Industry Related Definitions
Back to the Index
I
Identifying Numbers
All
taxpayers and dependents must have identifying numbers. Individuals,
with rare exceptions, use their social security numbers. Businesses,
estates, trusts, partnerships, and payers of dividends and interest,
use employer identification numbers. Certain resident and nonresident
aliens use an individual taxpayer identification number. Certain
children in the process of being adopted may receive an adoption tax
identification number.
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.
Incentive Stock Option
A
statutory stock option that allows an employee to purchase stock of
the employer below current market price. No income tax consequences
result from the grant or exercise of such an option and, if holding
period requirements are met, gain on the eventual sale of the stock is
long-term capital gain.
Income
The word "income," in its broad sense, is the gain derived
from capital, labor, or a combination of the two. It is
distinguishable from the capital itself. Ordinarily, for income tax
purposes, the word "income" is not used alone. Rather it is
used within such descriptive terms as gross income, taxable income,
and adjusted gross income, all of which are defined elsewhere in this
glossary.
Income Averaging
A method
by which farmers may sometimes reduce tax liability by computing their
income tax as if their current farm income had been spread evenly over
the preceding three years.
Income
Statement
An
income statement can be as informal, or formal as required, and is
created by listing the total incomes and total expenses incurred
during a specific time period, or "fiscal period". You
can click here to view a sample Income
Statement.
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.
Individual Retirement Arrangement (IRA)
There are
three types of IRAs: traditional IRAs, Roth IRAs, and education IRAs.
Information Returns
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.
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
A
financial condition in which a taxpayer's total liabilities (debts
owed) exceed the total fair market value of all his or her assets
(cash and other property). A taxpayer is insolvent to the extent his
or her liabilities exceed his or her assets.
Installment Method
A method
of accounting enabling a taxpayer to spread the recognition of gain on
the sale of property over the payment period. Under this procedure,
the seller computes the gross profit percent from the sale (that is,
the gain divided by the contract price) and applies it to each payment
received to arrive at the amount of the gain to be recognized.
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 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 Received
An amount
received for the use of money that is to be repaid in full at a
specified time or on demand.
Internal Revenue Service (IRS)
The
division of the U.S. Treasury Department responsible for collecting
taxes.
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 Interest
Interest
paid on loans acquired to purchase or hold investment property.
Investment interest is deductible as an itemized deduction to the
extent of net investment income.
Investment Property
Property
owned primarily for its potential increased value. Examples include
land, stock, works of art, and collectibles.
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 non-recognizable for federal income tax
purposes if the owner reinvests the proceeds within a prescribed
period of time in similar property.
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.
Go
back to the Definition Index page
Also, check out our
certification explanation page here!
Would you like us to
add a word or phrase? Email us at
glossary@bookkeeperlist.com
