Definition of Payroll tax expense

Payroll tax expense

The amount of tax associated with salaries that an employer pays to governments (federal, state, and local).

After-tax profit margin

The ratio of net income to net sales.

After-tax real rate of return

Money after-tax rate of return minus the inflation rate.

Annual fund operating expenses

For investment companies, the management fee and "other expenses,"
including the expenses for maintaining shareholder records, providing shareholders with financial statements,
and providing custodial and accounting services. For 12b-1 funds, selling and marketing costs are included.

Asymmetric taxes

A situation wherein participants in a transaction have different net tax rates.

Average tax rate

taxes as a fraction of income; total taxes divided by total taxable income.

Before-tax profit margin

The ratio of net income before taxes to net sales.

Break-even tax rate

The tax rate at which a party to a prospective transaction is indifferent between entering
into and not entering into the transaction.

Cash flow after interest and taxes

Net income plus depreciation.

Corporate tax view

The argument that double (corporate and individual) taxation of equity returns makes
debt a cheaper financing method.

Corporate taxable equivalent

Rate of return required on a par bond to produce the same after-tax yield to
maturity that the premium or discount bond quoted would.

Deferred taxes

A non-cash expense that provides a source of free cash flow. Amount allocated during the
period to cover tax liabilities that have not yet been paid.

Depreciation tax shield

The value of the tax write-off on depreciation of plant and equipment.

Double-tax agreement

Agreement between two countries that taxes paid abroad can be offset against
domestic taxes levied on foreign dividends.

Earnings before interest and taxes (EBIT)

A financial measure defined as revenues less cost of goods sold
and selling, general, and administrative expenses. In other words, operating and non-operating profit before
the deduction of interest and income taxes.

Equivalent taxable yield

The yield that must be offered on a taxable bond issue to give the same after-tax
yield as a tax-exempt issue.

Expense ratio

The percentage of the assets that were spent to run a mutual fund (as of the last annual
statement). This includes expenses such as management and advisory fees, overhead costs and 12b-1
(distribution and advertising ) fees. The expense ratio does not include brokerage costs for trading the
portfolio, although these are reported as a percentage of assets to the SEC by the funds in a Statement of
Additional Information (SAI). the SAI is available to shareholders on request. Neither the expense ratio or the
SAI includes the transaction costs of spreads, normally incurred in unlisted securities and foreign stocks.
These two costs can add significantly to the reported expenses of a fund. The expense ratio is often termed an
Operating expense Ratio (OER).

Expensed

Charged to an expense account, fully reducing reported profit of that year, as is appropriate for
expenditures for items with useful lives under one year.

Foreign tax credit

Home country credit against domestic income tax for foreign taxes paid on foreign
derived earnings.

Imputation tax system

Arrangement by which investors who receive a dividend also receive a tax credit for
corporate taxes that the firm has paid.

Interest equalization tax

tax on foreign investment by residents of the U.S. which was abolished in 1974.

Interest tax shield

The reduction in income taxes that results from the tax-deductibility of interest payments.

Investment tax credit

Proportion of new capital investment that can be used to reduce a company's tax bill
(abolished in 1986).

Limited-tax general obligation bond

A general obligation bond that is limited as to revenue sources.

Marginal tax rate

The tax rate that would have to be paid on any additional dollars of taxable income earned.

Personal tax view (of capital structure)

The argument that the difference in personal tax rates between
income from debt and income from equity eliminates the disadvantage from the double taxation (corporate
and personal) of income from equity.

Progressive tax system

A tax system wherein the average tax rate increases for some increases in income but
never decreases with an increase in income.

Short-term tax exempts

Short-term securities issued by states, municipalities, local housing agencies, and
urban renewal agencies.

Split-rate tax system

A tax system that taxes retained earnings at a higher rate than earnings that are
distributed as dividends.

TANs (tax anticipation notes)

tax anticipation notes issued by states or municipalities to finance current
operations in anticipation of future tax receipts.

Tax anticipation bills (TABs)

Special bills that the Treasury occasionally issues that mature on corporate
quarterly income tax dates and can be used at face value by corporations to pay their tax liabilities.

Tax books

Set of books kept by a firm's management for the IRS that follows IRS rules. The stockholder's
books follow Financial Accounting Standards Board rules.

Tax clawback agreement

An agreement to contribute as equity to a project the value of all previously
realized project-related tax benefits not already clawed back to the extent required to cover any cash
deficiency of the project.

Tax differential view ( of dividend policy)

The view that shareholders prefer capital gains over dividends,
and hence low payout ratios, because capital gains are effectively taxed at lower rates than dividends.

Tax-exempt sector

The municipal bond market where state and local governments raise funds. Bonds issued
in this sector are exempt from federal income taxes.

Tax free acquisition

A merger or consolidation in which 1) the acquirer's tax basis in each asset whose
ownership is transferred in the transaction is generally the same as the acquiree's, and 2) each seller who
receives only stock does not have to pay any tax on the gain he realizes until the shares are sold.

Tax haven

A nation with a moderate level of taxation and/or liberal tax incentives for undertaking specific
activities such as exporting or investing.

Tax Reform Act of 1986

A 1986 law involving a major overhaul of the U.S. tax code.

Tax shield

The reduction in income taxes that results from taking an allowable deduction from taxable income.

Tax swap

Swapping two similar bonds to receive a tax benefit.

Tax deferral option

The feature of the U.S. Internal Revenue Code that the capital gains tax on an asset is
payable only when the gain is realized by selling the asset.

Tax-deferred retirement plans

Employer-sponsored and other plans that allow contributions and earnings to
be made and accumulate tax-free until they are paid out as benefits.

Tax-timing option

The option to sell an asset and claim a loss for tax purposes or not to sell the asset and
defer the capital gains tax.

Taxable acquisition

A merger or consolidation that is not a tax-fee acquisition. The selling shareholders are
treated as having sold their shares.

Taxable income

Gross income less a set of deductions.

Taxable transaction

Any transaction that is not tax-free to the parties involved, such as a taxable acquisition.

Two-tier tax system

A method of taxation in which the income going to shareholders is taxed twice.

Value-added tax

Method of indirect taxation whereby a tax is levied at each stage of production on the value
added at that specific stage.

Withholding tax

A tax levied by a country of source on income paid, usually on dividends remitted to the
home country of the firm operating in a foreign country. tax levied on dividends paid abroad.

GENERAL-AND-ADMINISTRATIVE EXPENSES

What was spent to run the non-sales and non-manufacturing part of a company, such as office salaries and interest paid on loans.

INCOME TAX

What the business paid to the IRS.

OPERATING EXPENSES

The total amount that was spent to run a company this year.

SELLING EXPENSES

What was spent to run the sales part of a company, such as sales salaries, travel, meals, and lodging for salespeople, and advertising.

VARIABLE EXPENSES

Those that vary with the amount of goods you produce or sell. These may include utility bills, labor, etc.

Earnings before interest and taxes (EBIT)

The operating profit before deducting interest and tax.

Earnings before interest, taxes, depreciation and amortization (EBITDA)

The operating profit before deducting interest, tax, depreciation and amortization.

Expenses

The costs incurred in buying, making or producing goods and services.

Profit before interest and taxes (PBIT)

See EBIT.

Accrued expenses payable

expenses that have to be recorded in order for the financial statements to be accurate. Accrued expenses usually do not involve the receipt of an invoice from the company providing the goods or services.

Depreciation expense

An expense account that represents the portion of the cost of an asset that is being charged to expense during the current period.

Expenses

Costs involved in running the company.

Office expense

The amount of expense incurred for the general operation of an office.

Payroll expense

The amount paid to employees for services rendered; synonymous with salary expense and wage expense.

Payroll journal

A journal used to record the payroll of a company.

Payroll taxes payable

The amount of payroll taxes owed to the various governments at the end of a period.

Prepaid expenses

expenses that have been paid for but have not yet been used up; examples are prepaid insurance and prepaid rent.

Rent expense

The amount of expense paid for the use of property.

Salary expense

The amount paid to employees for services rendered; synonymous with payroll expense and wage expense.

Wage expense

The amount paid to employees for services rendered; synonymous with salary expense and payroll expense.

accrued expenses payable

The account that records the short-term, noninterest-
bearing liabilities of a business that accumulate over time, such
as vacation pay owed to employees. This liability is different than
accounts payable, which is the liability account for bills that have been
received by a business from purchases on credit.

earnings before interest and income tax (EBIT)

A measure of profit that
equals sales revenue for the period minus cost-of-goods-sold expense
and all operating expenses—but before deducting interest and income
tax expenses. It is a measure of the operating profit of a business before
considering the cost of its debt capital and income tax.

fixed expenses (costs)

expenses or costs that remain the same in amount,
or fixed, over the short run and do not vary with changes in sales volume
or sales revenue or other measures of business activity. Over the
longer run, however, these costs increase or decrease as the business
grows or declines. Fixed operating costs provide capacity to carry on
operations and make sales. Fixed manufacturing overhead costs provide
production capacity. Fixed expenses are a key pivot point for the analysis
of profit behavior, especially for determining the breakeven point and for
analyzing strategies to improve profit performance.

revenue-driven expenses

Operating expenses that vary in proportion to
changes in total sales revenue (total dollars of sales). Examples are sales
commissions based on sales revenue, credit card discount expenses, and
rents and franchise fees based on sales revenue. These expenses are one
of the key variables in a profit model. Segregating these expenses from
other types of expenses that behave differently is essential for management
decision-making analysis. (These expenses are not disclosed separately
in externally reported income statements.)

unit-driven expenses

expenses that vary in close proportion to changes
in total sales volume (total quantities of sales). Examples of these types of
expenses are delivery costs, packaging costs, and other costs that depend
mainly on the number of products sold or the number of customers
served. These expenses are one of the key factors in a profit model for
decision-making analysis. Segregating these expenses from other types
of expenses that behave differently is essential for management decisionmaking
analysis. The cost-of-goods-sold expense depends on sales volume
and is a unit-driven expense. But product cost (i.e., the cost of
goods sold) is such a dominant expense that it is treated separately from
other unit-driven operating expenses.

variable expenses

expenses that change with changes in either sales volume
or sales revenue, in contrast to fixed expenses that remain the same
over the short run and do not fluctuate in response to changes in sales
volume or sales revenue. See also revenue-driven expenses and unitdriven
expenses.

tax benefit (of depreciation)

the amount of depreciation deductible for tax purposes multiplied by the tax rate;
the reduction in taxes caused by the deductibility of depreciation

tax deferral

postponing taxation of an amount until a future date

tax exemption

a tax treatment where income is never subject to income taxation

tax-deferred income

current compensation that is taxed at a future date

tax-exempt income

current compensation that is never taxed

tax shield (of depreciation)

the amount of depreciation deductible
for tax purposes; the amount of revenue shielded
from taxes because of the depreciation deduction

Expense

The reduction in value of an asset as it is used for current company operations.

Income tax

A government tax on the income earned by an individual or corporation.

Operating expense

Any expense associated with the general, sales, and administrative
functions of a business.

Prepaid expense

An expenditure that is paid for in one accounting period, but which
will not be entirely consumed until a future period. Consequently, it is carried on the
balance sheet as an asset until it is consumed.

average tax rate

Total taxes owed divided by total income.

depreciation tax shield

Reduction in taxes attributable to the depreciation allowance.

interest tax shield

tax savings resulting from deductibility of interest payments.

marginal tax rate

Additional taxes owed per dollar of additional income.

Indirect Taxes

taxes paid by consumers when they buy goods and services. A sales tax is an example.

Inflation Tax

The loss in purchasing power due to inflation eroding the real value of financial assets such as cash.

Investment Tax Credit

A reduction in taxes offered to firms to induce them to increase investment spending.

Marginal Tax Rate

Percent of an increase in income paid in tax.

Progressive Tax

A tax in which the rich pay a larger percentage of income than the poor. Contrast with regressive tax.

Proportional Tax

A tax taking the same percentage of income regardless of the level of income.

Regressive Tax

A tax in which the poor pay a larger percentage of income than the rich. Contrast with progressive tax.

Sales Tax

A tax levied as a percentage of retail sales.

Tax-Related Incomes Policy (TIP)

tax incentives for labor and business to induce them to conform to wage/price guidelines.

Current Tax Payment Act of 1943

A federal Act requiring employers to withhold income taxes from employee pay.

Electronic Federal Tax Payment Systems (EFTPS)

An electronic funds transfer system used by businesses to remit taxes to the government.

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