Accounting & Tax Definitions -- I

Imputed (or Unstated) Interest: In the case of certain long-term sales of property, the IRS has the authority to convert some of the gain from the sale into interest income if the contract does not provide for a minimum rate of interest to be paid by the purchaser. Such converted interest is called imputed interest.

Income: Money or its equivalent, earned periodically by an individual, a corporation, etc., in return for goods or services provided. Opposite of loss.

Income Statement: A financial statement summarizing revenues, expenses, gains and losses for a stated period of time. The Income Statement is also known as Profit & Loss Statement, Statement of Earnings, Statement of Income or Statement of Operations.

Income Tax: These are taxes on income, both earned income (salaries, wages, tips, commissions) and unearned income (interest from savings accounts, dividends if you hold stock). Individuals and businesses are subject to income taxes.

Incorporated (Inc.): See Corporation

Incorporator: The person or entity that prepares and files the articles of incorporation. Total Tax Solutions acts as an Incorporator for many new companies.

Indemnify: To reimburse or compensate. Directors and officers of corporations are often reimbursed or indemnified for all the expenses they may have incurred during the incorporation process.

Independent Contractor: A taxpayer who contracts to do work according to his own methods and who is not subject to control except as to the results of such work. An employee, by contrast, is subject to the control of the employer as to the methods to be used to obtain the desired results.

Indirect Tax: You might not think you're paying this tax, but you probably are. It's the type of tax that can be shifted to others: hence the name. For example: A company might have to pay a specific tax to the government, let's say a fuel tax. The company pays the tax but can increase the cost of their products so consumers are actually paying the tax indirectly by paying more for the company's products.

Information: These are returns, such as Form W-2 and the various 1099 forms, which report to the IRS income and property transactions. The payer, broker, or other designated person is required to file these returns and is subject to penalties for noncompliance.

Informal Tax Legislation Process: There are informal tax legislation meetings where individuals and interest groups get together to discuss tax issues.

Inheritance: As distinguished from a bequest or devise, an inheritance is property acquired through laws of descent and distribution from a person who dies without leaving a will. Property so acquired usually takes as its basis, for gain or loss on later disposition or for depreciation, the fair market value at the date of the decedent's death. An inheritance of property is not a taxable event, but the income from an inheritance is taxable.

Insolvency: When liabilities exceed assets. Also, the inability to pay debts when due. See Bankruptcy.

Installment: A part of a sum of money or a debt to be paid at regular intervals, usually made up of principal and interest combined.

Insurance Dividends: Amounts paid to policy holders are not dividends on capital stock, but are a rebate of a portion of the premiums paid for the insurance. Such dividends reduce the cost of the insurance and are not taxable unless in excess of the total premiums paid. Interest paid when the dividends are left with the insurance company is reported to the taxpayer as interest and is taxable.

Intangible Asset: An asset without physical substance that has value due to rights resulting from its ownership and possession (for example, goodwill, patents, trademarks).

Intangible Personal Property: Property, other than real property, with no intrinsic value; its value lies in the rights conveyed. Examples include cash, insurance, stock, goodwill, and patents.

Interest: "Interests" represent a member's ownership of an LLC just as a partner has an interest in a partnership and shareholders own stock in a corporation.

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The cost of using money over time usually expressed as an annual percentage.

Interest Income: An amount received for the use of money that is to be repaid in full at a specified time or on demand.

Inventory: A list of articles of property. For income tax purposes, inventory refers only to a list of articles comprising stock in trade--articles held for sale to customers in the regular course of a trade or business. The cost of goods sold during the year is determined by adding to the inventory at the beginning of the year the purchases during the year, and subtracting from this sum the inventory at the close of the year.

Investment Property: Property owned primarily for its potential increased value. Examples include land, stock, works of art, and collectibles.

Investment Tax Credit: Prior to 1986, a credit was allowed for the purchase of certain depreciable personal property used in business.

Involuntary Conversion: The receipt of money or other property as reimbursement for the loss or destruction of property through theft, casualty, or condemnation. Any gain realized on an involuntary conversion can, at the taxpayer's election, be considered nonrecognizable for federal income tax purposes if the owner reinvests the proceeds within a prescribed period of time in similar property.

Individual Retirement Accounts (IRAs): A tax-deferred product offered by banks, mutual funds and other companies. Under current law, a married couple can put $6,000 ($3,000 each) into their own IRA each year in a wide range of savings accounts and investments. Earnings are tax-deferred until you begin withdrawing the money (which you can start doing without penalty after age 59 1/2). Under current tax law, some people (depending on their income, marital status or other factors) can deduct all or part of their IRA contributions, which reduces their taxes.

Internal Revenue Service (IRS): The division of the U.S. Treasury Department responsible for collecting taxes.

Itemized Deductions: Certain personal expenditures allowed by the tax Code as deductions from adjusted gross income. Examples are certain medical expenses, qualified interest on home mortgages, and charitable contributions. Itemized deductions are reported on Schedule A, Form 1040. A taxpayer who itemizes deductions may not claim the standard deduction.