"A ton of money" is a slang term for "a lot of money" For example, if something is very expensive, you might say, "It costs a ton of money." If you're optimistic about a new investment, you might sa...
An abacus is a counting device that performs basic mathematical functions. The abacus is believed to have been developed in the ancient Near East in the third millennium BCE. An abacus consists of a...
An abatement is a reduction in a tax rate or tax liability. Property taxes are a common subject of abatement (though the term is often used when discussing overdue debt). For example, John Doe owns ...
Ability to pay refers to a borrower’s capacity to make good on his loan obligations. In banking, ability to pay is often called “financial capacity.” When considering a loan, a banker will fir...
Ability-to-pay taxation is a tax that's assessed based on the taxpayer's ability to pay the tax. John Doe earns $40,000 a year. Jane Doe earns $100,000 a year. The federal government wants more mone...
An above-the-line deduction is a tax deduction that reduces adjusted gross income.   For example, let's assume that John Doe had $100,000 of total income for 2012. He begins to fill out his IRS Fo...
An abusive tax shelter is an investment strategy that illegally shields assets from tax liability.   For example, let’s say John Doe and his wife have a child who begins college this year. Thou...
An account balance is a statement of how much money is in an account. For example, let's say John Doe deposits $100 into a new bank account. He withdraws $45 the next day. Then he deposits $20. His ...
Also called an account hold, an account freeze occurs when a bank or other financial institution prevents any transactions from hitting an account. For example, let's say John Doe is selling drugs f...
Also called an account freeze, an account hold occurs when a bank or other financial institution prevents any transactions from hitting an account. For example, let's say John Doe is selling drugs f...
Accounts receivable financing, also called factoring, is a method of selling receivables in order to obtain cash for company operations. Accounts receivable (A/R) are amounts owed by customers for go...
Acquisition debt is money that is borrowed in order to purchase a company or asset. A leveraged buyout (LBO) is a method of acquiring a company with money that is nearly all borrowed. The basic idea...
An acquisition loan is money borrowed specifically to purchase a company or asset. The basic idea behind acquisition loans is that the acquirer purchases the target with a loan collateralized by the...
An ad valorem tax is a property tax levied based on the value of the property in question. Ad valorem (Latin for "according to the value") taxes are levied solely as a percentage of a property's mar...
The adjusted balance method determines the finance charges on an account once all credits and debits for the accounting period have been posted. The adjusted balance method is used to determine the ...
Adjusted cost base (ACB) is an income tax term that refers to an adjustment in an asset's book value resulting from the cost of improvements, payouts, and similar improvements or dispositions. Let's...
Adjusted gross income (AGI) is the figure used by the Internal Revenue Service to determine a taxpayer's eligibility for certain tax benefits. AGI is calculated by adding together all qualified inco...
Alimony is a series of payments made to an ex-spouse or separated spouse according to a divorce decree or separation agreement. Also known as "spousal support," the idea behind alimony is to provide...
An allowance for bad debt is essentially a reduction in a bank's accounts receivable. The allowance for bad debt equals the amount of the banks loans that it does not expect to collect. Let's assume...
The alternative minimum tax (AMT) is income tax owed using a parallel tax code designed to ensure that every taxpayer, particularly rich ones and corporations, pay at least some income tax each year....
An amended return is a Form 1040X filed by a taxpayer to correct mistakes made on a Form 1040, Form 1040A, Form 1040EX, Form 1040NR or Form 1040NR-EZ (U.S. Individual Income Tax Return) filed in the ...
The American Opportunity Tax Credit (formerly known as the Hope Tax Credit) is a tax credit available to college students or their parents to help pay for college expenses. Eligible taxpayers can qu...
Same as the effective annual interest rate, the annual equivalent (AER) rate is the rate of interest an investor earns in a year after accounting for the effects of compounding. The formula for AER i...
Annual Percentage Rate (APR) is the interest rate that reflects all the costs of the loan during a one year time period. The annual percentage rate includes loan fees and the compound interest rate ...
Antitrust refers to federal laws disallowing companies from monopolizing markets, engaging in price discrimination or price fixing, or otherwise restraining free trade. Antitrust laws apply univers...
An appraisal is an estimate of the market value of an item by a certified professional. Appraisals can be assigned to nearly any item, including real estate. Appraisals are conducted by individuals ...
An assumed interest rate is used to calculate an annuity's periodic income payments. To understand how the assumed interest rate works, one must first remember how an annuity works. It's a contract ...
ACH, which stands for or Automated Clearing House, is a fund transfer system operated by NACHA, the National Automated Clearing House Association.   Launched in 1974, ACH is used for a wide range of...
An automatic investment plan (AIP) is a strategy whereby an investor can arrange for funds to transfer into an investment account automatically on a regular basis. Let's assume you want to save mone...
Average balance is either the simple or the weighted average balance of a financial account during some period of time. A simple average balance is calculated by adding up the beginning balance and ...
The average daily balance method is a way of calculating interest by considering the balance owed or invested at the end of each day of the period rather than the balance owed or invested at the end ...
The Babcock School of Management is the business school at Wake Forest University. Located in Winston-Salem, North Carolina, the Babcock School of Management offers a full-time MBA program with an e...
Back taxes are state, federal, or local taxes that are past due. For example, let’s assume that John Doe forgets to file his tax return for 2011. He does not file for an extension past the April 1...
With back to back loans two parties, each in a different country, lend money to each other in an effort to hedge against currency risk. They are also called "parallel loans." Company XYZ is in the U...
Back up the truck is slang for bullish sentiment about a market or security. In the transportation world, drivers often back up the truck when they’re getting ready to get a load from a warehouse....
A back-to-back commitment is an agreement to buy a construction loan on a future date or make a second loan on a future date. For example, let’s assume that Company XYZ applies for a construction ...
Back-to-back letters of credit occur when a buyer gives a letter of credit to a seller, who then obtains a letter of credit for a supplier. A letter of credit is a bank's written promise that it wil...
A backup line is a bank promise that a commercial paper issuer will repay the maturing debt. For example, let’s assume Company XYZ wants to issue $10 million in commercial paper. The commercial pa...
Backup withholding is a way for the Internal Revenue Service to withhold taxes from a taxpayer who does not provide or have a taxpayer identification number or Social Security number. In general, th...
A bad check is a check written on an account that doesn't have enough funds to cover the amount of the check. For example, let's assume that John has $1,000 in his checking account today. He goes to...
In business, bad debt is the portion of a loan or portfolio of loans a lender considers to be uncollectable. In personal finance, bad debt generally refers to high-interest consumer debt. For exampl...
Also called overdraft protection, balance protection is a feature on a checking account that prevents a customer from bouncing checks. A bad check is a check written on an account that doesn't exist...
Balance reporting is the act of communicating the balance in an account. Banks do balance reporting when a customer inquires about the balance in an account. For businesses, balance reporting is oft...
A balanced investment strategy is a method of portfolio allocation. Let's assume that John Doe has $500,000 in his portfolio. He does not want to take on too much risk but is worried about not takin...
A balloon loan is a loan with a large payment made near or at the end of the loan term. Unlike a loan whose total cost (interest and principal) is amortized -- that is, paid incrementally during the...
A balloon payment is a large payment made at or near the end of a loan term. Unlike a loan whose total cost (interest and principal) is amortized -- that is, paid incrementally during the life of th...
A ballpark figure is an estimate. Let's say John Doe is at a cocktail party and meets Jane Smith, who runs a contracting company. John mentions that he wants to have his driveway repaved but doesn't...
A bank card is a plastic card issued by a financial institution that allows the user to make purchases with funds either borrowed from or held at that financial institution. The most common bank car...
A bank card association is a company owned by one or more financial institutions that licenses credit card programs. The two most popular bank card associations are Visa and MasterCard. They license...
Bank credit is an amount of funds that a person or business can borrow from a bank. All kinds of things can be bank credit: mortgages, credit card accounts and even overdraft lines. Added together, ...
Bank debits are reductions in customer accounts. Let's say you write a check at Target for $50. Your bank, Bank XYZ, will debit your account by $50. This is a bank debit. Your bank may also debit yo...
A bank guarantee is a promise from a bank or other lending institution that if a particular borrower defaults on a loan, the bank will cover the loss. note that a bank guarantee is not the same as a ...
A bank identification number (BIN) identifies and verifies parts of a bank transaction. For example, when you purchase something with your Visa card, the vendor and the payment processor receive a s...
Also called the federal discount rate, the bank rate is the interest rate at which a bank can borrow from the Federal Reserve.   To understand the bank rate, it is important to understand that ba...
Basis refers to the original price of an asset. It is sometimes called cost basis or tax basis. Let's assume you purchase 100 shares of Company XYZ stock for $5 per share and you pay a $10 commissio...
Belt and suspenders is a term to describe a risk-averse person or situation. The term refers to the act of wearing redundant items to hold up a pair of pants.   For example, let's assume John Doe i...
A beneficiary is any person or organization that receives assets from a person after that person’s death. For example, let's say John Smith dies and his will indicates that his two children, Sall...
The Board Certified in Estate Planning (BCE) certification is earned by brokers, advisors and financial planners who have demonstrated expertise in dealing with estate planning. In order to earn the...
When a check is refused by a bank and returned to the person who wrote it due to insufficient funds, it is called a bounced check. Checks should be written for an amount that is less than or equal t...
In the tax world, bracket creep occurs when inflation drives income up and into higher tax brackets. Let's say John Doe makes $100,000 a year and is in the 28% federal income tax bracket. Let's furt...
A bridge loan is a short-term, high-interest loan that provides a quick source of cash for commercial or individual needs.  It is called a bridge loan because it serves as a bridge between one perio...
A broker is a person or a company that acts as an intermediary between buyers and sellers. Brokers exist not just in the financial markets, but in the real estate market, the commodities market, the ...
A broker loan is a loan that the lender can obligate the borrower (a brokerage house) to repay at any time. Also known as a call loan or demand loan, a broker loan is granted to a brokerage house in...
The Buffett Rule is a tax rule change included in President Barack Obama's 2013 budget proposal. If implemented, the rule would ensure that individuals who earn more than one million dollars per ye...
Bullet is usually short for bullet payment, which is typically a large payment made near the end of a loan that does not amortize over time. Unlike a loan whose total cost (interest and principal) i...
A bullet loan is a loan that does not amortize over time and must be repaid with a single large payment (also called a balloon payment) at the end of the term of the loan. Unlike a loan whose total ...
A bypass trust, also called a "credit shelter trust", is a method of passing assets to beneficiaries without subjecting those assets to estate taxes. Let's say John Doe owns a horse farm worth $11...
A caisse populaire is a Canadian financial institution that is owned and controlled by its members rather than shareholders. It is essentially a credit union. Most are in Quebec. The members of the ...
A call loan is a loan that the lender may force the borrower to repay at any time. Also called a broker loan or demand loan, a call loan is granted to a brokerage house that needs short-term capital...
The call loan rate, also known as the "broker loan rate", is the interest rate charged on the call loans used by brokerage houses to fund clients' margin trading accounts. When banks or other lende...
Call money is a very short-term bank loan that does not contain regular principal and interest payments. It is often used by brokerage firms to finance margin accounts. Let's assume that Broker XYZ ...
The call money rate, sometimes known as the "broker loan rate," is the interest rate on the loans banks make to brokerage firms that are borrowing to fund transactions in their clients' margins acco...
CAMELS is a system used to rate banks. In order to ensure their financial strength, banks must undergo periodic examinations by a federal agency (usually the Office of the Comptroller of the Currenc...
A canceled check is a check that has cleared or prevented from clearing. Let's say John Doe writes a $100 check to Jane Smith. She takes it to her bank to cash it. The bank takes the check, deposits...
A cancellation bulletin is a list of credit cards that are reported stolen, canceled or compromised in some way.  A cancellation bulletin is also called a "warning bulletin," "hot list" or "restric...
Cancellation of debt occurs when a lender tells a borrower that he or she no longer must repay a loan. Let's assume that John Doe borrowed $100,000 from Bank XYZ for a luxury car. In the middle of t...
A capital gains tax is a tax on the increase in the value of an investment. A capital gain is the difference between the purchase price (the basis) and the sale price of an asset. The formula for ca...
Capital gains treatment refers to whether capital gains are taxed as short-term capital gains, long-term capital gains, or in another manner. Let's assume you purchase 100 shares of XYZ Company for ...
A cash advance is a high interest loan typically taken out on a credit card or a line of credit from a bank. Interest on a cash advance begins accruing immediately upon disbursement. Suppose John us...
A cash flow loan is a loan, usually to a company, intended to meet daily cash needs during times when cash flow is inconsistent. These loans are short-term in nature; borrowers usually must repay the...
A cashier's check is a check that guarantees the availability of the underlying funds because it is drawn upon and issued by the bank itself. To obtain a cashier's check, a person must first deposit...
A certified check is a check for which the issuing bank guarantees payment. Let's assume you want to rent an apartment from the XYZ Leasing Company but your credit is bad. XYZ Leasing Company may re...
Certified Financial Planner (CFP) is a professional designation attained by a financial planner or advisor who has successfully completed the requirements set by the Certified Financial Planner Boar...
Relatively new to the financial planning and advice sector, a Certified Kingdom Advisor (CKA) is a professional certification for financial advisors who work with clients who take a Christian values ...
Chapter 11 bankruptcy refers to the section of U.S. bankruptcy law under which companies and individuals can attempt to restructure their debts in order to repay them. Individuals, partnerships, or...
Chapter 13 refers to the section of U.S. bankruptcy law under which individuals may attempt to restructure their finances in order to repay their debts. Individuals, the self-employed, and those ope...
Chapter 7 refers to the section of U.S. bankruptcy law under which companies and individuals liquidate their assets in order to repay their debts. Individuals, partnerships, or corporations can file...
Chapter X was a portion of the bankruptcy code that dictated bankruptcy processes and procedures for corporations. 1978 was the last year corporations were able to file bankruptcy under Chapter X. C...
A charge card is a plastic card issued by a financial institution that allows the user to make purchases with funds borrowed from that financial institution. Colloquially speaking, a charge card is ...
A chargeback protects cardholders from unsatisfactory sales and service by letting the cardholder demand a "refund" directly from the credit card issuer. If a customer successfully disputes a credit ...
The Chartered Trust and Estate Planner (CTEP) accreditation is issued by the American Academy of Financial Management (AAFM) for financial professionals who have demonstrated expertise in dealing wit...
Checkable deposits are bank accounts against which checks can be drawn. There are different types of checkable accounts offered by retail banks and credit unions: deposit accounts, interest-bearing a...
The child tax credit is a tax-bill reduction given to people with qualifying children under 17 years old. The Internal Revenue Service (IRS) allows taxpayers to reduce their federal income taxes by ...
Banks offer different types of savings accounts any time of year. A way to save money toward holiday shopping and seasonal spending is a Christmas Club account. It is marketed to savers as an incenti...
A closed end lease, also called a "walk away lease", is usually a kind of car lease that allows the lessee to return the car at the end of a lease period. Let's assume John Doe leases a 2021 Ford M...
Collateral is an asset pledged by a borrower to a lender, usually in return for a loan. The lender has the right to seize the collateral if the borrower defaults on the obligation. Let's assume you ...
Collateralization occurs when a company pledges an asset to a lender (usually in return for a loan). The lender has the right to seize the collateral if the borrower defaults on the obligation. Let...
The College Work Study Program (CWSP) is a type of financial aid that a school awards to a student who has completed a FAFSA and has demonstrated a financial need. The student is given a job (usually...
A commercial bank is a financial institution that offers checking accounts, demand deposits, business and personal loans, savings vehicles and a variety of other related financial services. Commerci...
Commercial paper is an unsecured and discounted promissory note issued to finance the short-term credit needs of large institutional buyers. Banks, corporations and foreign governments commonly use t...
A conservatorship is the legal establishment of a court appointed manager for the personal and financial affairs of someone who is legally incapacitated, also referred to as a ward. The ward may be p...
Consignment is an agreement between an owner and a third-party consignee whereby the consignee agrees to sell the owners goods in exchange for a fee.  Consignment is an arrangement in which an item...
Contactless payment technology allows transactions through a chip embedded in payment cards, tags, key fobs, or mobile phones. A chip or QR code communicates with a reader device using radio frequenc...
Cost basis refers to the original price of an asset. Cost basis is sometimes called tax basis. Let's assume you purchase 100 shares of XYZ Company stock for $5 per share, and you pay a $10 commissio...
Credit is an agreement whereby a financial institution agrees to lend a borrower a maximum amount of money over a given time period. Interest is typically charged on the outstanding balance. In the a...
A credit bureau is an agency that collects, organizes, and disseminates credit information to creditors and potential creditors. Credit bureaus generally collect information on individuals and small ...
A credit card is issued by a financial institution that lets you borrow money to make a purchase. According to a recent Experian report, the average American holds 4 credit cards. Not only are credit...
A credit card balance is the total amount of money owed on a credit card account. Whenever a purchase is made, the balance increases. Conversely, whenever a payment is made, the balance decreases. Th...
A credit crunch occurs when loans are very expensive and difficult to obtain. During a credit crunch, lending institutions are limited as to the amount of funds they can use to make loans. Lenders a...
A credit limit is the maximum amount that a person may charge on a credit card or borrow from a financial institution. After a financial institution has approved an applicant's request for a credit ...
Credit quality is a measure of an individual's or company's creditworthiness, which is ability to repay debt. A FICO score, which is created and calculated by the Fair Isaac Corporation, is a measur...
In personal finance, the term credit rating commonly refers to a score issued by the Fair Isaac Corporation (a "FICO score"). A person's credit rating indicates how creditworthy he or she is. In corp...
A credit report is a report detailing a person's financial history specifically related to their ability to repay borrowed money. There are three major credit bureaus in the United States: TransUnio...
Credit risk is the chance that a bond issuer will not make the coupon payments or principal repayment to its bondholders. In other words, it is the chance the issuer will default. While the definiti...
Credit score refers to the FICO score, which is created and calculated by the Fair Isaac Corporation and is a measure of an individual's creditworthiness. It is a mathematical summary of the informat...
A credit union is a financial institution that is owned and controlled by its members rather than shareholders. The members of the credit union pool their deposits and provide loans and other financi...
The credit utilization rate is a calculation comparing an individual's total debt balances to total available credit. The credit utilization rate is also referred to as the credit utilization ratio....
Credit utilization, commonly referred to as the credit utilization ratio or credit utilization rate, is a calculation comparing an individual's total debt balances to total available credit. The cr...
A creditor is an individual or institution that lends money or services to another entity under a repayment agreement. There are generally two types of creditors: personal and real. Personal credito...
The current portion of long-term debt (CPLTD) is the portion of a company's long-term debt payments that are due in less than one year.   For example, let’s assume that XYZ Company borrows $10,...
A daily money manager (DMM) is a person who manages day-to-day financial responsibilities for clients. For example, let’s assume John Doe is elderly and lives alone. His wife, who used to handle t...
A death tax, also called an estate tax, is a tax assessed on all or a portion of an inherited estate. Life insurance, pensions, real estate, cars, belongings and debts are all part of one's estate. "...
In the business world, debt is an amount borrowed. For example, let's assume Company XYZ has invented a new product that will revolutionize the widget market. The company is certain there will be de...
A debt discharge is a legal action that relieves a borrower from his or her obligations to a lender.   Debt discharge typically happens during bankruptcy, which is a legal process under which a b...
Debt financing is the use of borrowing to pay for things. For example, the basic idea behind acquisition debt financing is that the acquirer purchases the target with a loan collateralized by the ta...
Debt service is the act of making interest and principal payments on debt. For example, let's say Company XYZ borrows $10,000,000 and the payments work out to $14,000 per month. Making this $14,000 ...
A debtor is a person or entity legally required to provide a payment, service or other benefit to another person or entity (the obligee). Debtors are often also called "borrowers" or "obligors" in c...
Debtor in possession (DIP) refers to the status of a business that retains control of its assets and continues to operate while under the Chapter 11 bankruptcy reorganization process.   Under Chap...
Debtor-in-possession (DIP) financing refers to financing for a business that retains control of its assets and continues to operate while under the Chapter 11 bankruptcy reorganization process.   ...
In legal terms, a decedent is a dead person.   Let's say John Doe dies this year. He is a decedent. His will and trust enabled him to direct what happened to his possessions and his money. The lega...
In the finance world, deductible is usually short for tax-deductible, which refers to an expense that reduces the amount of income that is subject to tax. In the insurance world, a deductible is a re...
A deduction is a reduction in taxable income, which thereby lowers the amount of taxes owed. Federal, state, and local tax codes determine what kinds of items or expenses are deductible and which tax...
A default is a violation of a promise to pay debt in agreed amounts at agreed times. Let's assume Company XYZ has a line of credit for $10 million from Bank ABC, and $5 million of that line is outst...
Deferred income tax refers to a portion of income earned by a company during a given year for which the associated income tax has not yet been paid. Certain accounting practices and tax laws often r...
In finance, to dehedge is to engage in an investing strategy that does not protect an investment or portfolio against loss. It usually involves securities that move in the same direction. Let's assu...
Delinquent means “something or someone who fails to accomplish that which is required by law, duty, or contractual agreement, such as the failure to make a required payment or perform a particular ...
A demand deposit is an account with a bank or other financial institution that allows the depositor to withdraw his or her funds from the account without warning or with less than seven days' notice....
A demand loan is a loan where the lender may require the borrower (a brokerage house) to repay at any time. These loans may also be called a broker loan or call loan, A demand loan is granted to a ...
A dependent relies on someone else for most or all of his or her financial support.   In general, dependents are exemptions that reduce a taxpayer's taxable income. Taxpayers typically can take an...
The deposit interest rate is the rate of interest earned on a deposit account held by a depositor at a bank or savings institution. Common types of deposit accounts include savings accounts, interest...
Direct deposit refers to the electronic transfer of a cash payment into the recipient's bank account. Direct deposit is a method of payment where a paying party, such as an employer or government ag...
A direct tax is any tax levied on companies or individuals that cannot be transferred to another party. It is the opposite of indirect tax. Direct taxes affect individuals and companies to the amoun...
Discretionary income is the income left over after paying taxes and normal living expenses. Discretionary income is the income remaining after the essentials (taxes, food, clothing, shelter, etc.) h...
Disposable income, also known as net pay, refers to the income that’s left for personal spending after direct taxes, such as federal and state income taxes, have been accounted for. It is a key con...
Distressed securities are financial instruments of a company that are under price pressure due to bankruptcy (Chapter 7), reorganization (Chapter 11), financial turmoil, or other economic trauma. Di...
The dividend tax credit generally refers to a Canadian tax program whereby Canadian residents receive a reduction in taxes owed on dividends received from Canadian corporations. In Canada, dividends...
Double taxation occurs when a tax is imposed more than once on the same asset, income stream, or transaction. The most well-known example of double taxation in the U.S. is the income tax levied once...
Dun & Bradstreet provides information about businesses through a global commercial database.   Founded more than 170 years ago, the company (NYSE: DNB) maintains a global database of informatio...
A DUNS number (DUNS stands for Data Universal Numbering System) identifies a company.   Let's say Brad Smith of Tampa, Florida, owns a business called Brad's Bagels. Brad Johnson in Portland, Ore...
In the tax and import/export world, a duty (or customs duty) is money collected under a tariff.   A duty is a federal tax on imports or exports. For example, Americans who travel abroad can bring ...
Early withdrawal refers to a depositor's or investor's withdrawal of funds from an account before the agreed-upon withdrawal date. Early withdrawals usually incur penalties. Individual retirement ac...
Earned income is an IRS term for income that is obtained by participating in a business or trade. Earned income typically includes salaries and bonuses, wages, commissions and tips. Union strike bene...
The earned income tax credit (EIC) is a tax credit for low-income workers.  Earned income is an IRS term for income obtained by participating in a business or trade -- typically, this means salarie...
Earning potential often refers to the top salary for a particular field or profession. In the finance world, the meaning is not much different: earning potential is the biggest profit a company could...
An education credit is a tax credit associated with the payment of education expenses during the tax year. Currently, there are three major education credits in the United States (amounts subject to...
An education IRA, now more formally known as a Coverdell Education Savings Account (or Coverdell ESA), is a tax-advantaged savings account intended to help parents and guardians prepare for the expen...
The educator expenses deduction is an IRS deduction that allows teachers to exclude out-of-pocket teaching expenses from income. In order to qualify for the educator expenses deduction, a person mus...
The effective tax rate is the average rate at which an individual is taxed on earned income, or the average rate at which a corporation is taxed on pre-tax profits. The formulas for effective tax ra...
Electronic filing, or e-File, is the online tax return filing system developed by the Internal Revenue Service (IRS) Individual taxpayers, businesses, large and mid-sized corporations, and non-profi...
An electronic funds transfer (EFT) allows payment between two parties by using electronic signals to transfer money. The current systems of electronic funds transfer began in the 1960s but became wid...
An employer identification number (EIN) is a number assigned to businesses by the IRS. It is also known as the Federal Employer Identification Number (FEIN) or the Federal Tax Identification Number. ...
An encumbrance is a limitation on the ownership of a property. In the real estate world, an encumbrance is similar to a lien. The bond world also includes encumbrances. For instance, let's consider ...
An enrolled agent (EA) is person who is authorized to represent a taxpayer before the Internal Revenue Service (IRS). To become an EA, a person has to pass a three-part comprehensive IRS test of ind...
An estate is all of an individual’s property and financial assets and liabilities at the time of his or her death. An estate might include a home and other real estate owned by an individual, as w...
An estate freeze is an estate planning strategy used by an owner to lock in an asset's value and avoid future tax liability when the asset is transferred to a beneficiary. An estate freeze is common...
Estate planning is the act of preparing for the transfer of a person's wealth and assets after his or her death. Assets, life insurance, pensions, real estate, cars, personal belongings, and debts ar...
An estate tax is levied on assets inherited by the heirs to a deceased person's estate.  The estate tax is applied differently according to U.S. Federal and state laws as well as international law....
Euro LIBOR is the interest rate at which banks borrow euros from other banks in the London interbank market. Euro LIBOR is essentially LIBOR denominated in Euros. The Euro LIBOR is also somewhat sim...
Excise tax refers to an indirect type of taxation imposed on the manufacture, sale or use of certain types of goods and products. Excise taxes are commonly included in the price of a product, such a...
An executor administers the distribution of an estate to beneficiaries. A will is a legal document that indicates how a person wants his or her estate (money and property) to be distributed after de...
The expected family contribution (EFC) is the amount of money that a family is expected to contribute toward a student's college tuition or expenses in a given year. Upon completion and submission o...
A facility is essentially a bank loan agreement that a company can use on and off for short-term borrowing purposes. For example, let’s assume Company XYZ is a jewelry manufacturer. The company is...
The Fair and Accurate Credit Transactions Act (FACTA) allows consumers to get a free credit report from the three major credit reporting agencies every 12 months in order to help prevent identity the...
The Fair Credit Billing Act (FCBA) is an amendment to the Truth in Lending Act. The FCBA is meant to protect consumers from unfair or inaccurate billing practices by providing a system for consumers ...
The Fair Credit Reporting Act (FCRA) is the principle legislation for consumer credit rights in the U.S. It regulates the collection, distribution, and use of consumer credit information. The FCRA s...
The Fair Debt Collection Practices Act (FDCPA) is a section of the consumer credit protection act that aims to promote fairness in the collection of consumer debts and provide a way for clarifying an...
The Federal Deposit Insurance Corporation (FDIC) is an agency of the U.S. government that insures deposits in banks and thrift institutions, supervises the risks associated with these insured funds, ...
The Federal Farm Credit System (FFCS) is a group of lenders that provide loans and other credit services to farmers, ranchers, and producers or harvesters of aquatic products.  People or businesses...
The Federal Financial Institutions Examination Council (FFIEC) is an interagency body of the U.S. government that provides standardized methods for examining financial institutions in accordance with...
Federal funds are monies held by banks at the Federal Reserve to meet reserve requirements. Funds in excess of reserve requirements can be loaned to other banks in order for those banks to meet reser...
Federal income tax is a tax on a range of certain kinds of income. Taxpayers generally calculate and pay federal income tax by filing an IRS Form 1040 by April 15 of each year. The United States has...
The Federal Insurance Contributions Act (FICA) is a US payroll tax used to fund the Social Security and Medicare programs. These programs are designed to support those without wage income: retirees, ...
A federal tax bracket is range of incomes for which a certain federal income tax rate applies. The United States has a progressive tax system, which means that different portions of a person's or co...
The Federal Work Study Program (FWSP) is a form of financial aid awarded to a student who has completed a FAFSA and has demonstrated a financial need. The student is given a job (usually on-campus) a...
A FICO score, created and calculated by the Fair Isaac Corporation, is a measure of an individual's creditworthiness. It is a mathematical summary of the information on a person's credit report. FIC...
A finance charge is the fee charged to a borrower for the use of credit extended by the lender. Broadly defined, finance charges can include interest, late fees, transaction fees, and maintenance fee...
A financial advisor (also sometimes spelled "financial adviser") is an educated investment professional who helps people and businesses set and meet long-term financial goals. A financial advisor is...
A financial planner is a credentialed professional who, for a fee, assists individuals and organizations in reaching their financial goals and increasing their net worth through careful investing and...
Firewall refers to the strict separation between banking and brokerage activities within full-service banks, and between depository and brokerage institutions as stipulated by the Glass-Steagall Act ...
A fixed interest rate is a type of loan or mortgage for which the rate of interest does not fluctuate over the life of the loan. The most common types of mortgages carry either a fixed or variable i...
A flat tax is a system under which all taxpayers pay taxes at the same percentage rate of their total income. Let's assume that you had $100,000 of taxable income last year. Under a progressive tax ...
A floating interest rate is an interest rate that can change from time to time. Let's say you want to borrow $5,000 to start a business. Company XYZ offers you a floating interest rate loan at prime...
Forbearance, which literally means "holding back," is a temporary suspension of loan payments agreed to by both lender and borrower as an alternative to defaulting on the loan (or foreclosure in the ...
A forgivable loan is a type of loan in which some (or all) of the amount can be forgiven or deferred if the borrower meets certain conditions. Since the loan balance is waived when the requirements a...
Mistakes happen, and the IRS understands that (though the jury is still out regarding how forgiving the IRS is about mistakes). For this reason, the IRS provides the Form 1040X, which requires a line...
Taxpayers must file a Form 1045 within one year after the end of the year in which the loss or unused credit occurred, and they will likely also have to file amended returns. It is important to note ...
Form 1065 is an IRS form used to report income, gains, losses, deductions and tax credits associated with partnerships. Let's say John Doe and Jane Smith operate a partnership that sells widgets. Wh...
Form 1078 is only for people who became resident aliens before 2001. In our example, that means John Doe would've filed a W-9 after 2001. Regardless, John's income is subject to U.S. taxes and may be...
Form 1098 is an IRS form that reports how much mortgage interest a taxpayer paid during the tax year. Let's say John Doe borrows $100,000 for a house from Bank XYZ. He makes the mortgage payments, a...
Form 1099-B is useful for reporting and calculating taxes that apply to capital gains. For instance, the form will disclose the proceeds of the sale and how much of those proceeds are capital gains, ...
Financial institutions must create Form 1099-DIV for dividends and distributions of at least $10 in a tax year. Taxable dividend distributions from life insurance contracts and employee stock ownersh...
Interest is taxable income. The Form 1099-INT shows how much interest a person earned from an institution in a tax year. The IRS requires brokerage firms, banks, mutual funds and other financial inst...
According to the IRS, a Form 1099-Misc is appropriate for reporting the following: Payments of $600 or more for services performed for a trade or business by people not treated as its employees (such...
The free application for federal student aid (FAFSA) is a form filled out by college or graduate students who are eligible for government-sponsored financial aid. Every year, a college or graduate s...
Free lunch is a phrase used to describe getting something for nothing. There is no such thing as a free lunch. There are many things in life that seem to come for free: clean air, elementary school...
A frozen account refers to a situation where an individual is unable to withdraw money from a bank account due to a court order. A bank account is commonly frozen when the account holder owes money ...
A full-time student is a person enrolled in a post-secondary institution of learning who is taking at least the minimum number of course credit hours according to the institution's requirements. Alt...
A fully indexed interest rate equals an adjustable-rate mortgage's (ARM) interest rate benchmark plus a spread.  The interest rate on an ARM corresponds to a specific benchmark (often the prime rat...
A person is fully vested when a financial instrument or account becomes wholly owned by the investor. Let's assume John Doe receives options to buy 2,000 shares of Company XYZ, his employer, for $10...
Gambling income is any money that is earned from games of chance. Income from gambling is taxable money earned from games such as lotteries and keno or from institutions such as casinos or racetrac...
A gambling loss is any money lost in lottery tickets, slot machines, table games (craps, poker, blackjack, etc.), bingo games, racing bets and keno. For example, let's say John Doe goes on a bender ...
The purpose of the gas guzzler tax is to discourage the manufacture of inefficient cars. The sticker on a new car should disclose the amount of gas guzzler tax that a manufacturer has paid on a car. ...
A gift tax is a federal tax on anything of value that one person gives to another. Let's say Jane Smith gives her son John $25,000 because John is going through a tough time and just lost his job. ...
Gifted stock is stock that one person gives to another person or entity. Let's say John Doe bought 200 shares of Company XYZ a long time ago when it was trading at $1 a share. Over time, the stock h...
A gifting phase is when a person begins planning for or actively begins giving away wealth as part of his or her estate planning. Let's say Jane Smith is 87 and has accumulated about $3 million over...
A goods and services tax (GST) is simply a tax on goods and services for domestic consumption. This tax system is in place in about 160 countries, including Canada, India, Vietnam, Australia, Uni...
A grace period is a period of time, usually about 10 days, during which a past due amount can be paid with little or no penalty. Let's assume your credit card payment is due on December 15. You forg...
Gross earnings, also known as gross income, represents income before taxes or adjustments. In the accounting world, gross earnings are usually the same thing as gross profit (that is, revenue minus ...
Group banking is offered by some banks to incentivize a whole group of people, like employees of a company, to have a relationship with the banking institution. A bank may team up with a large emplo...
With a guaranteed loan, a party other than the borrower has promised to take responsibility if the borrower cannot make the payments. The entity assuming this responsibility is called the guarantor. ...
In general, a financial guarantee is a promise to take responsibility for another company's financial obligation if that company cannot meet its obligation. The entity assuming this responsibility is...
A half-commission man introduces potential clients to financial advisors in return for a cut of the commissions those advisors earn from the new clients. Let's say John Doe knows Jane Smith, who has...
In the investing world, a half-life is the halfway point of mortgage repayment. Let's say John Doe borrows $100,000 to buy a house. The interest rate is 4% with  a 30-year mortgage. His monthly pay...
A hard money loan is a short-term loan that uses the value of real property owned by the borrower as its collateral. A hard money loan provides money for short-term expenses similar to a bridge loan...
Hard skills are quantifiable capabilities required for specific occupations. They are the opposite of soft skills. Careers require practitioners to have certain practical and personal abilities. Har...
Head of household is a formal IRS filing status for people who are single but provide financial support to at least one other person in his or her home.   Let's say Jane Doe is a single mother wit...
High Earners, Not Rich Yet (HENRYs) are young, usually well educated, and highly paid but have not accumulated significant wealth yet. HENRYs often earn $250,000 to $500,000 per year per household, ...
Highly compensated employees are usually limited in the amount of money they can set aside in their 401(k) plans and other retirement plans. Specifically, the federal government limits the amount of ...
A home mortgage is a loan secured for a house. The borrower is usually obligated to make a predetermined series of payments on the loan. Home mortgages generally range from 10 to 30 years. The two m...
Home office expenses are those costs incurred by working from a home-based office.  These expenses are tax-deductible. In order to qualify as fully tax-deductible, home office expenses must go towa...
A hot list is a list of credit cards that are reported stolen, canceled or compromised in some way.  A hot list is also called a "warning bulletin," "restricted card list" or "cancellation bulletin...
A household employee is a person who provides paid services within a private home. These services are often subject to payroll taxes. According to the Internal Revenue Service, these types of worker...
An identity fraud reimbursement program is an insurance-like product that reimburses the holder for expenses related to dealing with being a victim of identity theft. Let's say John Doe happens to s...
Imputed Interest refers to interest that is considered by the IRS to have been paid for tax purposes, even if no interest payment was made. The IRS uses imputed interest as a tool to collect tax reve...
Income is an actual or recorded inflow of cash or other assets. The term is used in many different contexts. Let's say John Doe works for Company XYZ. His salary is $100,000 per year. This is his in...
Income tax refers to taxes imposed by the government on individuals and businesses based on annual income. In the US, income tax is collected on taxable income by the Internal Revenue Service (IRS). ...
An inheritance includes those assets of an estate that are bequeathed, in whole or in part, to specific heirs. The assets that comprise an estate are customarily transferred to individuals specified...
An inheritance tax, also called an estate tax, is a tax assessed on all or a portion of an inherited estate. Life insurance, pensions, real estate, cars, belongings and debts are all part of one's e...
In most usages, insolvency is the inability of a company or individual to meet its financial obligations as they come due. In the legal sense of the word, an entity is considered insolvent if its tot...
Installment debt refers to any loan that is repaid by the borrower in periodic (usually monthly) installments that include principal and interest. Installment debt, also called an installment loan, ...
An installment loan is a type of loan that is repaid in periodic installments (usually monthly payments) that include principal and interest. An installment loan can also be referred to as installme...
LIBOR is one of the most widely used benchmarks for short-term interest rates and is unlike the prime rate in the United States, which is somewhat arbitrarily based on certain banks' lending costs pl...
The term interchange fees, also known as swipe fees, refers to the hidden cost paid by merchants to card-issuing banks and credit card companies for processing credit card and debit card transactions...
An interchange rate is a bank fee for executing credit card and debit card transactions. An interchange is an electronic transfer of information. In the business world, this usually involves financi...
Interest is the cost of borrowing money for a certain period of time. Let's assume you need $500,000 to buy a house. The "price" of borrowing that money is interest, and it is expressed as a percent...
The Internal Revenue Service (IRS) is a bureau of the Department of Treasury that is tasked with the enforcement of income tax laws and oversees the collection of federal income taxes. In addition, i...
Intestate means dying without a will. For example, let’s assume that John Doe dies without a will. He has a sister and a brother, but no wife or children. Because John died intestate, the estate g...
An investment advisor makes investment recommendations to clients and can also be known as a financial advisor. A investment advisor is similar to a financial planner, investment manager, investment...
The term IOU is the phonetic spelling of the phrase "I Owe You." In bookkeeping, it signifies an outstanding debt. Usually, an IOU is a signed informal notice of an unpaid debt, sometimes because of...
The IRS Form 1099 is used to report a variety of unique income payments to the IRS. This form is usually used when the taxpayer has received income from other sources besides a wage-paying job. Ther...
An itemized deduction is a reduction in taxable income that is dependent on calculations specific to the taxpayer's expenses or situation. Federal, state and local tax codes determine what is deducti...
An itemized statement is a detailed record of certain activity that has occurred in an account for a given period of time. Monthly bank statements for common checking accounts often are itemized sta...
The Japan Credit Rating Agency (JCR) is a credit rating agency in Japan. Similar to Moody's or Standard & Poor's in the United States, JCR rates debt securities and conducts market, industry and...
Jingle mail occurs when a property owner sends his/her keys to the mortgage lender because he/she is unable to continue to make payments. Jingle mail -- denoting the jangling sound of keys in an env...
Job hunting expenses are costs that job seekers incur while searching for a new job. Job hunting involves research and networking using various resources and services. These resources and services i...
JIBAR is a market indicator and a benchmark for various interest rates in South Africa. JIBAR calculates the average one-month, three-month, six-month, and 12-month rates. It is published daily. The...
A joint account is any type of bank account held by two or more persons. All members of a joint bank account are responsible for any liabilities in connection with the account. Actions taken on the ...
Joint credit is credit extended by a lender to two or more parties. Loans secured from joint credit are the responsibility of all parties. Two or more parties may apply for joint credit with a lende...
Joint endorsement is a requirement by many banks that checks be endorsed by all parties of a joint account. If two or more individuals jointly hold a bank account, the bank may require a joint endor...
A joint life with last survivor annuity is an annuity that provides spouses with income until both spouses have died. The annuity also gives the holder the option to give a portion of the remaining i...
A joint return is a tax return filed by two people based on their marital status at the end of the year or at the time of death of either one of the individuals. There are generally two ways for a m...
The joint return test is used by the IRS to determine whether or not a taxpayer may be validly claimed as a dependent by another taxpayer. This test also determines whether or not a married taxpayer ...
Joint tenants in common (JTIC) is a type of ownership wherein two or more individuals jointly own a property or portfolio of assets. If one owner dies, his or her portion of the property or portfolio...
Joint tenants with right of survivorship (JTWROS) is a type of ownership in which all joint owners have equal portions of ownership that are immediately allocated to remaining owners if one owner die...
A judgment lien allows a creditor to take possession of a piece of a debtor's property if the debtor does not pay his or her debts. Let's say John Doe owns a pit bull breeding company that borrows $...
Judgmental credit analysis occurs when a banker approves or denies a credit application based on his or her experience with similar projects rather than the applicant's creditworthiness.   Let's s...
In the event of a borrower’s bankruptcy, junior debt is debt that is repaid after the obligations to senior lenders or creditors have been fulfilled. Usually, it also has no collateral. For exampl...
A junior mortgage is a loan secured by the equity in a house. Equity equals the value of the house less the balance owed on the homeowner's first (or in some cases, preceding) mortgages. Junior mortg...
A bank or other institution uses the key rate to determine the interest rate on debt. In the United States, there are two key rates: the discount rate and the Fed Funds rate. To understand key rates...
Kiasu can be good and bad. It can encourage people to persevere and create amazing results; it can also waste time and energy. In the investing world, it can create an irrational fear of losing. Kia...
Kiddie tax is the colloquial term for certain taxes owed on interest, dividends or other investment income earned by children under 17 years old. Let's say John Doe has a son, Jake Doe, who is 16 ye...
Kiting is the illegal practice of exploiting settlement delays to transfer unavailable funds from one bank account to another. In the brokerage industry, kiting occurs when a securities firm fails t...
A lame duck is a person who has gone bankrupt or is in default. In politics, a lame duck is a politician whose tenure is about to end. For example, let's say John Doe has lost money on every trade h...
A land value tax (LVT) is a tax on undeveloped property. Local governments that impose an LVT specifically target pieces of property that someone owns but has not developed or modified for residenti...
A will is a legal document that indicates how a person wants his or her estate (money and property) to be distributed after death. Wills must expressly state whom the will belongs to, and it must be ...
A last will and testament is a legally-binding document in which an individual expresses his last wishes concerning the affairs and distribution of his estate. An individual creates a will while sti...
A lemon is an item whose defects were not outwardly apparent at the time that it was sold to a consumer.  ”Lemon” has typically referred to a defective new car but its current application has b...
A lender is a creditor or any entity to which you owe money for services provided. If you borrow money from XYZ Bank, XYZ Bank becomes your lender. Lenders are creditors, but not all creditors are l...
A letter of credit is a bank's written promise that it will make a customer's (the holder) payment to a vendor (called the beneficiary) if the customer does not. Letters of credit are most common in...
*/ Leverage is any technique that amplifies investor profits or losses. It's most commonly used to describe the use of borrowed money to magnify profit potential (financial leverage), but it can a...
A leverage ratio is meant to evaluate a company’s debt levels. The most common leverage ratios are the debt ratio and the debt-to-equity ratio. A debt ratio is simply a company's total debt divide...
In finance and investing, a liability is a claim on a company's assets. For example, let's assume that XYZ Company sold $1,000,000 of gift certificates during the holidays. The gift certificates ent...
A lien is a lender's claim against a collateral asset that may be legally sold should the borrower fail to repay a loan. When someone takes out a sizeable loan, such as a home mortgage or an auto lo...
A lien sale is the sale of a lien by a relevant authority to a third party in an effort to recoup money owed. Let’s assume John Doe owns a house in the country and the annual property taxes are $4...
In finance, limited risk describes any investing strategy intended to protect an investment or portfolio against loss. Limiting risk usually involves securities that move in the opposite direction th...
A line of credit (sometimes called revolving credit) is a pre-arranged amount of money lent by a financial institution. Unlike a traditional loan – which is usually a lump sum payment that is repa...
Liquidation refers to the selling of assets in return for cash.  The term liquidation is most often used in discussions about Chapter 7 bankruptcy -- a section of U.S. bankruptcy law under which co...
A loan is a sum of money that is borrowed by an individual or business from a lender (typically a financial institution or another party with money). Under a typical loan agreement, the lender expe...
A loan loss provision is an expense that is reserved for defaulted loans or credits.  It is an amount set aside in the event that the loan defaults. Generally, banks conduct their business by takin...
Loan loss reserves are accounting entries banks make to cover estimated losses on loans due to defaults and nonpayment. Let's assume Bank XYZ has made $10,000,000 of loans to various companies and i...
Loan sharking refers to predatory lending practices by individuals or organizations (aka loan sharks) that charge extraordinarily-high interest rates. Loan sharking involves taking advantage of the ...
Loan syndication is a lending process in which a group of lenders provide funds to a single borrower. When a project is unusually large or complex, it may exceed the capacity of a single lender. For...
The London Interbank Offered Rate (LIBOR) is the base lending rate banks charge each other in the London wholesale money market. LIBOR is an average of inter-bank deposit rates offered by members o...
A long-term capital gain or loss is the profit or loss on the sale of an investment that has been held for longer than a certain IRS-defined period of time.   Let’s assume you purchase 100 shar...
Long-term debt is debt due in one year or more. It is a key item that appears on a company's balance sheet. Let's assume Company XYZ borrowed $12 million from the bank and now must repay $100,000 of...
A loophole is an exception that allows a system to be circumvented or avoided.  It usually refers to legal, taxation, or security strategies that are exploited for personal gain. Loopholes are fail...
The term "loss carryback" is where a company retroactively chooses to apply the net operating loss in the current year to the previous profitable year(s) to obtain a tax refund for monies already rem...
The term "loss carryforward" refers to an accounting practice whereby companies utilize their current year's net operating loss against future year's net operating profit to reduce the taxes owed in ...
M banking is the use of a smartphone or other cellular phone to conduct tasks such as monitoring account balances, transferring funds between accounts, bill payment and locating an ATM while away fro...
Magna cum laude is Latin for with great honor. Let's say John Doe is about to graduate college. He has a very high grade point average and has earned several awards from the finance department in wh...
Margin debt is debt obtained from buying on margin. Buying on margin refers to borrowing from a brokerage firm (through a margin account) to make an investment. Let's assume you want to buy 1,000 s...
Marginal tax rate is the rate at which an additional dollar of taxable income would be taxed. It is part of a progressive tax system, which applies different tax rates to different levels of income. ...
The marital deduction refers to the deduction the IRS allows for a taxpayer to transfer some or all of his assets tax free to his spouse prior to the calculation of estate tax owed by his estate. Th...
The marriage tax, also known as the "marriage penalty," refers to the higher taxes a couple pays when they file a joint tax return versus the amount a couple pays when filing two separate tax return...
Deciding to file jointly or separately is a personal decision for couples, and deciding which one is optimal depends on the couple's income and deductions. It is important to note that from a legal p...
A Master of Business Administration (MBA) is a graduate degree in business. An MBA typically involves the study of accounting, financial markets and instruments, corporate strategy, negotiation, bus...
A Master of Public Administration (MPA) is a graduate degree in public administration. An MPA typically involves the study of management, government, public policy, ethics and law. Most MPA programs...
Medicare is the United States federal government health insurance program for Americans who are 65 years of age and older. When a U.S. citizen turns 65 years old, he may be eligible for Medicare ben...
The term mileage allowance refers to a variety of travel allowances allowed by the IRS at a specific rate per mile traveled while on business or for other purposes recognized by the IRS. For an indi...
Broadly speaking, mobile banking refers to any banking activities conducted on a cell phone. This includes receiving text alerts for fraudulent activities, accessing your account via the bank’s app...
Mobile phone banking is the use of a smartphone or other cellular device to accomplish tasks such as checking account balances, transferring funds between accounts, bill payment and finding an ATM wh...
Money market accounts are a type of savings account that can be opened at any bank or credit union. Money market accounts usually offer higher interest rates than checking accounts and also allow ind...
Money market accounts (also known as high-yield savings accounts) offer a safe way to earn returns on your money while still keeping access to the funds. The returns you earn are based on the money m...
A mortgage cash flow obligation (MCFO) is a debt security that uses payments on a series of mortgages to fund principal and interest payments to MCFO holders. An MCFO pays interest and principal pay...
Mortgage credit certificates (MCC) are issued by state or local governments and allow some taxpayers to receive a tax credit for the interest paid on a mortgage. A borrower pays a specific amount of...
A mortgage interest deduction allows mortgage borrowers to reduce their income tax liability by listing the amount of mortgage interest paid as an itemized deduction. Each year, a mortgage borrower ...
A mortgagee is a lender in a mortgage, usually a bank, credit union, or other lending institution. A mortgagee lends money to a borrower for the purpose of purchasing real estate (usually a house) in...
A mutual savings bank (MSB) is a type of financial institution that functions much like a bank, but with a different ownership structure. Instead of shareholders owning marketable shares, a mutual sa...
A named beneficiary is a person identified as the recipient of benefits from a pension plan, insurance policy, trust or other instrument. For example, let's say John Doe has a life insurance policy ...
A nanny tax is a colloquial term for the Social Security, Medicare and federal unemployment taxes due on the pay to caregivers. For example, let's say John and Jane Doe hire Sally Smith to take car...
A negative gap occurs when a bank's interest-bearing liabilities exceed its interest-earning assets. Let's assume Bank XYZ has $40 million of interest-rate sensitive assets (mostly loans) and $70 mi...
Negative income tax refers to transfer payments given to families whose reported household income fall below a predetermined amount and qualifies them for a supplemental payment from the government. ...
A negative pledge clause is lending agreement language designed to prevent borrowers from pledging the same collateral to multiple lenders or otherwise taking actions that might jeopardize the securi...
Negative watch is a status that credit-ratings agencies assign to companies that might receive a lower credit rating in the future. Moody's, Standard & Poor's, and Fitch's are the three primary ...
Negatively amortizing loans are loans in which the loan's principal balance (usually a mortgage) increases even though the borrower is making payments on the loan. For example, let's assume that Joh...
A negotiable order of withdrawal account (NOW) is an interest-earning bank account in which the account holder can write checks against the balance. Most mutual savings banks, commercial banks, savin...
A nest egg is a slang term describing money saved for the future. For example, let's say that John Doe works at Company XYZ. He saves $300 a week for 40 years. At the end of the 40 years, he has $70...
A net borrower (also called a "net debtor") is a company, person, country, or other entity that borrows more than it saves or lends. Borrowing can take the form of traditional bank lending, but it al...
Net of tax simply means that the number in question is the amount left over after taxes. For example, let's say you win $1,000,000 on a game show. After the show, a nice person backstage will also g...
Net proceeds refers to the amount of money remaining after an asset has been sold and related expenses have been paid. For example, a homeowner sells his house for $100,000. After deducting real est...
In banking, net settlement is simply the sum of the day's credits and debits. Let's assume XYZ Bank has the following activity today: Outflows:Cash withdrawals        $400,000Debit card transa...
In economics, net taxes are taxes on production less subsidies received. Alternatively, net taxes are taxes paid to the government less transfer payments. Let's assume that the United States collect...
Net worth refers to the total value of an individual or company expressed as total assets less total liabilities. The net worth of an individual is simply calculated as total assets (e.g. home equit...
In most states, writing a bad check is at least a misdemeanor, with the consequences growing depending on the state, the amount involved, and whether the transaction crosses state lines. Most NSFs ar...
Nonperforming assets are a bank's nonperforming loans plus the real estate owned by the bank due to foreclosures. On a bank's balance sheet, loans made to customers are listed as assets. The biggest...
A nonperforming loan is a loan that is close to defaulting or is in default. Let's assume Bank XYZ lent $1,000,000 to Company ABC, which much repay the loan in monthly installments of $25,000. Compa...
In the finance world, a note is debt. Notes are typically medium-term debt, but not always. For example, Treasury notes (T-notes) are intermediate-term bonds issued by the U.S. Treasury. They mature...
A notice of seizure is a bad thing. During this time, the IRS takes physical custody of the taxpayer's assets, which could range from cash accounts to homes, cars and other assets. Let's say John Do...
The notice to creditors is a way to inform creditors of their opportunity to make claims against a bankrupt company, an estate or other entity. Let's say Company XYZ files for bankruptcy. As part of...
An offer in compromise is an arrangement between a taxpayer and a taxing authority, whereby the taxing authority agrees to let a taxpayer settle a tax debt for less than the full amount. For example...
An office audit is a type of audit by the IRS. For example, let's say John Doe gets a letter from the IRS saying that he is being audited. The audit is an office audit, meaning that the IRS likely w...
An offline transaction, also known as a signature debit transaction, is a payment method that uses a debit card to transfer funds from a checking account to a merchant across a digital credit card ne...
An offset mortgage is a mortgage held in the same bank as the borrower's deposit accounts, savings accounts or other accounts. The mortgage payments are calculated based on the borrower's combined ba...
Online banking enables bank customers to handle account management and perform account transactions directly with the bank through the internet.  This is also known as internet banking. Most banks ...
An online transaction, also known as a PIN-debit transaction, is a password-protected payment method that authorizes a transfer of funds over an electronic funds transfer (EFT) When you pay for good...
In most states, writing a bad check is at least a misdemeanor, with the consequences growing depending on the state, the amount involved and whether the transaction crosses state lines. Most overdraf...
A package deal combines several products, discounts, features or services as one transaction. Let's say John Doe is considering taking a cruise. He could purchase his airfare and cruise separately f...
Paid-up means that all payment obligations under a contract are met. Let's say John Doe takes out a car loan to purchase a 1985 Camaro. The loan requires 60 monthly payments of $141. John misses a f...
A paper millionaire is a person who has at least $1 million of unrealized gains. Let's say John Doe starts a business. He invests all of his $50,000 savings, and soon the business takes off. Four ye...
In the tax world, a parsonage allowance is income earned by members of the clergy but excluded from gross income. Let's say John Doe is a pastor at the XYZ Church. He earns $25,000 a year. The churc...
A pass-through entity (also known as flow-through entity) is a business structure in which business income is treated as personal income of the owners. It is used to avoid double taxation, when busin...
A passbook savings account is the classic name for a traditional savings account. Though it may seem quaint now, tellers record the deposits, withdrawals, and interest earned for account holders in a...
Passive management is an investment strategy whereby an investor or financial advisor makes long-term investments in certain securities and is not influenced by short-term market fluctuations. The ma...
A passive trust, also called a "dry trust" or a "naked trust", is a trust into which a person transfers assets in order to pass them on to heirs or beneficiaries. For example, let's say John Doe is...
Past due means overdue. Typically, a bill is past due if the borrower is 30 days past the payment deadline. For example, let's assume your credit card payment is due on December 15. You forget to ma...
The past-due balance method is a system for calculating interest charges based on loan or credit balances not paid prior to a specified due date. The past-due balance method for computing interest o...
Pay yourself first is a phrase referring to the idea that investors should routinely and automatically put money into savings before spending on anything else. For example, let's assume you bring ho...
Payable on death (POD) is a bank account type or designation. It applies to accounts when the account owner designates a beneficiary or beneficiaries for the account. The assets from the account are ...
A paycation is when an employee takes paid vacation from his or her employer and works at another job. Let's say John Doe has earned two weeks of paid vacation at Company XYZ. He takes two weeks off...
Paycheck-to-paycheck means a lifestyle in which a person does not save money and would incur significant financial stress if he or she does not receive his or her next paycheck. For example, let's s...
A payday loan is an advance on one’s paycheck. Independent lenders and some large banks offer the service. John Doe’s checking account has $12 in it but he has to pay the guy who fixed his refri...
A pension plan is an arrangement to provide employees with an income when they are no longer earning a regular income from employment. A pension plan is usually a type of retirement plan that gives ...
Person-to-person payments (P2P) is an online technology that allows customers to transfer funds from their bank account or credit card to another individual's account via the Internet or a mobile pho...
Personal income, aka "before-tax income," is the total annual gross earnings of an individual from all income sources, such as: salaries and wages, investment interest and dividends, employer contrib...
Personal property is a class of property that can be moved from one location to another. Generally, real property is a class of property that cannot be moved.  It includes land and buildings, for e...
A PIN-debit transaction, also known as an online transaction, is a password-protected payment method that authorizes a transfer of funds over an electronic funds transfer (EFT) When you pay for good...
A pledged asset is collateral pledged by a borrower to a lender (usually in return for a loan). The lender has the right to seize the collateral if the borrower defaults on the obligation. In some ca...
A pre-tax contribution is a payment made with money that has not been taxed.   Anybody can take a portion of their monthly pay and put it in a savings account. But that’s after-tax money, meaning...
Prepackaged bankruptcy refers to a plan for reorganization under Chapter 11 that a company drafts in cooperation with its lenders. If a company determines that Chapter 11 bankruptcy is inevitable, i...
Price protection is an agreement between a buyer and a seller whereby the parties agree to fix the price of a good or service for a specific period of time. In practice, price protection (sometimes ...
The prime rate is the interest rate commercial banks charge their most creditworthy customers, which are usually corporations. Anyone who has borrowed money knows that different banks charge differe...
In finance,  principal refers to the face amount of a debt instrument or an amount of money borrowed. For example, if you borrow $25,000 from XYZ Bank to purchase a car, the principal balance is $2...
The sum total of a mortgage payment is comprised of principal, interest, taxes, and insurance (PITI). The amount of principal paid, interest paid, property taxes, and homeowners insurance is broken d...
Probate court is a section of the court system that transfers money and property from the deceased to heirs, beneficiaries or other entities. John Doe writes a will. In his will, he leaves his house...
A progressive tax is one in which the tax rate increases as the amount being taxed increases. Most western countries use a progressive tax in one way or another. Federal income tax in America is con...
A promissory note is a written document that binds one party to pay another through credit. The agreement is considered a debt instrument as it typically contains loan-type features such as the repay...
Purchase protection is an agreement between a customer and a seller whereby the two sides agree to set the price of a good or service in place for a particular time period. In reality, purchase prot...
A qualification ratio is actually two ratios that banks use to determine whether a borrower is eligible for a mortgage. The two ratios generally are: Total Borrower Debt/Monthly Income Borrower's Tot...
Qualified adoption expenses (QAEs) are costs associated with adopting a child. They are generally tax-deductible and may even qualify for a tax credit. For example, let's assume that Jane would like...
A qualified appraisal is a document that formally describes and estimates the value of a piece of property. Assume that John wants to donate a painting to his favorite charity. He believes the paint...
A qualified appraiser is a person authorized to produce a qualified appraisal.  A qualified appraisal is a document that formally describes the value of a piece of property, usually exceeding $5,00...
A qualified charitable organization is a charity to which donations are tax-deductible. According to the IRS, only certain types of organizations can be qualified charitable organizations:  Communi...
A qualified disclaimer is a formal refusal to accept interest in property bequeathed in a will or similar document.  Section 2518 of the Internal Revenue Code permits the beneficiary of an estate o...
A qualified electric vehicle is powered by an electric motor that relies on rechargeable batteries or fuel cells. Specifically, and according to the IRS, a qualified electric vehicle must have a bat...
Generally, a qualified higher education expense is tuition or a tuition-related expense paid to a post-secondary institution. For example, let's assume that John pays $48,000 in tuition and fees for...
A qualified joint and survivor annuity (QJSA) gives a series of payments to a retirement plan participant’s spouse, child or dependent after the participant dies. QJSAs can be in defined benefit p...
A qualified mortgage insurance premium is a payment to insure a homeowner’s mortgage payments. Let’s say John and Jane Doe buy a house. They obtain a mortgage to buy the home, but because they d...
Qualified production activities income (QPAI) is certain income related to manufacturing that qualifies to be taxed at a lower rate. For example, let's assume that Company XYZ generated $10,000,000 ...
A qualified terminable interest property (QTIP) trust allows a grantor to provide for a spouse after death but retain control of how the trust's assets are distributed after the spouse dies. For exa...
Qualified widow (or widower) is a tax-filing status similar to filing single, married filing jointly, married filing separately, or head of household. For example, let's assume the John and Jane Doe...
A qualifying domestic trust (QDOT) is a trust that allows non-citizens to obtain a marital deduction. For example, let's assume that John Doe is a U.S. citizen and his wife, Jane Doe, is not. Togeth...
Qualifying ratios are ratios banks use to determine whether a borrower is eligible for a mortgage.  The two qualifying ratios banks generally use are: Total Borrower Debt / Monthly Income and Borr...
A qualifying relative is a person a taxpayer can claim as a dependent. For example, let's assume that John and Jane Doe took in Jane's mother because she ran out of retirement money and can no longe...
A qualifying widow or widower is a person who can still file as married filing jointly for tax purposes. Let's say John and Jane Doe have been married for 40 years. John is diagnosed with terminal c...
Quality of life describes the happiness, independence and freedom available to an individual. For example, if John Doe hits a dog with his car one night, he may have to consider euthanizing the dog ...
A questioned document investigation is an inspection of documents that may be forged or otherwise fraudulent. Let's say John Doe dies and leaves behind a will giving everything to Sally Jones. Sally...
Quick response (QR) code is a type of two-dimensional barcode that can be read with specific QR barcode readers and most mobile phone cameras. The code is made of small black squares and rectangles t...
A quick-rinse bankruptcy moves through the courts especially quickly. Let's say Company XYZ is struggling to pay its vendors and is quickly running out of cash to pay its employees. It has tried sev...
A rain check is a written promise from a seller to a buyer. It guarantees that a buyer can purchase a product for a certain price at a later date, usually because the item is out of stock. Let's say...
In personal finance, the term rating commonly refers to a credit rating score issued by the Fair Isaac Corporation (a "FICO score"). A person's credit rating indicates how creditworthy he or she is. ...
Ratings Service is provided by companies that evaluate the risks associated with debt securities.  Companies, such as Moody's, Standard & Poor's (S&P), and Fitch, provide ratings for secur...
Reaffirmation occurs when a lender agrees to forgive a borrower's debt and then the borrower agrees to repay the debt anyway. For example, let's assume that John Doe borrowed $100,000 from Bank XYZ ...
Realized gains are increases in the value of an asset that has been sold. This concept is the opposite of paper profit -- a paper profit only turns into a realized gain when you actually sell the sec...
A realized loss is a decrease in the value of an asset that has been sold. This concept is the opposite of paper loss or unrealized loss -- a paper loss only turns into a realized loss when you actua...
Receivership is a form of bankruptcy in which a court-appointed trustee reorganizes the bankrupt entity.   In a receivership, a receiver takes custody of the company's property and operations. A c...
A reference rate is an interest rate that determines another interest rate. Let's say you want to borrow $5,000 to start a business. Company XYZ offers you a variable interest rate loan at prime plu...
Refinance refers to the replacement of a debt with new debt bearing different terms. Financing involves borrowing a specific amount of money over a length of time at an agreed-upon interest rate. Pa...
Refund can refer to the amount that the Internal Revenue Service will pay to a taxpayer based an overpayment of estimated tax or employer withholding taxes during the year.  A refund also refers to ...
A regressive tax is a tax that increases as a percentage of income as the amount of income declines. The United States has the opposite of a regressive tax system. That is, it has a progressive tax ...
The term remote deposit capture (RDC) refers to a technology that uses a smartphone to make online deposits to a user's bank account without having to physically visit a branch location. RDC is a se...
Repayment usually refers to the payments on a debt.  Under the terms of a loan, repayment can have different schedules and requirements. For example, a loan may be amortized over a specific period ...
A repurchase agreement is the sale of a security combined with an agreement to repurchase the same security at a higher price at a future date.  It is also referred to as a "repo."  For example, t...
A restricted card list is a list of credit cards that are reported stolen, canceled or compromised in some way. A restricted card list is also called a "warning bulletin," "hot list" or "cancellatio...
A restrictive covenant is a promise a company makes to not exceed certain financial ratios or not conduct certain activities, usually in return for a loan or bond issue.     Let’s assume Compa...
A revocable trust is a trust with provisions that can be altered by the grantor. Sometimes a revocable trust is referred to as a "living revocable trust." A trust is a legal instrument that allows p...
Revolving credit is a line of credit individuals and corporations can borrow from and pay back as needed. Revolving credit is also referred to as a line of credit (LOC) Before granting a revolving l...
A safe deposit box is a metal box, usually housed in a bank vault, that customers can rent in order to keep valuables, legal documents and other prized possessions in a secure location.   Obtainin...
Sales tax is a consumption tax levied on goods and services purchased at the retail level, paid by the consumer and submitted by the retailer to the governing tax authority. In the United States, th...
Sallie Mae, also known as The Student Loan Marketing Association (SLM), is the largest originator, funder and servicer of student loans in the United States. It also provides counseling about studen...
The same property rule is an IRS rule stating that money taken from an Individual Retirement Account must be placed into a similar type of account if the account holder is less than 59.5 years old. ...
Same-day funds can be deposited and then withdrawn on the same day. Let's say John Doe gets paid every other Friday. His employer automatically deposits his paycheck into his bank account on Friday ...
The saver's tax credit, also called the savers credit, is a tax credit for making contributions to certain retirement accounts.   The savers credit gives taxpayers a tax credit of up to $1,000 ($2...
In economics, savings is the amount that is left after spending. In banking, savings refers to savings accounts, which are short-term, interest-bearing deposits with a bank or other financial institu...
A savings account is a low-risk, interest-bearing deposit with a bank or other financial institution. Technically, savings accounts are time deposits, meaning that a bank can require the account hol...
Savings clubs most commonly refer to a special type of account that provides a way to regularly save for a specific goal or event. These accounts historically came with a savings passbook with coupon...
/*-->*/ An Internal Revenue Service (IRS) Schedule K-1 is used to report a beneficiary's share of income, deductions, credits, and other items from pass-through entities. These generally include ...
Also called a home equity loan, a second mortgage is secured by the equity in a house. Equity equals the value of the house less the balance owed on the homeowner's mortgage. Second mortgages are not...
Secured creditor is a lender that provides collateralized debt. Mortgage lenders are the most common example of secured creditors: They lend you money and keep the house as collateral. Here's anothe...
Secured debt is debt that is collateralized. Mortgages are the most common example of secured debt: the bank lends you the money and the bank has the house as collateral. Here's another example: let...
Self-dealing is an illegal activity that occurs when a person or entity with fiduciary duty puts his or her own  interests ahead of a client's interests in a transaction. Let's say John Doe owns 50...
The self-employment tax refers to the Social Security and Medicare taxes paid on income earned by people who work for themselves. People who are self-employed must pay both the employee and employer...
Senior debt is debt that is first to be repaid, ahead of all other lenders or creditors, in the event of a borrower’s bankruptcy. For example, if Company XYZ issues bonds, the bondholders are cred...
Short-term gain usually refers to the profit on the sale of an investment that has been held less than a certain IRS-defined period of time. Let’s assume you purchase 100 shares of Company XYZ for...
A signature loan is a loan offered by banks or other financial institutions that does not require collateral. Signature loans are also known as personal or unsecured loans since they are not secured ...
A signature-debit transaction, also known as an offline transaction, is a payment method that uses a debit card to transfer funds from a checking account to a merchant across a digital credit card ne...
Smartphone banking is the use of a smartphone or other cellular device to perform tasks such as monitoring account balances, transferring funds between accounts, bill payment and locating an ATM whil...
Social Security tax is an employment tax that funds the Social Security program, a mandatory U.S. government program of retirement, disability, and life insurance. This tax pays for the benefits prov...
Solvency is a company’s ability to pay its debts as they become due. Solvency measures a company's ability to meet its financial obligations. Short-term solvency is often measured by the current r...
Sovereign debt refers to the amount of money a country owes to the holders of its government bond. In the United States, sovereign debt is issued by the Department of Treasury and the bonds are refer...
Spousal support is a series of payments to a separated or ex-spouse according to a divorce decree or separation agreement. Also known as "alimony," the idea behind spousal support is to provide a sp...
A standard deduction is a reduction in taxable income. Federal, state and local tax codes determine what is deductible and which taxpayers are eligible for deductions. There are two kinds of tax ded...
A step-up in basis refers to an increase in the price at which an investment is considered to have been purchased. Let's assume that your uncle purchased 100 shares of Disney in 1970 for $1 per shar...
A stock savings plan is a Canadian taxation system that offers tax benefits to Canadian residents who purchase the initial public offerings (IPOs) of local companies. Each Canadian province has its...
Structured finance is a complex financial instrument offered to borrowers with unique and sophisticated needs. Generally, a simple loan will not suffice for the borrower so these more complex and ris...
Subordinate means "ranks beneath." In finance, the term usually refers to the claims a creditor has on a company's assets relative to other creditors. When something is subordinate, it ranks below t...
Subordinated debt is any outstanding loan that, should the borrowing company fail, it will be repaid only after all other debt and loans have been settled. It is the opposite of unsubordinated debt....
A syndicated loan is a loan made by a group of lenders who share or participate in a specific loan given to a project. A project may require too large a loan for a single lender or require a special...
Take home pay is the portion of one's salary left after all payroll taxes have been deducted. John Doe has a salary of $100,000. He is paid 26 times per year (every other Friday). The federal and st...
A take-out lender is a lender whose loan replaces another loan. Let's say Company XYZ is a real estate development company. It owns a piece of land at a busy intersection and decides to build a huge...
A take-out loan is a loan that replaces another loan. Let's say Company XYZ is a real estate development company. It owns a piece of land at a busy intersection and decides to build a huge apartment...
A tax advisor is a person who advises clients about tax laws and strategies. For example, a tax advisor might help a client structure his assets such that his estate taxes are lower. A tax advisor m...
Used primarily in the United Kingdom, a tax and price index measures the amount that a consumer’s income would have to increase to compensate for increases in inflation and taxes. Assume John Doe ...
A tax anticipation note (TAN) is a short-term note that a state or local government issues and expects to repay with imminent tax receipts. Let's assume Town XYZ wants to purchase a new building to ...
Tax arbitrage is the act of profiting from differences in how income or capital gains are taxed. Tax shelters are often used to take advantage of tax arbitrage opportunities. For example, a person o...
A tax attribute is a reduction that the IRS requires a taxpayer to make in a tax credit or tax loss when a lender cancels debt that the taxpayer owes. There are typically seven types of tax attribute...
Tax avoidance is the legal act of minimizing one's taxes. It is not the same as tax evasion, which is illegal. Practically every taxpayer engages in tax avoidance at some point in order to minimize ...
A tax base is the total amount of assets or revenue that a government can tax. Taxes can be based on any kind of asset or revenue stream. For example, to calculate the tax base for a sales tax, you ...
A tax benefit is any tax advantage given by the IRS to a taxpayer that reduces his or her tax burden. It's also the name of an IRS rule requiring companies to pay taxes on income that was previously ...
A tax break is a tax deduction, tax credit or reduction in tax rate. For example, let's say John and his wife had a baby in 2011. When John files his tax return for the year 2011, he will qualify fo...
In a tax clawback agreement, a company or organization agrees to repay government benefits via higher taxes at a later date. Company XYZ agrees to take $40 million from the federal government to pre...
Tax court is a court of law in which administrative law judges manage disputes between taxpayers and the IRS. The tax court handles a wide variety of tax matters but does not have a jury system. Art...
A tax credit is permission to reduce the amount of income that is subject to tax. A tax credit is not the same as a tax deduction.   For example, the Internal Revenue Service’s child tax credit ...
A tax deduction reduces the amount of income that is subject to tax. A tax deduction is not the same as a tax credit. For example, let's assume that John paid $10,000 in mortgage interest last year....
In the investment world, "tax deferred" refers to investments on which applicable taxes (typically income taxes and capital gains taxes) are paid at a future date instead of in the period in which th...
The tax differential view of dividend policy is the idea that capital gains are better than dividends because the tax rate on capital gains is lower than the tax rate on dividends. For example, let...
Tax drag is the reduction in returns attributable to taxes. For example, let's assume that John owns 100 shares of Company XYZ stock. He bought the stock at $10 per share, for a total of $1,000. The...
Tax efficiency involves making investing choices that reduce one's tax bill. For example, let's assume that John owns 100 shares of Company XYZ stock, which he bought six months ago for $5 a share. ...
The Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA) became law on September 3, 1982. The TEFRA made it more difficult for individuals and corporations to reduce their tax liability. Represe...
Tax fairness is the concept of having an equitable tax system. Tax fairness is a subjective term with no single hard-and-fast definition. The U.S. federal tax system is a progressive tax system, mea...
Tax free means not taxable. For example, many states and municipalities do not charge sales tax on food items. These items are tax free. For many investors, the interest earned from municipal bonds ...
Tax Freedom Day is the day of the year by which the average American has earned enough money to pay his or her tax bill for the year. The average American spends about one-third of his or her income...
Tax gain/loss harvesting is a strategy for reducing taxes. John Doe made two major investment transactions this year: 1. Sold 1,000 shares of Company XYZ at $25 a share (originally purchased five ye...
A tax haven is a country or jurisdiction known for generating little or no tax liability. Tax havens exist because countries are usually not obligated to provide customer information to foreign taxi...
A tax holiday is a day or period of time during which a government does not tax certain transactions. Sales tax holidays are especially common. Typically, they involve suspending the collection of s...
A tax home is a taypayer's primary residence or place of business (if the taxpayer is an organization). Let's assume John lives in Montana during the summer and Arizona during the winter. He spends ...
The Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA) was signed into law on May 17, 2006. TIPRA was passed to achieve five primary goals: Prevent a scheduled increase in the number of ...
Tax indexing is method for adjusting tax rates to account for inflation-related increases in income. For example, let's say that John makes $100,000 a year and is in the 28% federal income tax brack...
Tax liability refers to the amount legally owed to a taxing authority as the result of a taxable event. A tax liability might also be called a "tax obligation." A tax authority -- such as a local, s...
A tax lien is a claim placed on a piece of real estate by a tax authority due to a taxpayer's failure to pay taxes.    When a taxpayer fails to pay either income taxes or property taxes, the taxin...
A tax loss carryforward is a "negative profit" for tax purposes. It usually occurs when a company's expenses exceed revenues, making the company unprofitable. Tax loss carryfowards reduce future tax...
Tax lot accounting is a method of record keeping that tracks the cost, purchase date, and sale date for every unit of every security in a portfolio. For example, let's assume that you purchase 50 sh...
Tax planning is the process of forecasting one's tax liability and formulating ways to reduce it. Tax planning entails creating portfolios or circumstances that are as tax efficient as possible. Thi...
A tax preference item is income that subjects a taxpayer to alternative minimum tax (AMT). These items are treated differently for regular tax and AMT purposes. According to U.S. tax code (26 USC se...
A tax rate is the percentage of income a person or company pays in taxes. The United States has a progressive tax system, which means that different portions of a person's income are taxed at differ...
The Tax Reform Act of 1986, signed by President Ronald Reagan, was one of the most significant changes to the American federal income tax system. The Tax Reform Act of 1986 had several noteworthy co...
A taxpayer gets a tax refund when he or she has overpaid taxes to the government. A tax refund is the difference between taxes paid and taxes owed. Each year (or each quarter, in some cases) a taxpa...
A tax refund anticipation loan (TRAL) is a short-term loan from a third party. The loan is collateralized by the borrower's pending tax refund. For example, let's assume that John does his taxes on ...
Tax relief is a tax deduction, tax credit, reduction in tax rate or forgiveness of a tax lien. For example, let's say John and his wife had a baby in 2011. When John filed his tax return for the yea...
A tax return is a set of forms that a taxpayer uses to calculate and report taxes owed to the Internal Revenue Service (IRS). April 15 is the annual deadline for filing a tax return, though some typ...
A tax sale is a sale of property by a taxing authority. For example, let's say that John owns a home and he owes $4,000 in property taxes. A year and a half goes by, and John doesn't pay the taxes. ...
Tax season is from January 1 to April 15 of each year. Tax season is the busiest part of the year for tax accountants, because the filing deadline for individual taxpayers is April 15. It is also a ...
Tax selling is a strategy used to reduce tax liability. Let's assume that John sold two different stocks that he originally bought five years ago: 1) He sold 1,000 shares of Company XYZ at $25 a sha...
A tax shelter is a means of minimizing one's tax liability. Tax shelters can be both legal and illegal. The most widely used tax shelter in the United States is the 401(k) employer sponsored plan. I...
A tax shield is a deduction, credit or other method used to reduce the amount of taxes owed. For example, let's say John and his wife have a baby in 2011. When John files his tax return for the year...
A tax swap is a strategy that involves selling one investment with capital losses and replacing it with a similar, but not identical, investment. Let's assume that John owns 1,000 shares of Mutual F...
A tax table shows the tax due for different income ranges. For example, according to the IRS 2011 tax table, if John makes a salary between $76,150 and $76,200 and is single, he owes $15,169 in taxe...
A tax umbrella is a negative profit that reduces a company's tax liability. It usually occurs when a company's tax deductions exceed its taxable income (often because expenses exceeded revenues, maki...
A tax wedge is the difference between gross income and after-tax income. In economics, it refers to the broader financial effects of a tax on a sector of the market. Technically speaking, the tax wed...
A tax year is the year for which a tax is calculated and paid. The United States has a January to December tax year for individual taxpayers. Let's say John files his tax return on April 15, 2012. T...
Tax-advantaged means that some or all of an investor's income is sheltered from taxation, allowing a taxpayer to minimize his or her tax burden. One of the best examples of tax-advantaged investing ...
Tax-exempt commercial paper is short-term debt for which the interest payments are tax-exempt at the federal, state or local level. Universities are some of the most common issuers of tax-exempt com...
Tax-exempt interest is interest income that is exempt from federal and/or state taxes. For example, let's assume that John Doe purchases a municipal bond. The bond pays 5% interest per year, or $50 ...
In investing, a tax-exempt sector is a group of financial instruments that pay tax-exempt interest. However, it also refers to nonprofit organizations, which are tax-exempt. Assume John Doe wants to...
Generally, tax-exempt securities are those whose interest, dividends or gains are free from federal income taxation. For example, let's assume that John purchases $1,000 of municipal bonds. The bond...
A tax-free spinoff occurs when a company divests a portion of its business in a manner that qualifies as a tax-free transaction under Section 355 of the Internal Revenue Code and thus does not requir...
A taxable estate is the portion of a person's net assets that are taxable upon his or her death. An estate tax is often levied on the assets that the deceased leaves to his or her heirs.  Living sp...
A taxable event is any occurrence that creates a tax liability. Many day-to-day financial activities are taxable events, but in the investing world the most common are the receipt of income, interes...
A taxable gain is an increase in the value of an investment. It is the difference between the purchase price (known as the "cost basis") and the sale price of an asset.  The formula for taxable gai...
At the beginning of every year, most individuals and families start collecting their annual pay statements and receipts in order to determine their taxable income. If you’ve ever done taxes on your...
Taxable preferred securities are typically preferred stocks whose dividends are not tax-exempt. Preferred securities (usually called "preferred stocks") have characteristics of both stocks and bonds...
A taxable wage base is the maximum annual wage on which a taxpayer must pay taxes. For example, let's assume that John earns $150,000 a year as CFO of Company XYZ. The United States government has s...
Taxes are required payments from citizens to governments. The payments fund projects and expenditures that serve the public interest.  Most taxes are legislated, meaning that representatives electe...
A taxpayer is a person or organization that must pay taxes to a federal, state, or local agency.  For example, let's assume that Jane is an employee of Company XYZ. She earns $150,000 per year.  I...
The Taxpayer Advocate Service (TAS) is an organization within the Internal Revenue Service that is designed to help taxpayers resolve problems with the IRS.  The TAS was first formed in 1978. Over ...
The Taxpayer Bill of Rights is a list of the protections available to all taxpayers when dealing with the Internal Revenue Service. In 1988, Congress passed the first Taxpayer Bill of Rights. Congre...
Also called an Individual Taxpayer Identification Number (ITIN), a taxpayer identification number (TIN) is a nine-digit number that the IRS uses to identify individuals who do not have and are not re...
A teaser loan is usually an adjustable-rate mortgage (ARM) with an artificially low initial interest rate. The interest rate on the ARM corresponds to a specific benchmark (often the prime rate, but...
A teaser rate is usually an artificially low initial interest rate on an adjustable-rate mortgage (ARM). The interest rate on the ARM corresponds to a specific benchmark (often the prime rate, but s...
Tele Tax is an automated phone service offered by the IRS. Tele Tax allows callers to select from a phone menu of 151 tax topics. The topics contain pre-recorded information. The information is avai...
Tenancy by entirety is property ownership in which all joint owners have equal portions of ownership that are immediately allocated to remaining owners if one owner dies.  Also called joint tenants...
In the finance world, a term is the length of time until a debt matures. A term can also be a condition of a deal, as evidenced by the phrase term sheet, which describes the terms of a deal. Let's s...
A term loan has a set maturity date and usually has a fixed interest rate. Let's say Company XYZ wants to borrow $1 million to build a factory. It meets with its bank, ABC Bank, to negotiate the loa...
The wealth effect is an increase in consumer spending directly proportional to strong stock portfolio performance. The wealth effect is a behavioral economic theory which posits that consumer spendi...
A tradeline is a record of activity for a credit account. A tradeline is created on your credit report when you borrow money from a bank or lender who then reports the activity of that account to one...
A transfer tax is a tax on the value of goods that one party gives to another. Individuals and organizations frequently give and accept property with no exchange of monetary payment. Two prominent e...
The Truth in Lending Act (TILA) was implemented to protect consumers when they borrow money. TILA requires the disclosure of certain credit terms so that consumers are not deceived. The Truth in Len...
The U.S. League of Savings Institutions was a national organization of savings banks. Founded in 1892, the U.S. League of Savings Institutions promoted banking standards, professionalism and issues ...
A UCC-1 statement is a written list and description of assets that serve as collateral for a loan.   Let's say Company XYZ is a restaurant chain. It borrows $5 million from Bank ABC, which require...
A person is unbanked when he or she does not participate in the banking system and relies on the use of cash rather than checks or credit cards. Let's assume John Doe is poor and does not trust bank...
Uncollected funds refer to the balance of uncleared checks in a bank account. When an account holder deposits a check into a savings or checking account, the bank must collect the specified amount o...
An uncommitted facility is a borrowing agreement that allows the lender to determine how much it will lend to the borrower at a given time. Let's say Company XYZ needs extra cash once in a while bec...
A person is underbanked when he or she does not participate in the banking system very much and instead relies on the use of cash rather than checks or credit cards. In the securities world, underba...
In the real estate world, underwater means that a property is worth less than what is owed on it. For example, let's say John Doe buys a house for $500,000. He makes a down payment on the house and ...
An underwater mortgage is a mortgage on a property that is worth less than what is owed on it. For example, let's say John Doe buys a house for $500,000. He makes a down payment on the house and bor...
Undue influence occurs when one party to a transaction is able to influence the decisions of another party to the transaction. Anybody who's ever had a pushy girlfriend or boyfriend knows what undue...
Unearned income is an IRS term for income that is not obtained by participating in a business or trade (e.g., salaries and bonuses, wages, commissions and tips). It typically includes interest, divid...
An encumbrance is a limitation on the ownership of a property. When an asset is unencumbered, there are no limitations on its ownership. To understand what unencumbered means, it's important to unde...
Unrelated business taxable income (UBTI) is the tax placed on the income derived from unrelated business activities of an otherwise tax-exempt entity. For example, if an investor uses his Individual...
In the finance world, a lender or piece of debt is unsecured if it does not have collateral. Let's assume you would like to borrow $100,000 to start a business. Even if you have an excellent credit ...
An unsecured creditor is a lender or any entity to which a company or individual owes money for services provided. That creditor, however, does not have any collateral from the borrower. If you borr...
Unsecured debt is debt that does not have any collateral attached. If you borrow money from XYZ Bank, XYZ Bank becomes your creditor. Utility companies, health clubs, phone companies and credit card...
An unsecured loan is debt that does not have any collateral attached. Let’s assume you would like to borrow $100,000 to start a business. Even if you have an excellent credit rating, a bank may be...
In the finance world, an unsecured note is corporate debt that does not have any collateral attached. Unsecured notes are not the same as debentures, which are also unsecured corporate debt (but debe...
Unsubordinated debt refers to loans and debt securities (e.g., bonds, CDs, collateralized securities, etc.) for which the repayment priority outranks other debts owed by the same individual entity (c...
The utilization ratio compares an individual's total debt balances to total available credit. It helps determine part of a person's credit score. The utilization ratio is also called the credit util...
VAT is the most common type of consumption tax and currently used in more than 160 countries, including each member of the EU. The notable exception to this rule is the US.  For products or service...
A variable interest rate is an interest rate that can change from time to time. For example, let's say that you want to borrow $5,000 to start a business. Company XYZ offeres you a variable interest...
Vertical equity is the concept of increasing tax rates on higher incomes. Vertical equity is similar to the concept of progressive taxes. The United States has a vertical equity tax system, which me...
A vested interest is a right of ownership which is not dependent on something else. When a possession, ownership interest or the use of tangible property is present and unencumbered by any condition...
Vesting occurs when a financial instrument or account becomes wholly owned by an investor. For example, let's assume that John Doe receives options to buy 2,000 shares of Company XYZ, his employer, ...
A W-2 form is a tax form required from employers that reports wages paid and taxes withheld to the Internal Revenue Service (IRS), local state tax authorities and the Social Security Administration. ...
A W-4 form is a standard IRS form an employee uses to report federal taxability status to an employer. An employer is required by law to withhold taxes from an employee's pay based on information re...
The W-8 form is a standard IRS form that exempts non-U.S. citizens from specific federal income taxes. Individuals from abroad who live in the United States frequently work as legal residents and in...
The W-9 form is a standard IRS form that certifies an individual's Social Security number and taxpayer identification number. Employers and all types of brokers (for example, securities dealers and ...
A wage assignment refers to a forced payment of a financial obligation via automatic withholding from an employee's pay. Courts can subject individuals who become delinquent in their obligations to ...
A wage earner plan, subsequently known as Chapter 13, is a bankruptcy protection scheme that allows income earners to satisfy outstanding debts -- in whole or in part -- within a specific time frame....
A wage garnishment is an obligatory payment of a debt where a portion of an employee's paycheck is automatically withheld to pay the debt. Courts can set wage garnishments on individuals who become ...
Warehouse financing occurs when a lender lends to a borrower who uses inventory as collateral. Let's assume Company XYZ wants to borrow $2 million to expand its operations. It has used up all of its...
A warning bulletin is a list of credit cards that are reported stolen, canceled or compromised in some way. A warning bulletin is also called a "hot list," "restricted card list" or "cancellation bu...
Commonly referred to as "The Oracle of Omaha" because of his Nebraska roots, Warren Buffett is widely regarded as the world's most prominent value investor. Buffett caught the investing bug at the U...
A wasting trust holds the assets of qualified plans when the qualified plans are frozen. Let's say Company XYZ has a pension plan for its employees. It decides to switch everyone over to a 401(k) pl...
A waterfall payment is a repayment system by which senior lenders receive principal and interest payments from a borrower first, and subordinate lenders receive principal and interest payments af...
A weak sister is a security, economy or operating unit that performs worse than all the others. Let's say John Doe's portfolio contains five stocks: Company A, Company B, Company C, Company D and Co...
In the business world, wealth is a measure of financial resources. Wealth is usually a measure of net worth; that is, it is a measure of how much a person has in savings, investments, real estate an...
Wealth management is an investment advisory service for high net worth individuals. Wealth management combines both financial planning and specialized financial services, including personal retail b...
A wealth psychologist is a person who helps people cope with the emotional aspects of money. Let's say that John and Jane get married. John is a spender and Jane is a saver. Over the years, they fig...
A wealth tax is based on a person's net worth or the value of his or her assets. Let's say John Doe makes $100,000 a year. He also has $500,000 saved for retirement and a house that is paid off and ...
A wet loan is a mortgage in which the borrower gets the funding before all the paperwork is done. Let's assume John Doe wants to buy the house for sale at 123 Main Street. The market is hot, and Joh...
A will is a legal document that indicates how a person wants his or her estate (money and property) to be distributed after death. Wills must expressly state to whom the will belongs and be signed, d...
A wire transfer is a method of transferring money electronically between two people or institutions. A wire transfer is made between two financial institutions by a person issuing instructions to on...
A withholding allowance reduces the amount of income tax an employer withholds from an employee's paycheck.  Withholding allowances are indicated by employees on the IRS Form W-4 and appropriate st...
Withholding tax, also sometimes referred to as simply "withholding," is an amount that employers withhold from an employee's paycheck and remit to local and federal taxing authorities on behalf of ...
A working capital loan is a loan used by companies to cover day-to-day operational expenses. In many cases, companies are unable to generate the revenue needed to meet expenses incurred by day-to-da...
A year-end bonus is extra money given to an employee, typically as a reward for helping the company achieve financial goals. Let's say Company XYZ's goal this year was to earn 5 cents per share. On ...
Yupcap stands for Young Urban Professionals Who Can't Afford Property. Let's say Jane Doe has a master's degree and is an editorial assistant in San Francisco. She makes $30,000 a year and thus does...
Yuppie is short for young urban professional. Yuppies are usually in their twenties or thirties, just out of college or graduate school, and have high-paying jobs in the city. They tend to lead affl...
The Z-score is a financial statistic that measures the probability of bankruptcy.  The Z-score is used to predict the likelihood that a company will go bankrupt. A company's Z-score is calculated b...
A zero capital gains rate is a 0% tax on gains from the sale of assets and property sold in an enterprise zone. For example, downtown ABCTown has decayed over the last 10 years. There are many vacan...
Zero-rated goods are goods that aren't subject to value-added (VAT) tax. A value added tax (VAT) is a consumption tax added to a product's sales price. It represents a tax on the "value added" to th...
A zombie bank is a bank with liabilities that exceed its assets (in other words, it has a net worth of zero). They do not die (hence the nickname) because they receive government support or bailouts....
Zombie debt is debt that won't die.   Let's say John Doe ran up a $10,000 credit card bill in his 20s. He works out an agreement with the credit card company, pays $2,000, and is told that the rest...