Taxation Legal Terms and Definitions

Earned Income Credit A tax credit for certain people who work, meet certain requirements, and have earned income under a specified limit. Excise tax A tax on the sale or use of specific products or transactions. Acquisition The purchase of one corporation by another, through either the purchase of its shares, or the purchase of its assets. Dependency exemption Amount that taxpayers can claim for their eligible dependents. Each exemption reduces the income subject to tax. The exemption amount is a set amount that changes from year to year. Partnership return If you need more time to file a partnership return, file Form 8736, Application for Automatic Extension of Time To File U.S. Return for a Partnership, REMIC, or for Certain Trusts, for an automatic 3-month extension. File Form 8736 by the regular due date of the partnership return. Dependent A person, other than the taxpayer or spouse, who entitles the taxpayer to claim a dependency exemption. Work Opportunity Credit and Welfare-to-Work Credit The work opportunity credit and the welfare-to-work credit are scheduled to expire for wages paid to individuals who began working for you after 2003. Limited Liability Company An LLC may be classified for Federal income tax purposes either as a partnership, a corporation, or an entity disregarded as an entity separate from its owner by applying the rules in Regulations section 301.7701-3. See Form 8832, Entity Classification Election, for more details. Standard Mileage Rate For 2004, the standard mileage rate for the cost of operating your car, van, pickup, or panel truck is increased to 37.5 cents a mile for all business miles. Self-Employment Tax The self-employment tax rate on net earnings remains the same for 2003. This rate, 15.3%, is a total of 12.4% for social security (old-age, survivors, and disability insur­ance) and 2.9% for Medicare (hospital insurance).

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	Did You Know?
	If you have employees, you are responsible for Federal Taxes If you have employees, you are responsible for several federal, state, and local taxes. As an employer, you must withhold certain taxes from your employees pay checks. Employment taxes include the following. Federal income tax withholding Social Security and Medicare taxes Federal unemployment tax act (FUTA).