Tax Expenditure Glossary
- Amortization:
- Annual deduction allowed for the
gradual exhaustion or obsolescence of intangible assets having a limited useful
life which are used in the production of income, such as patents and
copyrights; analogous to depreciation of tangible assets.
- Capital Expenditure:
- An expenditure made in
acquiring, adding to or bettering a fixed asset. For accounting purposes,
capital expenditures are not charged against current revenue. They are added
to capital account or "capitalized" and then may be depreciated;
amortized, or recovered when a business is sold. This concept should be
distinguished from an expense.
- Credit:
- Amount by which a taxpayer is allowed to
reduce a tax liability, as computed by applying the tax rates to the tax base,
to be distinguished from a deduction from the tax base.
- Deduction:
- Amount that a taxpayer is allowed to
subtract from the gross tax base.
- Depreciation:
- Annual deduction allowed for the
gradual exhaustion or obsolescence of tangible property used in the production
of income.
- Exclusion:
- The legal elimination from the tax base
of items recognized as falling within its definition. The federal term for
what is sometimes called an exemption for Massachusetts. (See below.)
- Exemption:
- The legal elimination from the tax base
of items or transactions recognized as falling within its definition, or of
taxable units that would normally be subject to tax.
- Expense:
- A revenue expenditure or cost, which, for
accounting purposes, is charged against current revenue. To be distinguished
from a capital expenditure.
- Gross income:
- The total of all items included in the
concept of income that a taxpayer receives during the taxable period.
- Net income:
- Amount remaining after subtracting
exempt income and deductions from gross income.
- Personal exemption:
- A specific amount or percentage
of net income on which the tax rate is zero. To be distinguished from an
exemption as defined above, which applies to a class of income or taxpayers.
Sometimes called an "allowance".
- Taxable income:
- Amount to which the tax rates are
applied in computing tax liability, after subtracting personal exemptions from
net income.