Off to Two Mines

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Basis: The cost from which profit is figured on the sale of property. Basis in a house, for example, is the amount originally paid plus capital improvements-minus depreciation allowed or taken.

Capital gain and loss: The profit or loss from property held for investment is figured by capital gain. Gains or losses from property held less than six months are considered short-term and are fully taxable or deductible (from other gains). Property sold after more than six months is long-term, and gain or loss is reduced to 40% of the amount.

Credit: Tax credits are deducted from the amount of tax paid, not from income. They are taken on lines 41 through 50 of Form 1040.

Deductions: Expenses declared on Schedule A by individual taxpayers and Schedule C by the self-employed. These may involve certain personal or employee-related costs. The alternative to itemizing deductions is the standard deduction (called the zero bracket amount).

Depreciation: A process by which a portion of the value of property that will wear out, lose value, or become obsolete may be deducted during each year of its life. Accelerated cost recovery is a method of depreciation.

Earned income: Money earned by gainful employment-as opposed to dividends, interest, or capital gains.

Exclusion: Certain types or portions of income may not be taxable. Exclusions are sometimes the same as adjustments.

Exemption: A consideration of the number of people dependent upon a taxpayer, including the taxpayer.

First-year expensing: Up to $5,000 of the cost of certain property bought for business use may be deducted in the year purchased. Depreciation and investment tax credit are alternatives.

Fiscal year: A 12-month accounting period different from the calendar year. Taxes need not be filed on the calendar year. A change of fiscal year must be approved by the IRS.

Gross income: Total income before any adjustments or deductions are subtracted.

Imputed interest: On certain transactions where no (or low) interest was charged (such as zero interest loans to family members), the IRS will calculate interest at the imputed rate, which is determined daily by the service itself.

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