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# Financial Glossary | Coyote Wealth
> 80+ key financial terms explained clearly — from AUM to 83(b) Elections.

---

## Financial Glossary

Clear definitions of the financial terms that matter most.

## 1

- 1099
    - A series of IRS forms reporting various types of non-employment income: 1099-NEC for freelance/contractor payments, 1099-INT for interest, 1099-DIV for dividends, 1099-B for investment sales. Recipients must report this income on their tax returns.

## 4

- 401(k)
    - An employer-sponsored defined contribution retirement plan allowing pre-tax (traditional) or after-tax (Roth) contributions up to $23,500 in 2025. Employer matches are the most valuable employer benefit — always contribute at least enough to capture the full match.

## 5

- 529 Plan
    - A tax-advantaged savings plan for education expenses. Contributions grow tax-free; qualified withdrawals for education are also tax-free. Many states offer a state income tax deduction for contributions. Under SECURE 2.0, unused funds can be rolled to a Roth IRA (subject to limits).

## 8

- 83(b) Election
    - An IRS election that allows a taxpayer who receives restricted stock to be taxed on the current (typically low) value rather than the future (potentially much higher) value. Must be filed within 30 days of receiving the shares. Can result in dramatically lower tax on stock appreciation.

## A

- Accredited Investor
    - An individual with income exceeding $200,000 ($300,000 joint) or net worth over $1M excluding their primary residence, qualifying them for private placements and alternative investments not registered with the SEC.

- Alternative Investments
    - Asset classes outside traditional stocks and bonds — including private equity, hedge funds, real estate, commodities, and digital assets. Often available only to accredited investors and typically less liquid.

- Asset Allocation
    - The strategic distribution of investments across asset classes (stocks, bonds, cash, alternatives) based on an investor's goals, time horizon, and risk tolerance. Asset allocation is widely considered the primary driver of long-term portfolio returns.

- Assets Under Management (AUM)
    - The total market value of investments a financial advisor or firm manages on behalf of clients. AUM is the most common basis for advisory fees — a 1% AUM fee on $1M equals $10,000 per year.

## B

- Backdoor Roth IRA
    - A two-step strategy for high earners to fund a Roth IRA despite exceeding direct contribution income limits: contribute to a non-deductible traditional IRA, then immediately convert it to a Roth IRA. The pro-rata rule applies if you hold other pre-tax IRA balances.

- Basis Points (bps)
    - One hundredth of a percentage point (0.01%). Used to express small changes in interest rates, fees, and investment returns. 100 basis points equals 1%. A fee reduction of 25 bps on a $1M portfolio saves $2,500 per year.

- Beneficiary
    - A person or entity designated to receive assets from a will, trust, retirement account, or life insurance policy upon the owner's death. Beneficiary designations override wills and should be reviewed after major life events.

- Blue Chip
    - Shares of large, well-established, financially stable companies with a long history of reliable performance and dividend payments — typically components of major market indices like the S&P 500 or Dow Jones Industrial Average.

- Bond
    - A debt security representing a loan made by an investor to a borrower (government or corporation). The borrower pays interest (coupon) for a fixed period and repays the principal at maturity. Bond prices move inversely to interest rates.

- Bookkeeping
    - The systematic recording of financial transactions — sales, expenses, payments, and receipts — in an organized accounting system. Bookkeeping is backward-looking and operational; it records what happened but does not interpret it strategically.

## C

- Capital Gains
    - The profit from selling an asset for more than its purchase price. Short-term capital gains (assets held under one year) are taxed as ordinary income. Long-term capital gains (assets held over one year) are taxed at preferential rates of 0%, 15%, or 20% depending on income.

- Carried Interest
    - A share of profits (typically 20%) that a private equity or hedge fund manager receives as compensation, treated as long-term capital gains rather than ordinary income. A subject of ongoing tax policy debate.

- Certified Financial Planner (CFP®)
    - A professional designation requiring 6,000 hours of experience, a comprehensive examination, ethics standards, and ongoing continuing education. CFP® practitioners commit to a fiduciary standard of care when providing financial planning services.

- Certified Public Accountant (CPA)
    - A state-licensed accounting professional who has passed the four-part Uniform CPA Exam and met education and experience requirements. CPAs can provide tax services, audit financial statements, and offer business advisory services.

- Certified Divorce Financial Analyst (CDFA)
    - A professional who specializes in the financial aspects of divorce — analyzing asset division, tax implications, spousal support projections, and the long-term financial impact of various settlement options.

- Certified Exit Planning Advisor (CEPA)
    - A credential for advisors who specialize in helping business owners plan and execute a business exit — whether through a sale, ESOP, management buyout, or transfer to heirs.

- Charitable Remainder Trust (CRT)
    - An irrevocable trust that provides income to the grantor for a specified period, after which the remaining assets pass to a designated charity. Donors receive a partial charitable deduction and may avoid immediate capital gains tax on contributed appreciated assets.

- Compound Interest
    - Interest calculated on both the initial principal and accumulated interest from prior periods. Einstein is often (apocryphally) credited with calling it the eighth wonder of the world — $10,000 at 7% annually becomes $76,000 in 30 years with compounding.

- Controller
    - A senior accounting executive who manages the accounting function, oversees financial reporting, ensures accuracy of the general ledger, and coordinates the month-end close process. A step below CFO in organizational hierarchy.

- Cost Basis
    - The original value of an asset for tax purposes, typically the purchase price plus commissions and fees. When you sell an asset, capital gains or losses are calculated relative to cost basis. Gifted assets use carryover basis; inherited assets receive a stepped-up basis.

- Cost Segregation
    - A tax strategy that accelerates depreciation on commercial real estate by reclassifying certain building components into 5, 7, or 15-year depreciation categories rather than the standard 27.5 or 39 years. Can generate large front-loaded tax deductions in the year of purchase.

- Custodian
    - A financial institution that holds and safeguards client securities and assets. Custodians (such as Schwab, Fidelity, or Pershing) are separate from advisors — meaning your assets are protected even if your advisory firm closes.

## D

- Defined Benefit Plan
    - A retirement plan (often called a pension) that promises a specific monthly benefit at retirement, typically based on years of service and salary history. The employer bears the investment risk. Common in government and large corporate employment.

- Defined Contribution Plan
    - A retirement plan (such as a 401(k) or 403(b)) where the employee and/or employer contribute a defined amount. The employee bears the investment risk and the final account balance determines retirement income.

- Diversification
    - Spreading investments across different asset classes, sectors, and geographies to reduce the impact of any single investment's poor performance on the overall portfolio. Often summarized as "don't put all your eggs in one basket."

- Dividend
    - A distribution of a portion of a company's earnings to shareholders. Qualified dividends are taxed at long-term capital gains rates; ordinary dividends are taxed as income. Dividends can be reinvested automatically through a DRIP.

- Donor-Advised Fund (DAF)
    - A charitable giving vehicle that provides an immediate tax deduction when funded, while allowing the donor to recommend grants to charities over time. Particularly powerful when funded with appreciated assets — you avoid capital gains tax and still deduct the full fair market value.

## E

- EBITDA
    - Earnings Before Interest, Taxes, Depreciation, and Amortization. A proxy for operating cash flow used widely in business valuation. When businesses are sold, the purchase price is often expressed as a multiple of EBITDA.

- Emergency Fund
    - A reserve of liquid cash held to cover unexpected expenses or income disruption, typically 3–6 months of living expenses. Should be held in a high-yield savings account or money market — not invested in the market.

- Enrolled Agent (EA)
    - A federally licensed tax practitioner who has passed a rigorous IRS examination or served in a technical IRS role for 5 years. EAs are authorized to represent taxpayers before the IRS and specialize exclusively in taxation.

- Entity Selection
    - The choice of legal business structure: sole proprietorship, partnership, LLC, S-Corp, C-Corp. Each has different tax, liability, and administrative implications. This is one of the earliest and most consequential decisions a business owner makes.

- ESG Investing
    - Investing that considers Environmental, Social, and Governance factors alongside traditional financial metrics. Also called sustainable, responsible, or impact investing. ESG funds vary significantly in how they define and apply these criteria.

- Estate Planning
    - The process of arranging for the management and transfer of assets during life and at death — including wills, trusts, powers of attorney, healthcare directives, beneficiary designations, and gift strategies. Reduces taxes and ensures assets pass to intended heirs.

- Exit Planning
    - The process of preparing a business for ownership transfer — whether through a sale, merger, ESOP, management buyout, or family transfer. Effective exit planning begins 3–5 years before the intended transaction date.

- Expense Ratio
    - The annual fee charged by a mutual fund or ETF as a percentage of assets, covering management and operating costs. Index ETFs often have expense ratios of 0.03%–0.10%; actively managed funds typically charge 0.5%–1.5%.

## F

- Family Office
    - A private organization that manages the wealth and financial affairs of one or more ultra-high-net-worth families. Single-family offices serve one family exclusively; multi-family offices serve multiple families with shared infrastructure and costs.

- Fee-Based Advisor
    - A financial advisor who charges client fees AND can also earn commissions from selling financial products. Creates potential conflicts of interest — the advisor may have an incentive to recommend products that pay higher commissions.

- Fee-Only Advisor
    - A financial advisor compensated exclusively by client fees — no commissions, referral fees, or third-party compensation. This eliminates the most common structural conflict of interest in financial advice.

- Fiduciary
    - A person or organization legally and ethically required to act in another party's best interest. In finance, RIAs are fiduciaries by law. The opposite is the suitability standard, which only requires recommendations to be "appropriate" for the client.

- Fractional CFO
    - An experienced Chief Financial Officer who works part-time across multiple companies, providing CFO-level financial strategy, modeling, and leadership at a fraction of the cost of a full-time hire. Typical engagements run $3,000–$10,000/month.

## G

- GAAP
    - Generally Accepted Accounting Principles. The standardized set of accounting rules, standards, and procedures used to prepare financial statements in the United States, established by the Financial Accounting Standards Board (FASB).

- Generation-Skipping Trust (GST)
    - An irrevocable trust designed to transfer assets to grandchildren or later generations, bypassing the children's estate to reduce or eliminate estate taxes at each generational transfer.

- GRAT (Grantor Retained Annuity Trust)
    - An estate planning tool where the grantor transfers assets to a trust, receives annuity payments for a fixed term, and passes any appreciation above the IRS hurdle rate to beneficiaries tax-free. Particularly effective in low-interest-rate environments.

## H

- Health Savings Account (HSA)
    - A tax-advantaged account for medical expenses with triple tax benefits: deductible contributions, tax-free growth, and tax-free qualified withdrawals. At 65, HSA funds can be withdrawn for any purpose (taxed as ordinary income, like a traditional IRA).

- High Net Worth (HNW)
    - Generally defined as having investable assets of $1M–$5M, excluding primary residence. Ultra-High Net Worth (UHNW) typically refers to those with $30M+ in investable assets. These thresholds vary by institution.

## I

- Index Fund
    - A fund that tracks a market index (such as the S&P 500) rather than attempting to outperform it. Index funds typically have very low expense ratios and have outperformed the majority of actively managed funds over long time horizons.

- IRA (Individual Retirement Account)
    - A tax-advantaged personal retirement savings account. Traditional IRA contributions may be deductible; withdrawals in retirement are taxed as income. Roth IRA contributions are after-tax; qualified withdrawals are tax-free.

- Irrevocable Trust
    - A trust that cannot be modified or revoked once established (with limited exceptions). Used for estate tax planning, asset protection from creditors, and Medicaid planning. The grantor gives up control of the assets transferred into it.

## L

- Liquidity
    - The ease and speed with which an asset can be converted to cash at or near its market value without significant price impact. Cash is perfectly liquid; real estate and private equity are illiquid.

- Liquidity Event
    - An event that converts non-liquid ownership — typically equity in a private company — into cash. Common examples: IPO, acquisition, secondary sale, or private equity recapitalization.

- LLC (Limited Liability Company)
    - A business structure that provides personal liability protection while allowing flexible tax treatment (pass-through by default). LLCs can elect to be taxed as a sole proprietorship, partnership, S-Corp, or C-Corp.

## M

- Marginal Tax Rate
    - The tax rate applied to the last dollar of taxable income. The U.S. uses a progressive system — different rates apply to different income ranges. In 2024, federal rates range from 10% to 37%. Most deductions reduce your effective marginal rate.

- Multi-Family Office (MFO)
    - A firm that provides family office services — investment management, tax, estate planning, and financial administration — to multiple wealthy client families, sharing operational costs across clients.

## N

- Net Operating Loss (NOL)
    - When business deductions exceed business income in a tax year. NOLs can be carried forward to offset future taxable income (up to 80% per year under current rules), reducing future tax liability.

- Net Worth
    - Total assets minus total liabilities. The most fundamental measure of personal financial health. Assets include investments, real estate, and retirement accounts; liabilities include mortgages, student loans, and credit card balances.

## O

- Opportunity Zone
    - Economically distressed census tracts designated by states under the Tax Cuts and Jobs Act of 2017 where investment may qualify for deferred and partially excluded capital gains tax treatment if held for 10+ years.

## P

- Pass-Through Entity
    - A business structure (S-Corp, LLC, partnership) where business income is not taxed at the entity level but instead "passes through" to the owners' personal tax returns. Avoids the double taxation applicable to C-corporations.

- Power of Attorney
    - A legal document authorizing one person (the agent) to act on behalf of another (the principal) in financial or legal matters. A durable power of attorney remains effective if the principal becomes incapacitated.

- Private Equity
    - Investment in companies that are not publicly traded, typically through funds that buy, improve, and sell businesses over a 5–10 year horizon. Generally available only to accredited investors or qualified purchasers.

- Pro Rata Rule
    - An IRS rule that determines the taxable portion of a Roth IRA conversion when the account holder has both pre-tax and after-tax traditional IRA balances. Prevents selective conversion of only after-tax funds without proportional tax consequence.

## Q

- QBI Deduction (Section 199A)
    - A 20% deduction for qualified business income from pass-through entities (S-Corps, partnerships, sole proprietorships), subject to income limitations and restrictions based on business type. One of the most significant deductions available to small business owners.

- QDRO (Qualified Domestic Relations Order)
    - A court order that divides a retirement account between divorcing spouses, allowing a transfer of assets to the non-employee spouse without triggering early withdrawal penalties or taxes at the time of transfer.

- Qualified Small Business Stock (QSBS)
    - Stock in a qualifying C-corporation (Section 1202) that may be eligible for up to 100% exclusion of capital gains at sale, up to $10M or 10x the investor's basis. Subject to holding period and other requirements.

## R

- Registered Investment Advisor (RIA)
    - A firm or individual registered with the SEC (if managing $100M+ in assets) or a state regulator to provide investment advisory services. RIAs are fiduciaries by law and must act in clients' best interests.

- Required Minimum Distribution (RMD)
    - The annual amount that must be withdrawn from traditional IRAs and most employer retirement plans starting at age 73 (under SECURE 2.0). RMDs are taxed as ordinary income and cannot be rolled back into the account.

- Revocable Living Trust
    - A trust created during the grantor's lifetime that can be modified or revoked at any time. Assets held in the trust avoid probate, pass directly to beneficiaries, and provide continuity of management if the grantor becomes incapacitated.

- Roth IRA
    - An individual retirement account funded with after-tax dollars. Qualified withdrawals in retirement are completely tax-free, including all growth. No RMDs during the owner's lifetime. Direct contributions are limited by income.

## S

- S-Corporation
    - A pass-through entity that can reduce self-employment taxes by dividing business income between a reasonable salary (subject to payroll taxes) and a distribution (not subject to self-employment tax). Requires careful compliance with IRS requirements.

- SEC (Securities and Exchange Commission)
    - The U.S. federal agency responsible for regulating securities markets, protecting investors, and overseeing registered investment advisors with over $100M in assets under management.

- SEP IRA (Simplified Employee Pension)
    - A retirement plan for self-employed individuals and small business owners allowing contributions up to 25% of net self-employment income (up to $69,000 in 2024). Simpler to administer than a Solo 401(k) but lacks Roth contribution options.

- SIMPLE IRA
    - A retirement plan for small businesses with 100 or fewer employees. Allows employee deferrals (up to $16,000 in 2024) with a required employer match or non-elective contribution. Easier to administer than a 401(k) but with lower contribution limits.

- Solo 401(k)
    - A 401(k) plan for self-employed individuals with no full-time employees (except a spouse). Allows both employee contributions ($23,500 in 2025) and employer contributions (up to 25% of compensation), totaling up to $70,000. Can include Roth option.

- Stock Option
    - The right to purchase a specified number of shares at a predetermined price (strike price) within a set time period. NSOs (non-qualified stock options) create ordinary income tax on exercise; ISOs (incentive stock options) may qualify for capital gains treatment.

- Suitability Standard
    - A regulatory requirement that a financial product recommendation be appropriate for a client based on their investment profile — but not necessarily the best option available. A lower standard than fiduciary. Applied to broker-dealers registered with FINRA.

## T

- Target Date Fund
    - A mutual fund that automatically adjusts its asset allocation from aggressive to conservative as it approaches a target retirement year. Widely used as default investments in 401(k) plans due to their simplicity.

- Tax-Loss Harvesting
    - Selling investments at a loss to offset realized capital gains elsewhere in a portfolio, reducing taxable income. The investor then purchases a similar (but not identical) security to maintain market exposure. Subject to the wash-sale rule.

- Trustee
    - The person or institution responsible for managing trust assets for the benefit of the beneficiaries according to the trust document. A trustee has a fiduciary duty to administer the trust prudently and in the beneficiaries' interest.

## U

- Unified Tax Credit
    - The combined federal gift and estate tax exemption ($13.61M per person in 2024) allowing transfer of this amount tax-free during life or at death. The exemption is scheduled to sunset to roughly $7M in 2026 absent Congressional action.

- UHNW (Ultra-High Net Worth)
    - Generally defined as having investable assets exceeding $30M. UHNW individuals typically work with family offices or private wealth divisions of major institutions for comprehensive, coordinated wealth management.

## V

- Valuation
    - The process of determining the economic value of a business, asset, or investment. Business valuations are based on multiple methods including EBITDA multiples, discounted cash flow analysis, and comparable transaction analysis.

- Vesting Schedule
    - The timeline over which an employee gains full ownership of employer-contributed benefits such as 401(k) matches, stock options, or RSUs. Cliff vesting provides full ownership after a waiting period; graded vesting provides partial ownership annually.

## W

- Wash Sale Rule
    - An IRS rule that disallows a tax loss if you repurchase a "substantially identical" security within 30 days before or after the sale. Designed to prevent artificial tax losses while maintaining economic exposure.

- Wealth Management
    - A holistic financial service that typically combines investment management, financial planning, tax strategy, estate planning, and other services for high-net-worth or ultra-high-net-worth clients.

- W-2
    - The IRS form issued by employers reporting an employee's annual wages and taxes withheld. Must be provided to employees by January 31 each year. W-2 income is subject to payroll taxes (Social Security and Medicare).

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