Reference

Financial Glossary

Clear, jargon-free definitions for every financial term used across our calculators and articles. Bookmark this page — it covers everything from AGI and APR to W-9 and Yield Curve.

1

1099-K: A US IRS form issued by payment processors and online marketplaces to report aggregate transaction volume. The threshold is being phased to $600 across multiple tax years.
1099-NEC: A US IRS form used to report payments of $600 or more made to non-employee contractors during the tax year. Issued by the payer to both the contractor and the IRS.

A

Adjusted Gross Income (AGI): Gross income minus specific above-the-line deductions such as half of self-employment tax, traditional IRA contributions, and student loan interest. AGI determines eligibility for many credits and deductions.
Annual Percentage Rate (APR): The yearly cost of borrowing money expressed as a percentage, including interest and certain fees. Distinguished from APY by excluding compounding effects.
Annual Percentage Yield (APY): The effective annual rate of return on an investment or savings account, accounting for the effect of compounding interest within the year.
Asset Allocation: The strategy of dividing an investment portfolio across asset classes (equities, bonds, cash, alternatives) to balance expected return against risk tolerance and time horizon.

B

Basis (Cost Basis): The original purchase price of an asset, used to calculate capital gain or loss on disposal. May be adjusted for splits, dividends reinvested, and corporate actions.
Bear Market: A period in which an asset class — typically equities — declines 20% or more from a recent high, often accompanied by widespread investor pessimism.
Bull Market: A period of sustained price appreciation in an asset class, typically defined as a 20% or greater rise from a recent low.

C

Capital Gain: The profit realized when an asset is sold for more than its cost basis. Classified as short-term (held one year or less) or long-term (held more than one year) for US tax purposes.
CARF (Crypto-Asset Reporting Framework): An OECD-developed information exchange framework, with reporting beginning January 2026, requiring crypto exchanges to share transaction data with member tax authorities.
Compound Interest: Interest calculated on the initial principal plus the accumulated interest from previous periods, producing exponential growth over long horizons.
Consumer Price Index (CPI): A measure of the average change in prices paid by urban consumers for a basket of goods and services, published monthly by national statistical agencies.

D

Deduction: An expense subtracted from gross income to reduce taxable income. May be standard (a fixed amount) or itemized (specific qualifying expenses).
Depreciation: The accounting allocation of the cost of a tangible asset over its useful life. Section 179 and bonus depreciation rules permit accelerated deductions in the US for qualifying business property.
Dollar-Cost Averaging (DCA): An investment strategy of contributing fixed amounts at regular intervals regardless of price, smoothing the average cost basis over time.

E

Effective Tax Rate: Total tax paid divided by total taxable income. Distinct from marginal rate, which applies only to the next dollar earned.
Emergency Fund: Liquid savings set aside to cover unexpected expenses or income disruption, conventionally targeted at 3–6 months of essential living costs.
Estimated Tax: Quarterly tax payments made by self-employed individuals and others without sufficient withholding. In the US, paid via Form 1040-ES on April 15, June 15, September 15, and January 15 of the following year.
Exchange-Traded Fund (ETF): A pooled investment vehicle that trades on an exchange like a stock, typically tracking an index, sector, or commodity at low expense ratios.
Expense Ratio: The annual operating cost of a mutual fund or ETF, expressed as a percentage of assets under management. Lower expense ratios meaningfully improve long-term returns.

F

FIFO (First In, First Out): An accounting method that assumes the earliest acquired units of an asset are the first to be sold. Default for capital gains computation in many jurisdictions.
Form 1040: The main US individual income tax return form. Schedule C is attached to report self-employment income and expenses.
Form W-9: A US IRS form completed by independent contractors to provide their Taxpayer Identification Number to a client or payer for 1099 reporting.

G

Gross Income: All income received in the form of money, goods, property, and services from any source before any deductions or adjustments are applied.

H

HIFO (Highest In, First Out): A cost-basis method that disposes of the highest-cost lots first, minimizing realized capital gains. Permitted in the US under specific identification rules.
HMRC (His Majesty's Revenue and Customs): The UK government department responsible for collecting taxes, administering certain benefits, and enforcing customs and excise law.

I

Inflation: The rate at which the general price level of goods and services rises over time, eroding purchasing power. Measured by indexes such as CPI and PCE.
IR35: UK off-payroll working legislation that determines whether a contractor working through an intermediary should be treated as an employee for tax purposes.
IRS (Internal Revenue Service): The US federal agency responsible for tax administration and enforcement, operating under the Department of the Treasury.

M

Marginal Tax Rate: The tax rate applied to the next dollar of taxable income earned. Most modern tax systems use progressive marginal brackets.
Mutual Fund: A pooled investment vehicle managed by a portfolio manager that issues shares priced once daily based on net asset value.

N

Net Income: Total revenue minus all expenses, taxes, and deductions. For freelancers, the figure available for personal use after business obligations are settled.

P

Personal Consumption Expenditures (PCE): An inflation gauge published by the US Bureau of Economic Analysis. The Federal Reserve's preferred inflation measure for monetary policy.
Progressive Tax: A tax system in which the rate increases as the taxable amount increases, applying higher rates to higher income bands.

Q

Qualified Business Income Deduction (QBI): A US deduction permitting eligible self-employed individuals and pass-through business owners to deduct up to 20% of qualified business income, subject to phase-outs.

R

Real Return: The return on an investment after adjusting for inflation. Calculated by subtracting the inflation rate from the nominal return (or via the Fisher equation for precision).
Rebalancing: The periodic process of adjusting a portfolio's holdings back to its target asset allocation, typically by selling overweight positions and buying underweight positions.
Required Minimum Distribution (RMD): The minimum amount US retirement account holders must withdraw annually starting at age 73 (rising to 75 by 2033 under SECURE 2.0).
Roth IRA: A US individual retirement account funded with after-tax contributions; qualified withdrawals in retirement are entirely tax-free, including all investment growth.

S

Schedule C: A US tax form filed with Form 1040 to report income and expenses from a sole proprietorship or single-member LLC.
Self-Employment Tax: The combined US Social Security (12.4%) and Medicare (2.9%) tax — totaling 15.3% — paid by self-employed individuals on 92.35% of their net earnings.
SEP-IRA: A US Simplified Employee Pension plan allowing self-employed individuals to contribute up to 25% of net earnings (subject to an annual cap), with the contribution being tax-deductible.
Solo 401(k): A US retirement plan for self-employed individuals with no employees other than a spouse, permitting both employee deferrals and employer profit-sharing contributions.
Standard Deduction: A fixed amount that taxpayers may subtract from gross income in lieu of itemizing deductions. Adjusts annually for inflation.

T

Tax-Loss Harvesting: The strategy of selling investments at a loss to offset realized capital gains, with the wash-sale rule limiting reacquisition of substantially identical securities within 30 days.
TIPS (Treasury Inflation-Protected Securities): US Treasury bonds whose principal adjusts with CPI-U, providing a contractual hedge against inflation when held to maturity.

W

W-2: A US tax form issued by employers reporting an employee's annual wages and taxes withheld. Used by employees in preparing their individual return.
Wash Sale: A US tax rule disallowing the deduction of a loss on a security if a substantially identical security is purchased within 30 days before or after the sale.

Y

Yield Curve: A graph plotting the interest rates of bonds with equal credit quality but different maturity dates. Inversion (short-term rates exceeding long-term) historically signals recession risk.

Z

Zero-Based Budget: A budgeting methodology in which every unit of income is intentionally allocated to a category — spending, saving, or investing — until the remaining balance is zero.

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