Glossary of Tax Terms & Definitions
Tax language can feel like another world. AE Tax Advisors built this glossary to help executives, professionals, and entrepreneurs understand the terms that shape legal, compliant tax strategies. Each definition is written in plain English and includes context for how it impacts your ability to legally pay the least possible tax.
A to Z Definitions
Adjusted Gross Income (AGI)
Your total income minus specific adjustments, such as retirement plan contributions or student loan interest. It determines your tax bracket and eligibility for many deductions.
Audit Trail
The organized documentation that supports every number on your return. AE Tax Advisors builds audit-ready files to protect clients if reviewed by the IRS.
Bonus Depreciation
Allows accelerated deduction of certain business or rental property assets in the first year. Strategically applied to increase deductions while maintaining compliance.
Capital Gain
Profit from selling an asset for more than its purchase price. Taxed at different rates depending on how long you held the asset. We design timing strategies to reduce exposure.
Cost Segregation
An engineering-based study that identifies components of a building that can be depreciated faster. This lawful tool can dramatically improve cash flow for real estate investors.
Deferred Compensation
Income earned now but paid later to reduce current-year taxation. We help executives coordinate deferrals under Section 409A to legally lower taxable income.
Entity Structure
The legal form of your business—LLC, S-Corp, C-Corp, or partnership—that determines how income is taxed. Proper structuring can lower payroll taxes and optimize deductions.
Estate Tax
A federal or state tax on wealth transferred after death. AE Tax Advisors designs trust and gifting plans to minimize or eliminate it.
Material Participation
A measure of how involved you are in a business or rental activity. Determines whether income is active or passive for deduction purposes.
Passive Income
Earnings from activities you don’t materially participate in, such as rentals or limited partnerships. Passive losses can offset other passive income under IRS rules.
Qualified Business Income (QBI) Deduction – Section 199A
Allows eligible pass-through owners to deduct up to 20 % of qualified business income. We analyze eligibility and coordinate wages, basis, and entity classification for full advantage.
Reasonable Compensation
The salary the IRS expects an S-Corp owner to pay themselves before taking distributions. AE Tax Advisors models this ratio to minimize self-employment tax without risk.
RSU (Restricted Stock Unit)
Equity compensation that converts to taxable income when vested. Proper timing and deferral can legally reduce the immediate tax impact.
Section 1202 (QSBS Exclusion)
Allows qualified small-business shareholders to exclude up to $10 million in capital gains upon sale, when structured correctly.
Self-Employment Tax
A 15.3 % tax covering Social Security and Medicare for self-employed individuals. Entity restructuring can legally reduce this burden.
Step-Up in Basis
A readjustment of an inherited asset’s value for tax purposes, reducing future capital gains. Key element in estate planning.
Tax-Deferred Exchange (1031 Exchange)
A transaction allowing real estate investors to defer capital gains by reinvesting proceeds into like-kind property.
Withholding Optimization
Adjusting W-2 withholdings and quarterly payments to match actual tax liability, improving cash flow.
How to Apply What You Learn
Each definition connects directly to a real-world application in your AE Tax Advisors plan. Use these links to explore the services that help you apply each term strategically, legally, and confidently.
Still Have Questions About Tax Terminology?
Understanding tax language is the first step toward strategic planning. AE Tax Advisors will translate definitions into results—helping you implement each concept to minimize your taxes the right way.