Accounting & Tax Definitions -- F

Fair Market Value: The highest price available in an open and unrestricted market between informed, prudent parties, acting at arm's length and under no compulsion to transact expressed in terms of money or money's worth.

Fair Rental Value: The amount the owner of property could reasonably expect to receive from a stranger for the same type of lodging; generally, the amount at which a home with its furnishings could be rented to a similar size family in a similar location.

Federal Income Tax Withheld: The amount withheld from an income and submitted by the payer to the IRS as an advance payment of the taxpayer's federal income tax.

Federal Tax Identification Number: A number given to a corporation or other business entity by the federal government for tax purposes. Banks generally require a tax identification number to open bank accounts.

FICA (Federal Insurance Contributions Act): The Federal Insurance Contributions Act (FICA) consists of both a Social Security (retirement) payroll tax and a Medicare (hospital insurance) tax. The tax is levied on employers, employees, and certain self-employed individuals.

Fiduciary: A person who holds something in trust for another (often used to describe executors and administrators of estates and trusts).

File A Return: To file a return is to send in your completed tax forms, or return ("return" is the official term-use it, you'll sound smarter). All your tax information appears on the return, including income and tax liability.

Filing Status: Your filing status determines your tax bracket and amount of taxes you must pay. Factors such as marital status affect your filing status.

Finance Charges: Amounts paid for the privilege of making purchases on a deferred-payment basis.

First In, First Out (FIFO): An accounting method for determining the cost of inventories. Under this method, the first items purchased are treated as being the first items sold. Ending inventory is valued using the cost of later purchases, or the lower of cost or market.

Financial Statements: Formal financial reports prepared from accounting records (for example, Profit & Loss Statement, Balance Sheet, Statement of Retained Earnings).

Fiscal Year: A period of one year for which financial statements are prepared that may or may not coincide with the calendar year. Any twelve-month period used by a business as its accounting period.

Fixed Assets: See Capital Assets

Fixed Rate: A mortgage with an interest rate that does not increase or decrease during the term of the loan.

Flexible Spending Account: See Cafeteria Plan.

F.O.B.: Shipping term meaning "free on board" to inform the purchasers of the location at which they become responsible for the shipping charges (for example, F.O.B. Toronto means the vendor pays the charges to Toronto's freight yard and the purchaser is responsible from there).

Foreign Corporation: A Corporation is referred to as a foreign corporation in all states except for the state where it is incorporated. If a corporation conducts business in a state other than where it was incorporated, it must register for a certificate of authority to transact business in the other state or possibly lose access to that state's courts and face fines.

Foreign Tax Credit or Deduction: A credit or deduction available to a U. S. citizen or resident alien, and in limited circumstances to a U. S. nonresident alien, who incurs or pays income taxes to a country other than the United States.

FORM 1040EZ: This form is great if you're single or married, don't have any dependents and aren't rolling in dough. If your income is $50,000 or less and your interest income is $400 or less --- use this easy (get it, EZ) IRS form to file your return.

Formal Tax Legislation Process: There are strict steps (that involve the President and Congress) that a proposed tax must pass through before it becomes a law.

FORM W-2: By January 31 of each year - your employer (even if you don't work there anymore) will provide you with a statement of how much you earned in wages, tips and other compensation from the previous year. This form will reflect state and federal taxes, social security, Medicare wages, and tips withheld. It also includes a lot of other really important information you will need to file your return.

FORM W-4 (Employee's withholding allowance certificate): If you have or had a part-time or summer job, you probably completed this form on your first day of work. This form determines how much of your paycheck is withheld for federal income taxes.

Foster Child: For most tax purposes, a child other than a natural or adopted child, who lived with the taxpayer for the entire year and for whom the taxpayer cared for as his own child. See also Qualified Foster Child (Child Tax and Earned Income Credits).

Franchise Tax: A tax imposed by the State for the privilege of carrying on business as a corporation or LLC. The value of the franchise tax may be measured by amount of earnings, total value of capital or stock, or by amount of business done.

Fringe Benefits: Compensation or other benefits received by an employee that are not in the form of cash. Some fringe benefits (for example, accident and health plans, and group-term life insurance) may be excluded from the employee's gross income and, therefore, are not subject to federal income tax.

Full-Time Student: An individual who is enrolled in a school for the number of hours or courses considered by the school to be full-time. School includes elementary and secondary schools, post-secondary colleges, on-the-farm training courses, and technical and trade schools. It does not include on-the-job training, correspondence schools, or night school. However, a student will not be disqualified by night classes that are part of a full-time course of study.

Fully Taxable Pensions: Pensions for which taxpayers contributed none of the cost or have recovered their cost in previous years.