lesser amount for payment of a non-disputed final tax liability.

Offshore funds
Investments which are made outside the home country.

P
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Power of Attorney
A legal document that allows someone else to act on your behalf, in matters that you specify in the Power of Attorney document. You can also use this document to authorize an individual to receive information administered by us for non-tax issues such as Child Support Collection.

Public Records Act
Find out how to get public information under the California Public Records Act.

R
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ReadyReturn
ReadyReturn is a free service we developed to make filing individual tax returns easier. We use information the state already has from the last return you filed and your Form W-2 to pre-fill a California state tax return. If you qualify, your return may be ready and waiting for you. All you need to do is review your return, make any necessary changes, and file your return.

Release
A legal order that terminates a wage garnishment, releasing an employer from complying with a current Earnings Withholding Order.

Request Public Information
Find out how to get public information under the California Public Records Act.

Retirement annuity
An annuity paid to you from funds you have paid into a retirement annuity contract during your working life. Although there are minimum ages (based on your occupation) below which you cannot draw a retirement annuity, you need not stop work before you draw the annuity.

S
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Same-Sex Married Couples
On May 15, 2008, the California Supreme court invalidated two sections of the Family Code that prevented same-sex couples from getting married (In re Marriage Cases, (2008) 43 Cal. 4th 757,). Under this ruling, same-sex couples are allowed to marry.

Separate property
All property owned separately by the husband or wife before marriage. It is also property acquired separately after marriage by the husband or wife as a gift, devise, bequest or inheritance. Separate property may be acquired during marriage by purchase with separate funds, by exchanging the separate property, or in accordance with a pre- or post-nuptial agreement.

State Disability Insurance (SDI)
Provides temporary payments to workers who are unable to perform their usual work because of a pregnancy or a nonoccupational illness or injury. Beginning January 1, 2004, SDI also includes Paid Family Leave, which provides benefits to workers who need to care for a seriously ill family member or to bond with a new child. SDI benefits are taxable only if paid as a substitute for unemployment insurance (UI) benefits. This could occur if a person was receiving UI benefits and then became disabled. When SDI benefits are received as a substitute for UI benefits, the SDI is taxable by the federal government but is not taxable by the State of California.

Stepchild
A stepchild is not your natural child but is the natural or adopted child of your spouse. To have a stepchild, you must have at some time been married to the childs parent.

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Tax Forum
Online community of where people can discuss taxes, communicate, ask tax questions.

Tax Gap
Experts define the tax gap as the difference between what taxpayers owe and what they voluntarily pay.

Tax relief
Something which reduces your taxable income (which is the aggregate of all your incomes, less deductions and reliefs after your personal allowances). A relief may also reduce your tax liability although your taxable income is not reduced. For example farmers averaging may reduce your tax liability if you transfer income from one year to another, and your marginal tax rate is lower in that other year.

Temporary Absence
Even if you, your spouse, or your qualifying person was temporarily absent from your home, you are considered to have occupied the same household. Temporary absences include those due to illness, education, business, vacations, military service, and, in some cases, incarceration. If you or the qualifying person were absent, it must have been reasonable to assume that you, your spouse, or your qualifying person would return to the household after the temporary absence, and you must have continued to maintain a household in anticipation of the return. Time your qualifying person was in the custody of another person under either a formal or informal custody agreement cannot be considered a temporary absence.

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Use Tax
You may owe this tax on purchases you made from out-of-state or Internet sellers. Use tax is similar to the sales tax paid on purchases you make in California. You may report use tax on your income tax return instead of filing a use tax return with the State Board of Equalization. To report use tax on your income tax return, use the Use Tax Worksheet in the tax booklet. Read more.

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Value added tax (VAT)
A tax which must be charged by VAT registered businesses on goods and services which they supply. Does not exist in the United States.

Voluntary Disclosure Program
Allows qualified entities, qualified shareholders, or beneficiaries that may have incurred an unpaid California tax liability or an unfulfilled filing requirement to disclose their liability voluntarily.

Voluntary Plan Disability Insurance (VPDI)
A private disability insurance plan which meets the requirements of, and is approved by the State of California.

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Web Pay
Used to make your personal income tax payments online. You can pay today or schedule your payment up to one year in advance.