Accounting & Tax Definitions -- P

Paid in Capital Requirements: A few states require corporations to have a specified amount of paid in capital prior to starting business. These states include CT, DC, SD, and TX and require that the company have $1,000 in paid in capital before starting business.

Par-Value: The stated minimum value of a share stock. Stock must be sold for at least this value or the owner of the stock can face liability. With low par value stock or no par value stock this liability is minimized.

Parent Company: A corporation that directly or indirectly owns a controlling interest in another corporation. See Subsidiary.

Partly Taxable Pensions: Pensions funded through employer plans to which both pre-tax and after-tax money was contributed.

Partnership: Two or more persons carrying on a business for profit, each partner having unlimited liability for the debts of the partnership, except in a limited partnership in which some of the partners may have limited liability.

Pass-Through Taxation: Income to the entity is not taxed. Instead the income is "passed through" to the individual shareholders or interest holders. S corporations, Partnerships and LLCs are pass-through taxation entities.

Passive Income: Passive income is income from business activities in which the taxpayer does not materially participate, and all rental activities (except those of qualified real estate professionals). See also Active Income and Portfolio Income.

Patent: The exclusive right of an inventor to make, use, or sell his invention for a period of years. A patent is an intangible asset that may be depreciated over its remaining life. The sale of a patent usually results in long-term capital gain treatment.

Payable: An obligation to pay a sum at a future date.

Payroll: A record of wages or salaries paid or payable. The actual wages and salaries paid during a given period.

Payroll Taxes: Your employer deducts a certain amount from your paycheck to pay for taxes. This tax money funds many finance specific programs, including social security, health care and worker's disability. These programs might not mean a whole lot to you now, but you may likely benefit from them when you're older. Check out

Penalties: For tax purposes, amounts that the IRS may assess at a statutory rate as an addition to a tax deficiency and interest. The tax Code provides for penalties for various infractions, such as underpayment of estimated tax, late filing of a return, late payment of tax, substantial understatement of tax, negligent or intentional disregard of rules, and fraud.

Pension/Annuity Starting Date: The first day of the first period for which an amount is due as a pension/annuity payment under the contract.

Pensions: Arrangements whereby employers agree to provide benefits to retired employees. A pension is paid out in a series of regular payments or a lump sum of money to retired employees or their beneficiaries.

Percentage Depletion: A specified percentage of the gross income from the property not exceeding 50 percent of the taxable income from the property before depletion allowance (increased by section 1245 gains--see definition of section 1245 property). In each year, the method that results in the greater deduction is used. (See also Cost Depletion.) Percentage depletion is allowed for nearly all natural resources, except timber.

Periodic Payments: A requirement for alimony paid under pre-1985 agreements to be deductible. The amount to be paid or the duration of payment must be indefinite for a payment to qualify as periodic.

Permanent and Total Disability: A disability that prevents an individual from engaging in any substantial gainful activity because of a medically determined physical or mental impairment that is expected to result in death, or that has lasted or is expected to last for a continuous period of not less than 12 months.

Personal Expenses: Expenses of an individual for personal reasons are not deductible unless stated to be deductible under tax Code.

Personal Income Tax: Everyone pays a tax on his/her yearly total amount of taxable income. Remember that the personal income tax is not a tax on the taxpayers total income (the taxpayer can take deductions). Deductions are subtracted first from the taxpayer's income and then he/she pays the tax on the remaining amount.

Personal Property: Generally, all property other than real estate.

Personal Property Tax: An annual tax imposed on certain personal property, such as cars or boats, and based on the value of the property.

Personal Residence: The property in which the taxpayer lives and to which he or she returns after temporary absences. A taxpayer may have one or more residences such as a main home and a vacation house. A residence is not limited to a house. Condominiums, cooperative apartments, townhouses, mobile homes, and houseboats can all qualify as residences.

Personal and Dependency Exemptions: Tax Code provides a $3,100 exemption (for 2004) for each individual taxpayer and an additional $3,,100 exemption for his spouse if a joint return is filed. An individual may also claim a $3,100 dependency exemption for each dependent providing certain tests are met. Taxpayers who may be claimed as a dependent on other taxpayers' returns may not claim their own personal exemptions. The exemption amount is phased out for taxpayers whose adjusted gross incomes exceed certain levels.

Personal-Use Property: Property owned for personal well-being and enjoyment includes a taxpayer's home, vehicles, furniture, clothing, and other property.

Piercing the Corporate Veil: If corporate formalities are not followed, it is possible that the corporate entity will not protect shareholders from corporate debt. Keeping proper records and holding regular meetings help solve this possible problem.

Physical Custody: The taxpayer with whom a child lives is considered to have physical custody.

Points: A loan-origination fee (one-time charge paid for the use of money) that a buyer generally may deduct as interest; fully in the year paid if for the purchase or improvement of a principal residence or, if not, then ratably over the term of the loan.

Portfolio Income: Income from such sources as dividends, interest, capital gains, and royalties. See also Active Income and Passive Income.

Posting: Process whereby transactions are transferred from a journal to a general ledger or subsidiary ledger.

Preemptive Rights: Rights delineated in the articles of incorporation granting shareholders the first opportunity to buy a new issue of stock in proportion to their current equity. The shareholder has the right to buy the new issue of stock, but is not required to make the purchase. If the shareholder elects not to exercise this right, the shares can be sold on the open market.

Preferred Stock: Stock that generally provides the shareholder with preferential payment of dividends but does not carry voting rights.

Premium: An amount paid for insurance.

Prepaid Asset: created by payment for economic benefits that do not expire until a later time; as the benefit expires the asset becomes an expense (for example, prepaid rent, prepaid insurance).

Prepaid Expenses: Cash-basis as well as accrual-basis taxpayers usually are required to capitalize prepayments for rent, insurance, etc. that cover more than one year. Deductions are taken for the period during which the benefits are received.

Prepaid Interest: Interest paid in advance is deductible as an interest expense only as it accrues. The one exception to this rule involves the interest element when a cash-basis taxpayer pays points to obtain financing for the purchase or improvement of a principal residence if the payment of points is an established business practice in the area in which the indebtedness is incurred and the amount involved is not excessive. Points paid to refinance a principal residence, however, must be deducted over the life of the loan.

Principal: The capital portion of a loan as opposed to interest.

Principal Place of Business: The main place where work is performed or business is transacted. Taxpayers who engage in more than one business can have more than one principal place of business. For purposes of the home-office deduction, a principal place of business may also be an area of a taxpayer's home that is used for the management and recordkeeping portions of the business, provided there is no other fixed location where the taxpayer performs such functions.

Principal Residence: Regular, permanent abode.

Prizes and Awards: The fair market value of a prize or award generally is includable in gross income. An exception applies when a qualified recipient of an award for charitable and like achievements designates that the prize is to be transferred by the payer to a governmental unit or to certain charitable, educational, or religious organizations. Another exception is made for certain employee achievement awards such as the traditional gold watch presented upon retirement.

Production Taxes: Taxes levied by state governments on the value or quantity of production or extraction of natural resources.

Professional Corporation: A Corporation that is organized for the purpose of engaging in a learned profession such as law, medicine or architecture. Professional Corporations must file articles of incorporation with the state which meet the state's requirements for professional corporations.

Profit: The excess of total revenue over total expenses for a period of time.

Progressive Tax: This type of tax takes a larger percentage of income from higher income groups than from low-income groups.

Proportional Tax: Proportional taxes take the same percentage of income from everyone regardless of how much (or little) a person earns. This type of tax is not currently in use, but some feel it's the way to go.

Proprietor: The sole owner of a trade or business.

Proprietorship: A business controlled and operated by one person.

Proxy: If a shareholder can not attend a meeting, the shareholder is allowed to vote by proxy. A proxy grants another individual the power to vote on their behalf.

Public Retirement System: A retirement system established by the United States, a state, territory, or possession of the United States, or their political subdivisions.

Puts and Calls: These are option contracts. A put gives its holder the option to sell a particular stock at a fixed price within a specified period of time. A call gives its holder the right to buy stock under the same conditions. Put and call contracts can last up to several months and usually specify a price close to the market value of the stock at the time they are drawn. Puts are purchased by investors who think the price of the stock will fall; calls are purchased by investors who think the price will rise.