- 403(b) – Salary reduction retirement plan also known as a tax sheltered annuity for public school employees, tax exempt organizations, and religious organizations.
- 401(k) – A corporate retirement plan where employees can contribute a percentage of their salary annually. This plan is a “qualified plan” so the employee contribuitons are exlculded from gross income for tax purposes. In some cases the employer matches the employees contribution up to a certain percentage.
- Annuity – An investment designed to provide supplemental retirement income for the life of an investor. There are two basic types of annuities: fixed and variable, and annuities are typically recommended for who are older than 50.
- Balance Sheet – Analysis of a company’s financial position at a given point in time. Assets must “balance” out the liabilites plus stockholder’s equity.
- Bearish – A market decreasing in value with an investment strategy including selling short, buying inverse ETF’s, selling uncovered (naked) call options, buying put options, etc.
- Bonds – Securities that represent loans to companies or governments. Bondholders aren’t stockholders (owners in a company); they’re creditors. The bond is secured with an indenture and contains a maturity date, par value, and coupon rate.
- Bullish – A market increasing in value with an investment strategy including buying stocks, mutual funds, call options, selling put options, etc.
- Callable Bond – A bond that the issuer has the right to buy back before the maturity date (call from investor) at the price stated on the indenture (deed of trust).
- Common Stock – A type of security that represents ownership in a corporation. Common stockholders have the right to vote, receive dividends (if declared), annual company book and record reports, and first opportunity to purchase additional shares of common stock (if offered).
- Convertible Bond – A corporate bond that is convertible into common stock of the same company.
- Coupon Rate – The coupon rate on the bond shows the investor how much annual interest they’ll receive. Bondholders receive interest (payment returned for the use of money loaned), and stockholders receive dividends.
- Depletion – A tax deduction that allows partnerships engaged in extraction of natural resources such as oil, gas, and timber to reduce the value of the assets due to that asset’s reduction over time.
- Discount Rate – The interest rate that the Fed charges to member banks for loans.
- Dividends – A distribution of profits by a company to its shareholders. Dividends are determined by the board of directors and typically come in the form of cash or more stock.
- Dow Jones Composite Average – An index that tracks 65 large cap stocks of prominent companies. The DJCA is composed of three sub-indexes:
- Dow Jones Industrial Average – The DJIA tracks 30 stocks from the industrial sector and is the most commonly used index to monitor market performance in general.
- Dow Jones Transportation Average – DJTA tracks 20 stocks from the transportation sector.
- Dow Jones Utility Average – DJUA tracks 15 stocks from the utlity sector.
- Estate Taxes – Taxes paid on a deceased person’s estate when property or securities are inherited.
- Exchange-Traded Funds (ETF) – Investment fund that tracks an index or other benchmark and provides investors with diversification and ease of trading.
- Fixed Annuity – A retirement plan issued by an insurance company that provides guaranteed fixed or lump sum payments for a person’s lifetime. Fixed annuities are not considered securities and are therefore exempt from SEC registration. Once the investor starts receiving payments from a fixed annuity (usually monthly) the payments remain the same for the remainder of the investor’s life.
- Gross Domestic Product (GDP) – A major indicator of growth or contraction of the economy. GDP is the total goods and services produced by all businesses in the U.S. economy.
- Hedge Fund – A private equity investment company exempt from SEC registration and only open to sophisticated investors. The typical minimum investment for a hedge fund is $500,000 or more. Hedge funds are more aggressive investors and may buy securities on margin, sell short, and buy or sell options.
- Income Statement – A report that nets revenue and expenses to show how profitable a company is for a specific period of time.
- Index Fund – An investment company that tracks and invests in securities that are similar to a particular stock or bond index (S&P 500 or DJIA). Index funds are passively managed and typically have lower management fees as a result.
- Initial Public Offering (IPO) – The first time an issuer sells stock to the public to raise capital; issuers usually hold back some stock for future primary offerings.
- Junk Bond – The top four ratings for S&P and Moody’s are considered to be investment grade bonds. All the letter ratings below that are considered to be junk bonds or high-yield bonds.
- Long-Term Capital Gains – The gain realized when a security is sold at a gain after being held by the investor for more than one year. Long-term capital gains are currently taxed at 0, 15, or 20% depending on the investor’s gross income.
- Margin Call – A broker-dealer’s demand according to the SEC that a customer deposit money in a margin account when purchasing or shorting (selling short) securities. The margin call is determined by Regulation T and is typically 50% of the securities purchased.
- Money Market Fund – MMF’s offer investors high liquidity through the purchase of short-term debt securities. Money Market Funds are typically considered low-risk as they invest in high-credit-rating, debt-based securities with a short-term maturity (such as U.S. Treasuries)
- Municipal Bond – A security that state governments, local governments, and U.S. territories issue. The municipality uses the money it borrows from investors to fund and support projects, such as roads, schools, sewer systems, hospitals, etc. Municipal bonds may also be issued to raise money for operating budgets.
- Mutual Fund – A type of investment that pools your money with other investors to buy securities like stocks, bonds, and other investments. Mutual funds are popular as they are run by a professional money manager, they offer a wide variety of investment strategies, and their transactions costs to the investor are typically lower. Mutual funds are “open-end” meaning shares are redeemed with the issuer thus providing liquidity for the investor.
- Net Investment Income Tax (NIIT) – An additional 3.8% net investment tax to investors with an income (MAGI) above $200,000 ($250,000 filing jointly).
- New York Stock Exchange (NYSE) – The oldest and largest stock exchange in the United States. The NYSE is a securities exchange auction market bringing together buyers and sellers bidding for the best deals. The NYSE is responsible for listing securities and setting rules for and monitoring member firms. A company must meet certain standards to be listed on the NYSE regarding net worth, market price, and outstanding shares. The NYSE has authority to take disciplinary action against member firms.
- Non-Qualified Dividend – Stock held by an investor for less than the 60-day holding period. These dividends are taxed at the rate determined by the investor’s regular tax bracket.
- Over-the-counter (OTC) market – A decentralized and negotiated market where trades of stocks, bonds, and currencies are executed without the use of exchanges. A brokerage firm is an OTC.
- Par Value – par value for bonds is the is the amount repaid to the investor when the bond matures. Par value for common stock is the value per share used by the corporation for bookkeeping purposes.
- Penny Stock – The SEC uses the term “penny stock” to refer to a security issued by a small public company trading for less than $5 per share.
- Preferred Stock – May or may not be issued by a company in addition to common stock. Preferred stock typically pays a consistent cash dividend and may be “cumulative” meaning the company will make up any dividend payments on years missed. Preferred Stock doesn’t possess any voting rights but is greater in priority to common stock regarding dividends and bankruptcy repayment.
- Prime Rate – The interest rate that banks charge their most creditworthy borrowers (customers).
- Progressive Tax – As a taxpayer’s income rises so does their tax bracket. Progressive taxes affect high-income individuals more than they affect low-income taxpayers and include taxes on personal income, gift taxes, and estate taxes.
- Qualified Dividend – Qualified dividends are ones in which the customer has held onto the stock for at least 61-days (91 days for preferred stock). Qualified dividends are taxed at a preferred rate of 0%, 15%, 0r 20% depending on the investor’s AGI (adjusted gross income).
- Real Estate Investment Trust (REIT) – An investment trust that pools the capital of many investors to manage property and/or purchase mortgage loans. An REIT must derive at least 75% of inocme from real estate investment such as properties, mortgage loans, and construction loans. An REIT must pass at least 90% of annual income to investors but do not pass off losses or write-offs to investors.
- Regressive Taxes – The opposite of a “Progressive Tax” these taxes affect individuals earning a lower-income more than they affect individuals earning a higher-income. Regressive taxes include: payroll taxes, sales taxes, property taxes, excise taxes, and gasoline taxes.
- Required Minimum Distribution (RMD) – An RMD is the minimum amount of money that must be withdrawn from a retirement account each year. RMD’s are required from 401(k)s, Traditional IRAs, SEP IRAs, 403(b)s, profit-sharing plans, and 457(b) plans. Withdrawals must begin by April 1 of the year after the investor reaches age 73. Investors who don’t take their (RMD) by that time are subject to a 50% tax penalty on the amount they should have withdrawn.
- Roth IRA – An Individual Retirement Account where the contributions are “non-qualified” (after-tax), meaning withdrawals at retirement are excluded from taxable income provided that the investor has held onto the Roth account for more than 5-years and has reached age 59.5 years old. Anyone whose income is below the IRS income limit can open an IRA. As of 2024 the income limits are $161k/year ($240k MFJ). As of 2024 the maximum amount that an individual can contribute to a Roth or Traditional IRA is $7,000/year combined. The IRS allows a catch-up contribution of an additional $1,000/year for those 50 years of age or older.
- S&P 500 – This index includes 500 large-cap common stock companies that have market capitalization above $10 billion.
- Securities and Exchange Commission (SEC) – Federal agency created by the Securities and Exchange Act of 1934. The SEC administers the U.S. securities laws and regulates the exchange, OTC trading, extension of credit (margin), broker-dealer and registered representative registraion, and prohibits the price manipulation of securities.
- Security – A security is a financial asset issued by a corporation or a government that can be traded and is a type of investment that involves risk. A security can also be thought of as a personal investment in a business, government, or municipal project with the expectation of a profit from someone other than the investor. (stocks, bonds, and notes)
- Short Sale – Securities are borrowed by the investor and not owned. Investors are looking to make a profit when they believe the price of a security is going to drop.If the market is bearish the investor will sell the owed shares of securities back to the investor.
- Short-Term Capital Gains – The gains realized when a security is held for one year or less. Short-term gains are taxed at the investor’s tax bracket.
- Stock Option – An owner of an option has the right, but not the obligation, to buy or sell an underlying security at a fixed price. Investors may either exercise the option (buy or sell the security at a fixed price), trade the option in the market, or let it expire.
- Stop Order – A security order entered by a customer that is used for protection by naming an activation, trigger, or election price. Stop orders can also be used to take advantage of a price breakout. Stop orders become market orders when activated.
- Straight-Life Annuity – An annuity contract in which once the investor dies, nobody receives the payouts.
- Traditional IRA – A “tax-qualified” Individual Retirement Account where annual contributions up to $7,000/year (2024) are deductible and not included in taxable income. Withdrawals or Distributions prior to age 59.5 are subject to a 10% early withdrawal penalty except in cases of death, disability, terminal illness, adoption, education, or first-time homebuyers. An individual who is covered by a workplace retirement plan can still open a traditional IRA and have deposits be fully deductible assuming their annual income is no greater than $77,000/year ($123,000 MFJ) as of 2024.
- Treasury Bills (T-Bills) – A short-term U.S. government security (bond) with a maturity of 4, 8, 13, 17, 26, or 52 weeks.
- Treasury Notes (T-Notes) – Intermediate term bonds with a maturity timeline of 2, 3, 5, 7, or 10-years.
- Treasury Bonds (T-Bonds) – Long-term U.S. debt securities of 20 or 30-years.
- Underwriter (Investment Banker) – A brokerage form that buys newly issued securities and sells them to the public at a higher price.
- Variable Annuity – A retirement plan offered by insurance companies designed to keep up with or exceed inflation. The money investors deposit is kept in a separate account by the insurance company. This account invests in stocks, bonds, and mutual funds. The risk in these accounts is borne by the investor. If the securities outperform the intestest rate, the strategy worked and payouts are higher. If the securities underperform, the investors payouts are lower.
- Wash Sale – The “Wash Sale Rule” was created to prevent investors from selling a security at a loss to offset gains on that or another security. If an investor sells a security at a capital loss, the investor can’t purchase the same security for 30-days prior to or after the sale and be able to claim the loss on their taxes.
This material is compiled from sources SST believes to be reliable. The possibility of error does exist. The material is intended only as educational and may omit information on exceptions, qualifications, definitions, and effective dates. The reader should not rely solely on this material but should review original sources to determine the law and applicability for each situation. Neither the author nor Solid State Tax Service, LLC will be responsible for any error, omission, or inaccuracy under any circumstance.