US tax and accounting terms, explained in plain English

The nine-digit federal tax ID the IRS assigns to a business entity. Needed to open a bank account, file returns, hire staff and file Form 5472.

A tax processing number the IRS issues to individuals who need to file a US return but are not eligible for a Social Security number.

The information return a 25% foreign-owned US corporation, or a foreign-owned single-member LLC, files to report transactions with related foreign parties. $25,000 penalty per form per year if missed.

A Form 1120 with only the identifying information completed, used as the cover for Form 5472 when the filer is a foreign-owned disregarded LLC.

The annual information return for partnerships and multi-member LLCs. The entity pays no federal tax; it reports each owner's share on a Schedule K-1.

The statement a partnership or S-corporation gives each owner showing their share of income, deductions and credits for their own return.

The annual return for a corporation or LLC that has elected S-corp status. Income passes through to shareholders on K-1s; the entity owes no federal income tax.

The election that tells the IRS to tax a corporation or LLC as an S-corporation, with income passed through to owners and a payroll requirement for owner-employees.

A single-member LLC that the IRS ignores for income tax: its income and expenses are reported on the owner's own return as if the LLC did not exist.

The person or company with a physical address in the formation state, designated to receive legal papers and state notices for an entity.

A yearly (sometimes biennial) filing that confirms an entity's address, agent and officers with the state, usually with a fee. Missing it revokes good standing.

A state tax for the privilege of being an entity in the state, charged regardless of profit. Delaware, Texas, California and Tennessee are the well-known examples, each with different maths.

The connection with a state that obliges a seller to register, collect and remit that state's sales tax. Created by physical presence or, since 2018, by sales volume alone.

The wage an S-corp must pay its owner-employee before taking distributions, set at what the business would pay someone else for the same work.

Quarterly prepayments of federal (and state) income and self-employment tax by people whose income is not subject to withholding, due April 15, June 15, September 15 and January 15.

The annual report of foreign financial accounts that US persons must file when the combined balance of all their non-US accounts exceeds $10,000 at any point in the year.

The certificates a payer collects to know whether to withhold US tax: a W-9 from US persons (no withholding, 1099 reporting), a W-8BEN or W-8BEN-E from non-US persons (30% withholding unless a treaty reduces it).

The form a business files to report $600 or more paid to a US non-employee (contractor, freelancer, agency) in a year, due to the recipient and the IRS by the start of February.

The list of categories a business uses to record every transaction: assets, liabilities, equity, income and expenses. The structure behind every report the business will ever produce.

Matching every transaction in the books to the bank and card statements for the period, so the books and the bank agree to the cent. The test of whether bookkeeping has actually been done.

Two ways of deciding which month a transaction belongs to. Cash basis records money when it moves; accrual records income when earned and expenses when incurred.

Money received for goods or services not yet delivered. Recorded as a liability, not income, until the work is done.

The automatic six-month extension of time to file a business return (1120, 1120-S, 1065, and the pro forma 1120 with Form 5472). It extends filing, not payment.

The FinCEN report of a company's beneficial owners under the Corporate Transparency Act. Since March 2025, domestic US companies are exempt; foreign companies registered to do business in the US still file.

Income connected with the conduct of a US trade or business, taxed to a non-resident at the same graduated rates as a US person, reported on Form 1040-NR.