Treasury Department, Internal Revenue Service (IRS) Key Terms

Make sense out of the IRS jumble by understanding a few key terms

By Lisa Maloney

Business owners have to deal with the Internal Revenue Service (IRS), which can result in headaches every quarter, and sometimes even more often. While it's an accountant's job to help you understand what's going on with your business taxes, you can help yourself by getting an education in basic tax and IRS terms.There's no harm in double-checking the information your accountant gives you. Understanding the terms your accountant uses is the first step toward ensuring you're getting the services and tax advice you're paying for.

Electronic Federal Tax Payment System (EFTPS)

The Electronic Federal Tax Payment System, or EFTPS, is an electronic system provided by the Federal government to help business owners and private taxpayers pay their tax bills electronically.
Try: The EFTPS homepage gives detailed information about who should use the system and provides instructions on how to use it.

TurboTax

TurboTax is just one example of tax preparation software that, when installed on your computer or accessed online, will help you fill out and even file tax forms.
Try: PCMag.com offers a detailed review of TurboTax software and compares it with other tax preparation software programs.

Partnership return

Partnership returns are a specific type of tax filing required for partnerships, which are a specific kind of business entity with more than 100 members. Usually only the largest of companies, those with $10 million or more in assets, are required to file this type of return.
Try: The Internal Revenue Service offers detailed guidance on who needs to file partnership returns and how they can be filed.

Backup withholding

In most cases, a business won't need to withhold tax from independent contractors. The payments made are simply reported on a 1099 form. If the contractor fails to provide a TIN or provides a TIN that appears incorrect, however, the business should withhold taxes from the payment made, which is known as backup withholding.
Try: MSN Money offers a detailed definition of backup withholding.

Tax deductions and tax credits

A tax deduction is a reduction in the amount of taxable income. A tax credit is a reduction in the amount of tax owed. Note that while very similar, the two terms are not interchangeable.
Try: Wise Geek offers a detailed explanation, with examples, of the difference between tax deductions and tax credits.

Bad debt

Bad debt is a term that applies to goods that were sold but never paid for. In some cases, bad debt may be reported and claimed as a tax deduction. Note that you can't claim bad debt for services sold.
Try: UncleFed's Tax Board explains what criteria must be satisfied for an unpaid debt to qualify as bad debt, and what you should do with it.