Marlow & Sons
Plain language
The words, translated
Nobody should have to pretend they know what a K-1 is in order to ask a sensible question.
- Basis
- What you have actually put into an asset or a business, adjusted over time. It decides how much of a sale is taxable, and it is the number people most often cannot reconstruct years later.
- Cash vs accrual
- Cash accounting records money when it actually moves; accrual records it when it is earned or owed. Accrual gives a truer picture of a growing business and is required past certain revenue thresholds — which one you are on changes your taxable income in any given year.
- Depreciation
- Spreading the cost of an asset across the years it is useful rather than deducting it all at once. Several elections let you accelerate it — which is worth doing in a high-income year and worth avoiding in a low one.
- K-1
- The form a partnership, S-Corp or trust issues to each owner showing their share of income, deductions and credits. It arrives late, it is nobody’s favourite, and it is why some returns cost more to prepare.
- Nexus
- The connection that makes you liable to file in a state — an office, an employee, or simply enough sales into it. Ecommerce sellers acquire it accidentally, which is how a one-state business becomes a nine-state filer.
- Offer in compromise
- An agreement with the IRS to settle a tax debt for less than the full amount. Genuinely available, rarely as available as late-night advertising suggests, and worth assessing honestly before anyone charges you to apply.
- Quarterly estimates
- Prepayments of tax made four times a year by people whose income is not withheld at source. Underpay and the penalty is charged as interest, so the aim is to land close rather than to overpay and lend the money interest-free.
- Reasonable compensation
- The salary an S-Corp owner must pay themselves before taking distributions. Set it too low to dodge payroll tax and it is the single most common thing an audit unwinds.
