Taxes & Business
Tax-code provisions, business structures, and reporting documents that drive how income, gains, and entity profits are taxed.
Tax and entity-choice vocabulary is where small misunderstandings cost the most money. The Taxes & Business cluster of the Olomon Financial Glossary covers the federal tax-code provisions that drive real planning decisions (1031, 1202, capital gains, depreciation), the entity structures that determine how income is taxed (S-corporation, pass-through entity, business entity), and the reporting documents that connect them (balance sheet, income statement, EIN, tax-advantaged accounts).
Each entry is grounded in primary IRS guidance, with the relevant publication, form, or revenue procedure linked directly. Where rules have year-specific thresholds — like the federal estate-tax exemption, capital-gains brackets, or contribution limits — the year is stamped in the Quick Facts box so staleness is obvious to readers and AI engines alike.
This is also the cluster where Olomon's first-party perspective matters most. Tax planning is the operational area where 'is the data right' matters more than 'is the strategy clever.' Cost basis, depreciation schedules, K-1 storage, entity ownership tables, and document trails are the difference between a defensible deduction and a phantom one. The Olomon perspective in each entry calls out the data-discipline angle that most generic tax content skips.
Key concepts in this cluster
- How tax-code sections (§1031, §1202, §199A) actually work — including the documentation needed at the time of investment, not in hindsight.
- Entity choice: sole prop, LLC, S-corp, C-corp, partnership — liability, tax, and ownership trade-offs.
- The three core financial statements (balance sheet, income statement, cash flow) and what they reveal.
- Tax-advantaged account types and 2025 contribution limits.
- Procedural HowTo guides for 1031 exchanges, S-corp elections, EIN applications, and Opportunity Zone investments.
All 11 terms in Taxes & Business
Each entry includes a quotable definition, key takeaways, in-depth explanation, worked examples, and primary-source citations.
1031 exchange
A 1031 exchange (named after Internal Revenue Code §1031) is a tax-deferral strategy that lets real estate investors postpone capital gains taxes by reinvesting the proceeds from the sale of an investment property into a like-kind replacement property within strict IRS deadlines.
1202 gain exclusion
The 1202 gain exclusion is a provision of Internal Revenue Code §1202 that allows investors in Qualified Small Business Stock (QSBS) to exclude up to 100% of eligible capital gains — generally up to $10 million or 10× basis — from federal income tax when holding requirements are met.
Balance sheet
A balance sheet is a financial statement that lists what an entity owns (assets), what it owes (liabilities), and the residual equity at a single point in time — following the equation Assets = Liabilities + Equity.
Business entity
A business entity is a legally recognized organization formed to conduct commercial activity — such as a sole proprietorship, partnership, LLC, S-corporation, or C-corporation — each with distinct liability, tax, and governance treatment.
Capital gains
Capital gains are the profits realized when a capital asset — such as stock, real estate, or a business interest — is sold for more than its adjusted cost basis. They are taxed as short-term (≤1 year) or long-term (>1 year) at different federal rates.
Depreciation
Depreciation is the accounting and tax method of allocating the cost of a tangible asset across its useful life, recognizing the asset's loss of value as a non-cash expense and, where allowed, as a tax deduction.
EIN (Employer Identification Number)
An Employer Identification Number (EIN) is a nine-digit federal tax ID issued by the IRS to identify business entities, trusts, and estates for tax filings, banking, and payroll.
Income statement (Profit & Loss Statement)
An income statement, also called a profit and loss (P&L) statement, summarizes revenues, costs, and expenses over a defined period to show net profit or loss — answering the question “did the entity make money?”
Pass-through entity
A pass-through entity is a business structure — including sole proprietorships, partnerships, S-corporations, and most LLCs — that does not pay federal income tax at the entity level. Profits and losses flow through to owners' personal returns.
S-corporation
An S-corporation is a corporation that has elected, by filing IRS Form 2553, to pass corporate income, losses, deductions, and credits through to its shareholders for federal tax purposes — avoiding the double taxation of a C-corporation.
Tax-advantaged account
A tax-advantaged account is an investment or savings account that receives favorable federal tax treatment — through tax deferral, tax-free growth, or up-front deductions — to encourage long-term saving for goals like retirement, education, or healthcare.
Related reading
Long-form Olomon essays that put the concepts in this cluster into practice.
Personal Financial Statement vs. Balance Sheet — Why It Matters
Think about this: A young couple is planning their future. They've just bought their first home, started a college fund for their child, and are juggling student loans. Every month feels like a tightrope walk. Then one evening, as they sit down to look at their finances, they realize they don't know their net worth — what they truly own versus what they owe.
Self-Employed Retirement Planning: Why Financial Visibility Matters
Saving for the future just looks different when you're self-employed. Revenue is typically redirected into business growth, not your bank account.
Cluster FAQs
About Taxes & Business
High-frequency questions specific to this cluster, beyond what is answered on individual term pages.
Entity choice depends on liability exposure, expected income, capital needs, ownership structure, and exit plans. For most small operating businesses the practical decision is between a single-member LLC, multi-member LLC, and an S-corporation election — and the right answer often shifts as the business grows. This is a CPA-and-attorney conversation, not a checklist.
Both defer capital gains, but they apply to different asset types and operate differently. A 1031 exchange swaps one investment real-estate property for another within IRS-defined windows. An Opportunity Zone investment rolls eligible capital gains (from any asset class) into a Qualified Opportunity Fund that invests in designated low-income census tracts, with a 10-year hold delivering a step-up to fair market value on the QOF investment.
Numerical thresholds in Quick Facts boxes are stamped with the year they reflect. We re-check IRS-published limits at least annually and whenever a relevant rule change is publicized. The Last updated date on each entry reflects the most recent substantive review.
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