I wanted to (finally) give you a money dictionary that doesn’t require a dictionary to understand the word’s definition. That doesn’t exist . . . so I made my own. You know how you explain a term to a friend who doesn’t “get” it? That’s the way it’s written here. Let this glossary be your go-to guide for definitions with a practical perspective whenever you need a little cheat-sheet. Some stuff changes over the years, but these basics never go out of style.
Tax Credit -
Tax Credit: Unlike deductions and exemptions, which reduce the amount of your income that is taxable, tax credits reduce the actual amount of tax owed. So yes, you would be correct: They. Are. Awesome. Sometimes the government will offer a tax credit to encourage certain behavior, like a credit for first-time homeowners to encourage people to buy a house and boost the housing market, or a credit for replacing older appliances with more energy-efficient ones that are better for the environment. The amount of the credit depends on what it’s for, and credits don’t necessarily apply to everyone: they can be offered to individuals or businesses in specific locations or industries.
Tax Day -
Tax Day: Any day you owe tax, typically thought of as April 15 of each year. Of course, providing you pay in almost all of what you owe, you can file your taxes as late as October 15. Corporations also have tax days, three months after the end of their fiscal year.
Tax Deduction -
Expenses like health insurance and contributions to tax deductible retirement plans like an IRA or 401(k) that are not subject to taxation.
If you deduct those payments from your taxes, you are essentially lowering your total tax liability, or amount of money for which you are on the hook to pay taxes. (See also: IRA, 401[k], liability)
Tax-Deductible: These are expenses like health insurance and contributions to tax-deductible retirement plans like an IRA or 401(k) that are not subject to taxation. If you deduct those payments from your taxes, you are essentially lowering your total tax liability, or amount of money you are on the hook to pay taxes on. (See also: AGI)
Tax-Deferred: An investment that lets your money grow unhindered by Uncle Sam. You pay the taxes on the returns only at a later date, instead of having taxes take a chunk out of the investment while it’s still growing. IRAs are the most common tax- deferred investments. (See also: IRA)
Tax-Exempt: Sometimes the US government will give a company “tax exempt” status, meaning that they are not subject to any tax from the government or regulator. Usually religious organizations, schools, social clubs and public charities are tax exempt—but they don’t get off totally scot-free. They have to adhere to special rules and regulations that go along with that privilege.
Taxable Income -
Taxable Income: Income that is subject to tax; just as bad as it sounds.
Term Life Insurance -
Term Life Insurance: A life insurance policy for a set amount (say, $1,000,000) for a fixed amount of time (say, twenty years). If you die within those twenty years, your beneficiary gets the money. Tax-free. Jackpot. If you live longer than that, the policy expires and no one gets anything (but the joy of you being alive). (See also: Life Insurance, Permanent Life Insurance)
TFRP (Trust Fund Recovery Penalty) -
This is what the IRS slaps you with if you as an employee willfully fail to withhold or pay employment taxes. The amount of the penalty is equal to the unpaid income taxes, plus the employee’s portion of the withheld FICA taxes. Aka you’ll pay way more than if you had just withheld taxes properly in the first place.
Ticker Symbol -
Ticker Symbol: An abbreviation of a company’s name that represents its stock on an exchange. FYI, stocks traded on US exchanges like NYSE have three or fewer letters (Wal-Mart = WMT) in their ticker and NASDAQ stocks have four letters (Google = GOOG). (See also: Stock Exchange)
The basic info interested people (i.e., investors, potential shareholders) get about a company before it goes public. (See also: IPO, Shareholder)
Trade: Pretty simple: selling, buying, or exchanging goods, services, and, in financial terms, stocks, bonds and the like. Buy a share of a company? That’s a trade. Sell it? Ditto.
A symbol or phrase that is recognizable as belonging to a specific brand, like the Golden Arches belong to McDonald’s. You have to research and
register for one, and it can be very expensive— but also very valuable should others try to enter your same market with a similar brand or idea. While your trademark is pending, you can use the ™ symbol next to your idea. Once that registration is approved and finalized, you can start using the ® mark. (See also: Registration)
Treasuries: Bonds issued by the United States federal government. When the federal government needs to borrow money—and it needs to borrow money all the time—it issues Treasuries, which are backed by the full faith and credit of the United States (and not subject to state income tax; you still have to pay federal tax on the income, though). There are several types of Treasuries: T-bills (maturities of one year or shorter), notes (maturities of two to ten years), bonds (maturities of ten to thirty years). Note: people tend to refer to all three of these types as “bonds,” but know that there is a difference based on duration.
Trust: “Trust” is the most important ingredient in a relationship, right? Well, a financial trust is just that: a relationship. Only it’s one comprised of money. A trust is formed when one party “trusts” property or assets to another party (typically a bank) for the benefit of a third party or beneficiary. For example, a parent might leave a trust for children under the age of eighteen, or for children who have mental disabilities that impair their ability to take care of their own finances. There are two types: a living trust, which is in effect during the trustor’s lifetime; and a testamentary trust, which is out- lined in the will of someone who has died. Once the beneficiary is deemed able to manage the funds on their own (for example, when children turn eighteen) they get full possession of the trust and use of whatever’s inside it.
Another way of saying net or total sales.