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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.

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