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Carried Interest

A share of the profits from a successful investment fund that is paid to the fund's managers as compensation, typically above a certain return threshold for investors.

Pass-Through Entity

A business structure, like a partnership, where the business itself doesn't pay income tax; instead, profits and losses are 'passed through' directly to the owners' personal income tax returns.

Ordinary Income

Income from wages, salaries, and other forms of compensation or short-term gains, generally taxed at regular income tax rates, which are typically higher than capital gains rates.

Capital Gain

Profit from the sale of an asset (like stocks, bonds, or real estate) that has been held for investment. Long-term capital gains (assets held over a year) are typically taxed at lower rates than ordinary income.

Internal Revenue Code of 1986

The primary body of U.S. federal tax law, which outlines how taxes are calculated, collected, and enforced.

Partnership Interest

An ownership stake in a partnership, representing a share of its profits, losses, and capital.