A deceased person. The personal representative of the decedent’s estate (the person who is in charge of the decedent’s property) must file the final income tax return (Form 1040, U.S. Individual Income Tax Return) of the decedent for the year of death and any returns not filed for preceding years. A surviving spouse, under certain circumstances, may have to file the returns for the decedent.
Declining Balance Method
An accelerated depreciation method. For property placed in service before 1987, the declining balance method allowed you to recover a larger amount of the cost of the property in the early years of your use of the property by allowing a declining balance rate of up to twice the straight-line rate. When using a declining balance method under MACRS you apply the same depreciation rate each year to the adjusted basis of your property. You must use the applicable convention and you must switch to the straight-line method in the first year for which it will give an equal or greater deduction. You calculate your declining balance rate by dividing the specified declining balance percentage (150% or 200% changed to a decimal) by the number of years in the property’s recovery period.
Deferred Compensation
The part of your income that you choose to have withheld by your employer and put into a retirement plan for distribution to you at a later date, typically upon retirement. Generally, this compensation is not taxed until you receive it.
Defined Benefit Plan
Any retirement savings plan that is not a defined contribution plan. The employer primarily funds this type of plan. Types of defined benefit plans include pension plans and annuity plans. If you are eligible to participate in your employer’s defined benefit plan for the plan year that ends within your tax year, you are covered by the plan. This rule applies even if you: (1) declined to participate in the plan, (2) did not make a required contribution, or (3) did not perform the minimum service required to accrue a benefit for the year.
Defined Contribution Plan
A retirement savings plan that provides for a separate account for each person covered by the plan. Types of defined contribution plans include profit-sharing plans, stock bonus plans, and money purchase pension plans. Generally, you are covered by a defined contribution plan for a tax year if amounts are contributed or allocated to your account for the plan year that ends with or within that tax year.
A person for whom you can claim a dependent exemption. There are four dependency tests that must be met to claim the exemption for a dependent.
A yearly deduction taken to recover your investment in minerals or standing timber. To take the deduction you must have the right to income from the mineral extraction or the cutting of the timber.
A ratable deduction allowed over a number of years to recover your basis in property that is used for more than one year for business or income-producing purposes.
Direct Deposit
Instead of getting a paper check, you may be able to have your refund deposited directly into your account at a bank or other financial institution. If the Direct Deposit cannot be done, the Internal Revenue Service will send a check instead.
For tax purposes, you are permanently and totally disabled if you cannot engage in any substantial gainful activity because of your physical or mental condition. A physician must certify that the condition has lasted or can be expected to last continuously for 12 months or more, or that the condition can be expected to result in death
Distributions given to a corporation’s shareholders out of the company’s current or retained earnings. Certain distributions commonly called dividends are actually interest income. You must report as interest so-called “dividends” on deposits or on share accounts in cooperative banks, credit unions, domestic building and loan associations, domestic savings and loan associations, federal savings and loan associations, and mutual savings banks.
Dual-Status Alien
Someone who is both a nonresident alien and a resident alien during the same tax year. This usually occurs in the year of arrival in or departure from the United States.