Tax Glossary
The tax terms that actually come up for business owners, real estate investors, and the self-employed — defined in plain English, with 2026 numbers where they matter.
- AGI (Adjusted Gross Income)
- Your total income minus specific "above-the-line" deductions like retirement contributions, HSA contributions, and half of self-employment tax. Many credits and phase-outs key off AGI, which makes lowering it one of the most valuable moves in tax planning.
- AMT (Alternative Minimum Tax)
- A parallel tax calculation that limits certain deductions for higher earners. You pay the higher of your regular tax or AMT. Since 2026 the exemption phases out starting at $500,000 of AMT income ($1M married), pulling more high earners back in.
- Basis
- What you paid for an asset, adjusted over time (improvements add to it, depreciation subtracts). Your gain or loss when you sell is the sale price minus basis — which is why tracking it matters.
- Bonus Depreciation
- A first-year deduction for the full cost of qualifying business property. The One Big Beautiful Bill Act permanently restored 100% bonus depreciation for property placed in service after January 19, 2025. Depreciation calculator
- Capital Gain (Short vs Long-Term)
- Profit from selling an asset. Held over a year, it is long-term and taxed at 0%, 15%, or 20% depending on income; held a year or less, it is taxed as ordinary income at your regular bracket. Capital gains calculator
- Cost Segregation
- An engineering-based study that splits a building into components that depreciate over 5, 7, or 15 years instead of 27.5 or 39 — front-loading deductions, especially powerful combined with 100% bonus depreciation. Cost segregation calculator
- Depreciation Recapture
- When you sell a rental property, the IRS taxes the depreciation you claimed (or could have claimed) at up to 25%. A 1031 exchange can defer it.
- Effective Tax Rate
- Your total tax divided by total income — what you actually pay overall. Always lower than your marginal rate because the progressive brackets tax your first dollars at lower rates.
- Estimated Taxes (Quarterlies)
- Pay-as-you-go tax payments due four times a year (April 15, June 15, September 15, January 15) for income without withholding — self-employment, rentals, investments. Miss them and the IRS charges an interest-based penalty. Quarterly tax calculator
- FICA
- Social Security (6.2%) and Medicare (1.45%) taxes withheld from wages, matched by your employer. The self-employed pay both halves as SE tax — 15.3% total.
- 1031 Exchange
- A like-kind exchange that defers capital gains and depreciation recapture when you sell investment real estate and reinvest in replacement property under strict 45-day identification and 180-day closing deadlines.
- Marginal Tax Rate
- The rate on your last dollar of income — your bracket. It is what matters for decisions ("what does one more dollar of income cost?"), while the effective rate describes the average. Tax bracket calculator
- NIIT (Net Investment Income Tax)
- An extra 3.8% tax on investment income (interest, dividends, capital gains, passive rents) once modified AGI exceeds $200,000 single / $250,000 married. Those thresholds are not inflation-adjusted.
- Pass-Through Entity
- A business (sole proprietorship, partnership, S-Corp, most LLCs) whose profits "pass through" to the owners' personal returns instead of being taxed at the entity level.
- QBI Deduction (Section 199A)
- A deduction worth up to 20% of qualified business income for pass-through owners, made permanent by the OBBBA. Phase-outs apply above $201,750 single / $403,500 married (2026) for specified service businesses. QBI calculator
- Reasonable Salary
- The wage the IRS requires an S-Corp owner-employee to take before distributions — typically 50–70% of profit for service businesses. Setting it too low is a leading S-Corp audit trigger. Reasonable salary calculator
- REPS (Real Estate Professional Status)
- A tax status requiring 750+ hours and more than half your working time in real estate. It lets rental losses offset ordinary income without passive-loss limits — a major lever for full-time investors.
- S-Corp Election
- A tax election (Form 2553) that splits owner income into salary plus distributions, so profits above a reasonable salary escape the 15.3% self-employment tax. S-Corp savings calculator
- SALT Deduction
- The itemized deduction for state and local taxes — for Texans, mostly property tax. The OBBBA raised the cap from $10,000 to $40,400 for 2026 (phasing down above ~$505,000 of income; scheduled to revert to $10,000 in 2030).
- Safe Harbor (Estimated Tax)
- Pay 100% of last year's tax (110% if AGI over $150K) or 90% of this year's through withholding and quarterlies, and the IRS cannot penalize you for underpayment — no matter what you end up owing.
- SE Tax (Self-Employment Tax)
- The 15.3% Social Security and Medicare tax on self-employment profit (on 92.35% of net earnings, with Social Security capped at $184,500 of earnings in 2026). SE tax calculator
- Section 179
- An election to expense equipment purchases immediately instead of depreciating them — up to $2,560,000 for 2026 (OBBBA-doubled), limited to business income, with a phase-out for very large purchases.
- Standard Deduction
- The no-questions-asked deduction everyone gets: $16,100 single / $32,200 married filing jointly / $24,150 head of household for 2026. You take it unless your itemized deductions are bigger. Standard vs itemized compared
- Step-Up in Basis
- Inherited assets reset their basis to fair market value at death, erasing the built-in capital gain. A cornerstone of estate planning for appreciated real estate and stock.
- W-2 vs 1099
- W-2 employees have taxes withheld and get benefits; 1099 contractors pay their own SE tax and quarterlies but can deduct business expenses. Misclassifying workers carries steep penalties.
- Wash Sale
- Selling a security at a loss and rebuying it (or a substantially identical one) within 30 days — the IRS disallows the loss. As of 2026 the rule still does not apply to cryptocurrency, which keeps crypto tax-loss harvesting attractive.
- Withholding
- Tax your employer sends to the IRS from each paycheck, controlled by your W-4. Too little means a surprise bill and possible penalties; too much is an interest-free loan to the government. Paycheck calculator
Term you expected to see but didn't?
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