Tax planning glossary for CPA and EA firm owners

These are the 42 terms that come up most when a firm sells planning to business owners. Each one has a short, plain definition and a link to the IRS or state page it comes from, so you can check the detail. Where a guide on this site covers the topic in more depth, we link that too.

This glossary is general information for tax firm owners. It is not tax or legal advice, and the rules have more detail than a short definition can hold. Read the source.

Questions owners ask about planning work itself are on the tax planning questions page.

A to C

Accountable plan. An employer reimbursement arrangement that meets IRS rules, including the rule that the employee adequately accounts for expenses with records and receipts and returns any excess. Reimbursements under an accountable plan are treated differently from those under a plan that doesn't meet the rules. Source: IRS Publication 463.

Bonus depreciation. The IRS calls it the special depreciation allowance: an extra first year depreciation deduction for qualifying property, taken before regular depreciation. Limits and percentages change by year, so check the current edition. Source: IRS Publication 946.

Certified public accountant (CPA). A tax professional licensed by a state board of accountancy, DC or a US territory, who has passed the Uniform CPA Examination and met education, experience and character requirements. CPAs have unlimited representation rights before the IRS. Source: IRS, Understanding tax return preparer credentials.

Circular 230. Treasury Department Circular 230, the Regulations Governing Practice before the Internal Revenue Service. The IRS Office of Professional Responsibility enforces it. It includes rules on solicitation and fees, so read it before you write marketing for your firm. Source: IRS, Office of Professional Responsibility and Circular 230.

Composite return. A single state return a business entity files to pay income tax on behalf of some or all of its nonresident owners. Vermont, for example, lets business entities elect to file a composite return. Rules differ by state. Source: Vermont Department of Taxes, Business Entity Income Tax.

D to F

Distributions (S corporation). Payments of profit to S corporation shareholders that are not wages. The IRS says an S corporation must pay a shareholder employee reasonable compensation before non wage distributions are made. Source: IRS, S corporation compensation and medical insurance issues. Guide: How to explain tax planning to business owners.

Enrolled agent (EA). A tax professional licensed by the IRS, with unlimited representation rights before the IRS on any matter, including audits, collections and appeals. EAs must also hold a valid PTIN. Source: IRS, Enrolled agents and IRS, preparer credentials.

Entity classification election (Form 8832). The form an eligible entity, such as an LLC, uses to choose how it will be classified for federal tax purposes. Source: IRS, About Form 8832.

Estimated tax. Tax paid during the year on income that has no withholding, such as self employment income, interest, dividends and rents. Individuals usually pay it with Form 1040-ES. Source: IRS, Estimated taxes and IRS, About Form 1040-ES.

Extension, business (Form 7004). The form many businesses, including partnerships and S corporations, use to request an automatic extension of time to file certain returns. It extends the time to file, not the time to pay. Source: IRS, About Form 7004.

Extension, individual (Form 4868). The form individuals use to request an automatic extension of time to file Form 1040. Source: IRS, About Form 4868.

Family employees. The IRS sets out when wages paid to your child, spouse or parent are subject to income tax withholding, Social Security, Medicare and federal unemployment tax. The answer depends on the family member's age and how the business is organized. Source: IRS, Family help.

Form 1065. The US Return of Partnership Income. Partnerships use it to report income, deductions, gains and losses. Source: IRS, About Form 1065.

Form 1120-S. The US Income Tax Return for an S Corporation. Source: IRS, About Form 1120-S.

Form 2553. The election a corporation or other eligible entity files to be treated as an S corporation. Source: IRS, About Form 2553.

Form 2848. Power of Attorney and Declaration of Representative. A taxpayer signs it to let an eligible person, such as a CPA or EA, represent them before the IRS. Source: IRS, About Form 2848.

Form 8821. Tax Information Authorization. It lets a person you name see your tax information, without giving them the right to represent you. Source: IRS, About Form 8821.

G to L

Guaranteed payments. Payments a partnership makes to a partner that are set without regard to the partnership's income, for services or for the use of capital. Source: IRS Publication 541, Partnerships.

Home office deduction. A deduction for part of a home used for business. The two basic tests are regular and exclusive use, and that the home is the principal place of the business. Source: IRS, Home office deduction.

Installment sale. A sale of property where at least one payment comes after the tax year of the sale. Gain is reported under the installment method unless the seller elects out by the return due date, including extensions. Source: IRS Topic 705.

Like-kind exchange (Section 1031). An exchange of real property held for business or investment for other real property of the same kind. Generally, no gain or loss is recognized at the time of the exchange. Source: IRS, Like-kind exchanges.

Limited liability company (LLC). A business structure allowed by state law. For federal tax purposes an LLC is treated as a corporation, a partnership or a disregarded entity, depending on its owners and any election it makes. Source: IRS, Limited liability company.

M to R

Minimal rental use (the 14 day rule). If you use a home as a residence and rent it out for fewer than 15 days in the year, you don't report the rental income and don't deduct rental expenses. Some planners call it the Augusta rule. Source: IRS Topic 415.

Partnership. A relationship between two or more people who join to carry on a trade or business. The partnership files an information return and passes profits and losses through to the partners. Source: IRS, Partnerships.

Pass-through entity. A business whose income, losses, deductions and credits flow to the owners and are taxed on their personal returns, such as an S corporation or a partnership. Source: IRS, S corporation stock and debt basis and IRS, Partnerships.

Pass-through entity tax (PTET). A state election that lets a partnership or S corporation pay state income tax at the entity level. IRS Notice 2020-75 says the entity can deduct that tax. For 2026, 37 states offer an election. Source: IRS Notice 2020-75. Table: 2026 PTET elections by state.

Preparer tax identification number (PTIN). The number anyone who prepares or helps prepare federal returns for pay must hold. All enrolled agents must also hold one. Source: IRS, PTIN requirements.

Qualified business income (QBI) deduction. Also called the Section 199A deduction. It lets eligible taxpayers deduct up to 20 percent of qualified business income, plus certain REIT dividends and publicly traded partnership income, subject to limits. Source: IRS, Qualified business income deduction.

Reasonable compensation. The wage an S corporation must pay a shareholder employee for services before it makes non wage distributions to that shareholder. Source: IRS, S corporation compensation. Guide: How to get more tax planning clients.

Research credit (Form 6765). The Credit for Increasing Research Activities, claimed on Form 6765. Source: IRS, About Form 6765.

S

S corporation. A corporation that elects to pass its income, losses, deductions and credits through to its shareholders for federal tax purposes. The IRS gives two main reasons to elect it: to avoid double taxation on distributions and to let corporate losses pass through to owners. Source: IRS, S corporations and IRS, S corporation stock and debt basis.

Safe harbor (estimated tax). The payment levels that keep most individuals clear of the underpayment penalty. The IRS says the penalty generally doesn't apply if withholding and estimated payments were at least 90% of the current year's tax or 100% of the prior year's tax, whichever is smaller, with special rules for higher income taxpayers, farmers and fishers. Source: IRS Topic 306.

SALT deduction limit. The cap on the state and local taxes an individual can deduct on a federal return, set in Section 164(b)(6) of the Internal Revenue Code. State PTET elections work around it, because IRS Notice 2020-75 lets the entity deduct the state tax it pays (Notice 2020-75). Source: 26 U.S.C. 164.

Schedule C. The form sole proprietors use to report profit or loss from a business with Form 1040. Source: IRS, About Schedule C.

Schedule K-1. The form a partnership gives each partner showing that partner's share of income, deductions, credits and other items. Source: IRS, Partner's Instructions for Schedule K-1 (Form 1065).

Section 179 deduction. An election to deduct all or part of the cost of qualifying property in the year it is placed in service, in place of depreciating it, up to a dollar limit that changes by year. Source: IRS Publication 946.

Section 7216 consent. Section 7216 and its regulations limit how tax return preparers may use or disclose a client's tax return information. Many uses and disclosures need the client's written consent first, so check the rules before you use client lists for anything new. Source: IRS, Section 7216 information center.

Self-employment tax. Social Security and Medicare tax paid by people who work for themselves. Source: IRS, Self-employment tax.

SEP IRA. A Simplified Employee Pension plan, which lets an employer, including a self employed person, contribute to traditional IRAs for themselves and their employees. Source: IRS, SEP plans.

SIMPLE IRA. A retirement plan for small employers that lets employees and the employer contribute to traditional IRAs set up for employees. Source: IRS, SIMPLE IRA plan.

Solo 401(k). The IRS calls it a one participant 401(k) plan: a 401(k) covering a business owner with no employees, or the owner and their spouse. Source: IRS, One participant 401(k) plans.

Stock and debt basis (S corporation). A shareholder's investment in the S corporation, which limits how much loss the shareholder can deduct and affects how distributions are taxed. Source: IRS, S corporation stock and debt basis.

More for firm owners

Financial Sales Insider is a marketing company that fills US CPA and EA firms' calendars with qualified tax planning meetings.

See if your firm is a fit

Johnny Logan, Founder, Financial Sales Insider. General information for tax firm owners. Not tax or legal advice.

Financial Sales Insider · Florida · (305) 513-1710