Definitions are written for US sellers, creators, and self-employed people — practical context first, regulatory citation second. Each entry links to the official source on irs.gov or the platform’s documentation. If a term isn’t here, email hello@payoutmath.com and I’ll add it.
1
1099-K
IRS form payment processors send when you cross $20,000 + 200 transactions in a year.
A 1099-K is issued by third-party payment settlement organizations (PayPal, Stripe, Square, Etsy, eBay, Amazon, etc.) when a payee receives more than $20,000 in gross payments AND more than 200 transactions in a calendar year. The threshold reverted to this level for 2025+ via the One Big Beautiful Bill Act, after a brief period when the threshold was set lower. State thresholds may differ — many states set lower thresholds, so you may receive a 1099-K from a state even if you don't hit the federal trigger.
A
AGI (Adjusted Gross Income)
Gross income minus specific above-the-line deductions.
AGI is your total income (wages, SE income, dividends, etc.) minus specific deductions like half of SE tax, IRA contributions, student loan interest, HSA contributions, and self-employed health insurance. AGI is the basis for many other calculations: standard/itemized deduction limits, IRA contribution limits, premium tax credits, Roth IRA phase-outs.
C
CAC (Customer Acquisition Cost)
Total marketing + sales spend divided by new customers acquired.
Fully-loaded cost to acquire a customer, including ad spend, content, sales team salaries, marketing tools. Different from CPA (Cost Per Acquisition), which usually means just paid-ad spend per conversion. CAC is the broader, fully-loaded number. US benchmarks: e-commerce DTC $15-50, B2B SaaS $200-1,000, enterprise $1,000-10,000+.
CPA (Cost Per Acquisition)
Average cost to acquire one paying customer or qualified lead.
Performance-marketing metric: CPA = Total Ad Spend ÷ Conversions. The unit-economics test: CPA should be ≤30% of first-year customer revenue (rule of thumb), or paid back within 12-18 months including LTV. Different from CAC (Customer Acquisition Cost), which includes marketing AND sales costs (team salaries, tools, overhead). CPA is digital-marketing-narrow; CAC is fully-loaded.
CPC (Cost Per Click)
Average cost paid per click on a paid advertisement.
Dominant metric for paid search and lower-funnel performance campaigns: CPC = Ad Spend ÷ Clicks. US Google Search benchmarks: e-commerce $1-$5, B2B SaaS $5-$15, finance/insurance $10-$50, legal services $20-$100+. Meta Ads typical: $0.50-$2. LinkedIn: $5-$15. Quality Score (Google) and ad relevance (Meta) reduce effective paid CPC.
CPM (Cost Per Mille)
Cost per 1,000 ad impressions.
Awareness-stage metric: CPM = (Ad Spend ÷ Impressions) × 1,000. US benchmarks: Meta $7-$15, Google Display $2-$10, YouTube $7-$25 (huge variance by niche), programmatic $0.50-$5. CPM is most relevant when impressions matter (brand awareness). Performance campaigns use CPC or CPA instead.
CTR (Click-Through Rate)
Percentage of ad impressions that result in clicks.
Engagement metric: CTR = (Clicks ÷ Impressions) × 100. Benchmarks vary enormously by platform: Google Search 3-5% (10%+ for brand keywords), Display 0.5-1%, Meta feed 1-2%, email 2-3%. Used as a Quality Score input on Google Ads — higher CTR typically earns lower CPC and better ad position.
E
EIN (Employer Identification Number)
IRS-issued business tax ID number.
EIN is a 9-digit number assigned by the IRS to identify a business for tax purposes. Required for: corporations, LLCs with employees, businesses with retirement plans. Optional for sole proprietors (you can use SSN instead). Free to get via irs.gov in ~15 minutes. Unlike SSN, EIN can be shared with vendors/clients on W-9 forms.
F
FICA
Federal Insurance Contributions Act — Social Security + Medicare payroll tax.
FICA is 15.3% combined: 12.4% Social Security (capped at the wage base, $176,100 for 2025 / $184,500 for 2026) + 2.9% Medicare (uncapped). Employees pay 7.65% via paycheck withholding; employers match. Self-employed pay the full 15.3% as Self-Employment Tax (Schedule SE), but get to deduct half from AGI. Above $200k single / $250k MFJ, an additional 0.9% Medicare tax kicks in.
H
Hobby Loss Rule
IRS rule limiting deductions for activities not engaged in for profit.
IRC Section 183: if an activity isn't engaged in for profit, expenses can't exceed income (no business loss deductions). IRS presumes activity is for-profit if it had profit in 3 of last 5 years (2 of 7 for horse-related). 9-factor test if outside the safe harbor. Important for: side hustles that consistently lose money, hobby sellers (vintage, crafts, etc.). If classified as hobby: report income but can't deduct losses against other income.
HSA (Health Savings Account)
Triple-tax-advantaged account paired with high-deductible health plans.
HSA 2025 contribution limits: $4,300 self-only, $8,550 family, +$1,000 catch-up if 55+. Contributions tax-deductible, growth tax-free, withdrawals for qualified medical expenses tax-free — the only triple-tax-advantaged account. After 65, can withdraw for any purpose (taxed as ordinary income, like traditional IRA). Requires HDHP coverage to contribute.
I
ITIN (Individual Taxpayer Identification Number)
IRS tax ID for non-US persons who need to file US taxes.
ITIN is for individuals who need to file US tax returns but don't qualify for an SSN — typically non-resident foreigners with US income, dependents of US filers without SSN, certain immigration statuses. Issued by IRS via Form W-7. Doesn't grant work authorization. Must be renewed periodically.
L
LTV (Customer Lifetime Value)
Gross profit a customer generates over their full relationship with you.
LTV = Average Order Value × Purchase Frequency × Customer Lifespan × Gross Margin. The other half of unit economics alongside CAC. Use gross profit (not revenue) — LTV in revenue terms misleads. LTV:CAC ratio is the key health metric: 3:1 minimum, 5:1 healthy.
M
MAGI (Modified Adjusted Gross Income)
AGI with certain deductions added back, used for various tax-credit eligibility tests.
MAGI = AGI + tax-exempt interest + certain foreign income + student loan interest + IRA deductions + other items. Different MAGI definitions for different purposes (Roth IRA limits, ACA premium tax credits, Medicare IRMAA surcharges). Always check the specific MAGI definition for the credit/limit you're calculating.
Marketplace Facilitator Laws
State laws making platforms (Etsy, eBay, Amazon) collect and remit sales tax.
Marketplace Facilitator Laws were adopted by all US states with sales tax (post-Wayfair, 2018-2021). Make the marketplace, not the seller, responsible for collecting and remitting sales tax on platform sales. Reason: easier than tracking thousands of small sellers. Effect: most US sellers no longer need to file sales tax for Etsy/eBay/Amazon sales — the platform handles it. Direct sales (Shopify with no marketplace) still require seller-level compliance.
Q
QBI Deduction (Section 199A)
Up to 20% deduction on qualified business income for pass-through entities.
QBI (Section 199A) lets owners of pass-through entities — sole proprietors, partnerships, S-corps, LLCs — deduct up to 20% of qualified business income from federal taxable income. Phase-out limits apply: 2025 single phase-out $241,950, MFJ $483,900. Specified Service Trades (medicine, law, consulting, performing arts) face additional phase-out. Significant for many self-employed.
R
ROAS (Return On Ad Spend)
Revenue earned per dollar of advertising spend.
A performance-marketing efficiency metric: ROAS = Revenue ÷ Ad Spend. $4 ROAS means $4 of revenue for every $1 spent. Healthy benchmark depends on margin: at 50% gross margin, breakeven ROAS is 2.0; above 4.0 is profitable. Different from ROI: ROAS measures revenue, ROI measures profit. US e-commerce typical ROAS targets: 3.0-5.0 prospecting, 8.0-12.0 retargeting.
Roth IRA
Retirement account funded with post-tax dollars, withdrawals tax-free in retirement.
Roth IRA 2025 contribution limit: $7,000 ($8,000 if 50+). Phase-out starts at $150k single / $236k MFJ AGI. Contributions are NOT tax-deductible (unlike traditional IRA). Earnings grow tax-free. Qualified withdrawals (after 59½ AND account 5+ years) entirely tax-free — including all gains. Best for: people expecting higher tax rates in retirement than now, OR younger investors with decades of compounding ahead.
S
S Corporation
Pass-through entity that can reduce SE tax via salary/distribution split.
S-corps split owner income into "reasonable salary" (subject to FICA) and distributions (NOT subject to SE tax). For example, a business making $100k could pay owner $60k salary + $40k distribution — saving 15.3% on the $40k. Generally only worth it above $50-80k of net SE income. Requires payroll setup, separate corporate filings (Form 1120-S), reasonable salary documentation. Talk to a CPA before electing.
Sales Tax Nexus
The connection that triggers sales tax collection obligations in a state.
Nexus = the legal connection that makes you owe sales tax in a state. Two types: physical (office, employee, warehouse, inventory in state) and economic (post-2018 Wayfair). Economic nexus thresholds vary: California $500k, Texas $500k, NY $500k+100 transactions, smaller states $100k. If you sell direct (not through Etsy/eBay/Amazon, which handle this for you), you must register and remit sales tax in any state where you have nexus.
Schedule C
IRS form sole proprietors use to report business income and expenses.
Schedule C (Form 1040, Profit or Loss From Business) is filed by sole proprietors, single-member LLCs (taxed as sole props), and freelancers to report net profit/loss from self-employment. The bottom line flows to Form 1040 as taxable income. If net profit is $400+, you also file Schedule SE for Self-Employment Tax. Common deductible expenses: home office, mileage, supplies, software, advertising, professional fees, contractor payments.
Self-Employment Tax (SE Tax)
15.3% on 92.35% of self-employment net profit (FICA equivalent for the self-employed).
Reported on Schedule SE. Calculated on 92.35% of net profit from Schedule C. Rate: 15.3% (12.4% Social Security on first $176,100 of 2025 SE earnings, 2.9% Medicare uncapped). Half is deductible from AGI (the "employer half" deduction). If net SE earnings are below $400, you don't owe SE tax. Additional 0.9% Medicare tax above $200k single / $250k MFJ.
SEP-IRA
Simplified Employee Pension IRA — high-contribution retirement account for self-employed.
SEP-IRA contribution limit 2025: lesser of 25% of net SE earnings or $70,000. Much higher than traditional IRA ($7,000 limit). Easy setup, no annual filings required. Tax-deductible contributions reduce current-year AGI. Earnings grow tax-deferred. Withdrawal taxed as ordinary income. Best for: high-earning self-employed without Solo 401k. Solo 401k can shelter slightly more for some scenarios.
Sole Proprietor
Default tax classification for a single-owner unincorporated business.
Sole proprietorship is the default — no formation paperwork required. File Schedule C with your personal 1040. Your SSN is the business tax ID (or get an EIN). Pros: simplest, lowest cost, no separate filing. Cons: no liability protection (personal assets at risk), no S-corp tax savings on SE tax. Single-member LLCs are taxed as sole proprietors by default unless they elect S-corp status.
Solo 401(k)
Retirement account for self-employed with no employees other than spouse.
Solo 401k 2025 contribution limit: up to $70,000 ($77,500 if 50+). Two parts: employee contribution ($23,500 limit, or $31,000 if 50+) and employer contribution (25% of compensation). Often higher total than SEP-IRA at moderate income levels. More paperwork than SEP. Allows Roth contributions. Loans against balance allowed (unlike SEP). Best for: self-employed maximizing retirement savings.
Standard Deduction
Flat deduction reducing taxable income — $15,750 single / $31,500 MFJ in 2025.
2025 amounts (post-OBBB): $15,750 single, $31,500 married filing jointly, $23,625 head of household. 2026: $16,100 / $32,200 / $24,150. Increases each year for inflation. Most taxpayers take the standard deduction rather than itemize. Self-employment expenses (Schedule C) are deducted separately from the standard deduction — you can take both.