Taxation Legal Terms and Definitions

Dependent A person, other than the taxpayer or spouse, who entitles the taxpayer to claim a dependency exemption. Income taxes Taxes on income, both earned (salaries, wages, tips, commissions) and unearned (interest, dividends). Income taxes can be levied on both individuals (personal income taxes) and businesses (business and corporate income taxes). Earned Income Credit A tax credit for certain people who work, meet certain requirements, and have earned income under a specified limit. Limited Liability Company An LLC may be classified for Federal income tax purposes either as a partnership, a corporation, or an entity disregarded as an entity separate from its owner by applying the rules in Regulations section 301.7701-3. See Form 8832, Entity Classification Election, for more details. Excise tax A tax on the sale or use of specific products or transactions. Federal Insurance Contributions Act (FICA) Tax Provides benefits for retired workers and their dependents as well as for disabled workers and their dependents. Also known as the Social Security tax. Electric and Clean-Fuel Vehicles For vehicles placed in service in 2004, the maximum clean-fuel vehicle deduction and qualified electric vehicle credit are scheduled to be reduced by 25%, as compared to 2003. Subchapter S The S-Corporation must complete and file IRS Form 1120s to report its annual income to the IRS each year. Form W-4, Employee's Withholding Allowance Certificate Completed by the employee and used by the employer to determine the amount of income tax to withhold. Exemptions Amount that taxpayers can claim for themselves, their spouses, and eligible dependents. There are two types of exemptions-personal and dependency. Each exemption reduces the income subject to tax. The exemption amount is a set amount that changes from year to year.

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	Did You Know?
	Form 5471 is Information Return of U.S. Persons With Respect to Certain Foreign Corporations Report information with respect to certain foreign corporations. A domestic partnership may have to file Form 5471 if it: Controls a foreign corporation; or Acquires, disposes of, or owns 5% or more in value of the outstanding stock of a foreign corporation; or Owns stock in a corporation that is a controlled foreign corporation for an uninterrupted period of 30 days or more during any tax year of the foreign corporation, and it owned that stock on the last day of that year.