Glossary of Tax Terms
# A B C D E F G H I J K L M N O P Q R S T U V W X Y Z
Improvements
Imputed Interest
Incentive Stock Option
Inclusion Amount
Income in Respect of a Decedent
Income Tax
Income Tax Form
Income Tax Return
Independent Contractor
Indirect Tax
Individual Retirement Arrangement (IRA)
Individual Taxpayer Identification Number (ITIN)
Innocent Spouse Rule
Installment Sale
Intangible Asset
Intangible Property
Inter Vivos Trust
Interest Expense
Interest Income
Internal Revenue Service (IRS)
Inventory
Investment in the Contract
Investment Interest Expense
Involuntary Conversion
Itemized Deductions
For land or buildings, improvements are the expenses of permanently upgrading your property rather than maintaining or repairing it. Instead of taking a deduction for the cost of improvements in the year paid, you add the cost of the improvements to the basis of the property. If the property you improved is a building that is being depreciated, you must depreciate the improvements over the same useful life as the building.
Interest the IRS assumes has been paid on a loan if the stated interest is below a minimum, called the applicable federal rate.
A stock option type that is not taxed when received or exercised. It is, however, taxed when the option stocks are sold.
If you lease a car for your business, the inclusion amount is a calculated amount you must add back to your income if the fair market value of your leased car is above a certain amount. The effect of adding back the inclusion amount is to limit your deduction for lease payments so that you can only deduct the amount you would have been able to deduct as depreciation, if you had owned the car.
The main source of revenue for the federal government and many states. The tax is based on your earned and unearned income. You are allowed certain deductions, allowances, and credits to reduce your tax, based on laws made by Congress.
A contractor who is self-employed and has the right to control the means and methods of performing work. If you are an independent contractor, the person or company you work for controls what you do, not how you do it.
A tax you do not pay directly, but which is passed on to you by an increase in your expenses. For instance, you do not pay a tariff directly. But when you buy imported merchandise, the price includes any tariff taxes paid.
Individual Retirement Arrangement (IRA)
Also known as Individual Retirement Account.
A type of savings account for retirement.
1. Deductible Traditional IRAs: Special tax rules allow you to reduce your taxable income by your qualified contributions to your IRA. You pay tax when you make withdrawals from your IRA.
2. Nondeductible Traditional IRAs: Although you cannot reduce your income by the amount of your current nondeductible contributions, you do not pay tax on the earnings of your account until you make withdrawals.
3. Roth IRAs: You cannot deduct current contributions to a Roth IRA, but when you make qualified withdrawals from your account, you will not be taxed on the withdrawals.
An exception to the general rule that both signers of a joint return are individually liable for the entire tax due plus penalties and interest. Generally, when you sign a joint return you are liable for the entire tax due, even if you later divorce your spouse, did not earn the income that generated the tax, and did not know about the omission of income or claiming of erroneous deductions. Under the innocent spouse rule, a spouse may claim to not be jointly liable if he or she did not know about the errors and did not benefit from them.
A sale in which you receive the proceeds over a period of time. You recognize any gain on an installment sale as you receive the selling price, not including interest. Proceeds are received in more than one tax year.
Nonphysical resources or rights to other assets. Patents, goodwill, permits, and computer programs are examples of intangible assets.
Property that does not have value itself, but represents something else. Stocks, bonds, and franchises are examples of intangible property. Business furniture and equipment are examples of tangible personal property.
A lifetime trust. This trust is created during the lifetime of the benefactor, as opposed to a testamentary trust that is created after the death of the benefactor.
The amount you pay for borrowing money. When you pay back a loan or other debt, the additional amount you pay back is interest expense. Interest is calculated as a percentage of the amount of your loan for each period of time. Points paid for a mortgage are a form of prepaid interest.
Earnings on investments such as savings accounts, certificates of deposit, and seller-financed mortgages. Banks or other organizations or individuals who pay interest usually report it on Form 1099-INT.
Items held for resale in your business. If you own a manufacturing business, your raw materials, work in progress, working supplies, and finished goods are all inventory. Inventory is not a capital asset and does not qualify for capital gains treatment.
For annuities, the amount you have invested. The portion of your annuity payment attributable to your investment in the contract is not included in your taxable income.
Deductible interest borrowed for investment purposes such as interest on a margin account to buy stocks. Your investment interest expense deduction is limited to your income from investments.
The forced disposition of your property due to a casualty, theft, condemnation, or threat of condemnation. In an involuntary conversion, you forfeit your asset and receive insurance proceeds or condemnation awards.
Expenses that can be deducted to reduce your income after your adjusted gross income (AGI) and before your income tax calculation. Itemized deductions include medical expenses, taxes, deductible interest, charitable contributions, casualty and theft losses, unreimbursed employee expenses, and miscellaneous deductions.
