It’s that time of year when individuals and businesses grumble about the same thing: getting their taxes done. You have our best wishes when it comes to your individual tax situation, but since we’re a business training outfit, we will focus on the corporate side of taxes in this blog. If you’re a non-financial manager, it’s important to know certain tax terms when it comes to communicating with your accounting department.
In addition, having a solid knowledge of these tax basics makes you a more important contributor in regards to planning and budgeting for your company’s financial health. Here are just a few of the critical tax and finance terms you should know as a non-financial manager:
Adjusted gross income
This is the amount of business income available for taxation. This number is dependent upon the number of deductions and exemptions a business is able to file.
A tax deduction is a business expense that can be subtracted from the company’s taxable income. Unlike a tax credit, which reduces the total amount in taxes that a business owes to the IRS, a deduction reduces the income amount on which a business calculates what it owes.
Tax exemptions also reduce taxable income, and can even eliminate an organization’s need to pay taxes altogether. Unlike a deduction, an exemption can refer to reducing or eliminating tax on a single item. Nonprofits often are exempt from property and income taxes.
A tax credit is a specific amount of money that is subtracted from the total amount due to the IRS. Businesses can qualify for a variety of tax credits based on their employees or operations. According to the United States Department of Labor, one example of this would be the Work Opportunity Tax Credit. A company may receive credit for hiring veterans or other individuals from particular groups with defined obstacles to employment. According to the DOL, employers claim about $1 billion in tax credits each year under the WOTC program.
An employer’s benefit plan for employees that allows them to choose from a variety of taxable and nontaxable options.
Refers to any items, vehicles or furniture owned that are expected to last for several years. AllBusiness stated that while improvements made to corporate property count as assets, office supplies do not.
One method accountants use to determine which financial transactions affect taxation. According to Entrepreneur, the accrual method states that tax applies to any transaction that generates the requirement to deliver payment or the right to receive it.
This is the second of two methods accountants use, along with the accrual method. Here, when revenue is received in cash, or when expenses are paid in case, those transactions are recorded and taxable.
While non-financial managers certainly don’t need to understand everything there is to know about taxes, it’s helpful to learn key tax terms in order to better communicate with the “numbers people” in your organization. And, if you’re looking to grow your career and take on more responsibility, it’s critical to get comfortable discussing finance and taxes.