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# 15 Business Tax Terms

If you own a business â€?or are thinking of starting one â€?you need to be aware of the tax ramifications of your endeavor. Business taxation carries its own set of rules and terms. Here are 15 common business tax terms that you should become familiar with, because youâ€™ll be using them regularly:

Adjusted Gross Income (AGI) - The total of all the income you received over the course of the year such as wages, interest, dividends and capital gains minus things such as business expenses, contributions to a qualified IRA, moving expenses, alimony and capital losses. The adjusted gross income is used to calculate federal income tax due.

Accelerated depreciation - A bookkeeping method that allows an owner to deduct a greater portion of the cost of depreciated property in the years immediately after it is acquired.

Accounting method - The method used by a business or individual to keep records. Most individuals and small businesses use the Cash method, although businesses that maintain inventory are required to use the Accrual method.

Accrual method - Business accounting in which you report income in the year you earned it and expenses in the year you incur them, rather than reporting income and expenses when you receive payment or when you pay the expenses. If you own a business that maintains an inventory, you are required to use the Accrual method for tax purposes.

Business interest expense - Interest incurred in the operation of a business, deductible as a business expense.

Cafeteria plan - An arrangement whereby an employer offers workers a choice of nontaxable fringe benefits from which to select. The plan may be funded with employer contributions, employee contributions (usually through salary reduction agreements) or a combination of both. Also known as a Section 125 plan or a Flexible spending account.

Capital - Money that is used to make money; for example, to buy rental property or a business.

Cash method - The form of accounting in which you report income in the actual year you receive it and deduct expenses in the year you pay them.

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