Accounting & Tax Definitions -- R

Ratio: Relative size, expressed as the number of times one quantity is contained in another (for example, Debt to Equity Ratio: Total Liabilities ÷ Total Equity - ABC Company has total assets of $3,000,000, total liabilities of $2,000,000 and equity of $1,000,000. The Debt/Equity ratio is 2:1)

Railroad Retirement Tax Act: The law that provides for railroad retirement benefits.

Real Property: Also known as real estate, includes land, buildings, and their structural components.

Realized Gain or Loss: The difference between the amount received upon the sale or other disposition of property and the adjusted basis of the property.

Recapture: The inclusion of a previously deducted or excluded amount in gross income or tax liability. Recapture may be applicable to accelerated depreciation, cost recovery, amortization, and various credits.

Recapture of Depreciation or Cost Recovery: Each year that a depreciable business asset is owned, depreciation is claimed that theoretically corresponds with the using up of the property through normal wear, obsolescence, etc. Thus, the property should be worth approximately its adjusted basis. If the property is sold for more than its adjusted basis, section 1245 of the tax Code requires that the gain on personal property and certain nonresidential real property (to the extent of depreciation claimed) be recaptured; that is, included as ordinary income on the tax return. The purpose of this recapture is to prevent capital gain treatment of gain resulting from claiming depreciation. The recapture of depreciation or cost recovery rules don't apply when the property is disposed of at a loss.

Recharacterization: Returning a converted Roth IRA back to its original classification as a traditional IRA within the specified time period allowed.

Receivable: An amount to be received at a future date.

Recognized Gain or Loss: The portion of realized gain or loss that is subject to income taxation.

Recovery: The amount of a deduction or creditable expense paid in a previous year that is later refunded to the taxpayer. The recovered amount must usually be included in income in the year it is received, to the extent of the previous tax benefit.

Recovery Period: A period of years during which the cost of business assets is written off under ACRS or MACRS.

Recovery Property: Tangible depreciable property that is not excluded from ACRS (Accelerated Cost Recovery System) or MACRS (Modified Accelerated Cost Recovery System). Generally, this property acquired for use in a trade or business or property held for the production of income.

Recovery of Cost: The amount that was paid for income received--usually a factor only in income from sales of items purchased for resale, income from sales of property, and income from pensions or annuities. The portion of income that represents recovery of cost is not taxable.

Refinancing: Rescheduling of payments due, usually resulting in smaller payments over a longer period of time.

Refund: When your employer deducts too much money from your paycheck, the government owes you that money back. When they pay it, it's called a refund.

Refundable Credit: A credit for which the IRS will send the taxpayer a refund for any amount in excess of the taxpayer's tax liability.

Registered Agent: The agent named in the articles of incorporation. The agent will receive service of process on the corporation and other important documents. The agent must be named in the articles of incorporation.

Registered Office: The office named in the articles of incorporation. The registered office must be where the registered agent is located, and need not be the principal office or place of business of the corporation.

Regressive Tax: This is the tax that takes a smaller percentage from those with high income than from those with lower income.

Regular Method (Automobile Expenses) : A deduction for business use of the taxpayer's vehicle based on actual cost of gas, oil, repairs, tires, washing, etc. plus a deduction for depreciation.

Regulated Investment Company (Mutual Fund) : A company or trust that uses its capital to invest in other companies. The two principal types are closed-end and open-end mutual funds. Shares in closed-end mutual funds, some of which are listed on stock exchanges, are readily transferable on the open market and are bought and sold like other shares. Open-end funds sell their own new shares to investors, stand ready to buy back their old shares, and are not listed.

Regulations: The IRS Commissioner publishes his interpretation of the tax Code in the form of regulations. They do not have the force and effect of law except in those cases in which the law on a particular subject calls for rules on that subject to be expounded through regulations.

Reinvested Dividends: Earnings that the shareholder has accepted as additional shares of stock rather than as cash. They are taxable in the year constructively received.

Rental Income: Income received by the taxpayer for allowing another person's use of the taxpayer's property. Rental income includes advance rental payments, late payments, and current payments. Payments received for lease cancellation and forfeited security deposits are rental income the year received or forfeited. Rental income is considered passive income for purposes of the passive loss rules, except for that of qualified real estate professionals.

Repairs: Current expenditures to restore business-use property to an original condition or maintain the property through minor alterations rather than to extend its useful life. The cost of repairs normally is deductible annually. Substantial repairs that increase the value or extend the life of the property are treated as capital improvements and must have their cost recovered over a number of years.

Repossession: Taking possession of property that was earlier sold on an installment contract because the buyer defaults on payment of the debt.

Resident Alien: A citizen of another country who lives in the United States and/or has resident status by law or visa, or passes the substantial presence test.

Resolution: A resolution is a formal decision of the corporation that has been adopted by either the shareholders or the board of directors.

Retained Earnings: Cumulative net incomes of a corporation less losses and dividend distributions to shareholders (profits not distributed).

Returns of Capital (Nontaxable Distributions) : A return of a shareholder's investment generally made because an excess amount of capital has been accumulated. Returns of capital may be received in cash or reinvested to acquire additional shares at the shareholder's request. Amounts received that are not in excess of the basis of the stock on which they are paid are not taxable. The basis of the stock on which returns of capital are paid must be reduced. Amounts received in excess of the basis of the stock on which returns of capital are paid are reported on Schedule D, in Part I if stock has been owned short term, or in Part II if stock has been owned long term.

Revenue: Gross proceeds from sale of goods or services. Also, interest and dividends earned on investments. Revenue is a source of income.

Review Engagement: The un-audited review of financial statements of a business or organization by an independent accountant for the purpose of determining the plausibility of the information reported on. A review includes making inquiries concerning financial, operating and contractual information, applying analytical procedures and having discussions with appropriate officials of the enterprise.

Review Engagement Report: The accountant's report that prefaces un-audited financial statements and provides negative assurance that the financial information conforms to generally accepted accounting principles.

Right: The opportunity a corporation gives a shareholder to buy additional shares at a special price for a limited time. Shareholders who don't use their rights can sell them to other investors.

Risk: Possibility that the actual return on an investment will be less than its expected return.

Rollover: The transfer of an employer plan distribution or an existing IRA to another IRA of the same type without taxable consequences. This action must take place within 60 days of receiving the distribution.

Roth IRA: Contributions to Roth IRAs, which were introduced in 1998, are not deductible. Earnings grow tax free and qualified withdrawals are also tax free.

Royalty: A payment received for the right to exploit a taxpayer's ownership of natural resources or a taxpayer's literary, musical, or artistic creation.

Royalty Interest: An interest in the oil and gas in place that entitles the holder to a specified fraction, in kind or in value, of the total production from the property, free of any expense of development and operation.