imputed interest: The IRS has the authority to impute or assign interest in a contract when none is stated, or the stated interest is too low. This results in reducing the amount of favorable long-term gain and increasing the interest income that is taxed at the higher (ordinary) tax rate.

incentive stock options: Stock options granted to employees allowing them to buy stock in their employer's company for a specified price and a specified period of time. Such options are generally subject to income tax when the stock is disposed of.

income shifting: A term to describe moving income from one year to another. Also the shifting of income from one family member to another to take advantage of the other person's lower tax bracket.

income statement (statement of earnings): The financial statement that summarizes the revenues generated and the expenses incurred by an entity during a period of time.

income taxes payable: The amount expected to be paid to the federal and state governments based on the income before taxes reported on t he income statement.

incorporate: See corporation.

incremental cost: The cost of one more item after the cost of an initial quantity has been established. For example, assume that 10,000 catalogs will cost you $20,000 dollars to produce and print ($2.00 each). If you increase the quantity to 12,000 and the price increases to $22,000, the additional 2,000 are costing you only $1.00 each (the incremental cost).

independent accountant: An accountant that has no financial interest and holds no office or position in the company about which he or she is making a financial report.

independent contractor: A contractor sets their own work routines and usually use their own tools and equipment, which is in contrast to an employee an employee is one who is usually under the direction and control of the employer. This is an important distinction since employees are subject to payroll and income tax withholding, and independent contractors are responsible for their own taxes.

independent checks: Procedures for continual internal verification of other controls.

individual retirement account (IRA): IRAs provide special tax benefits for those who set up and contribute to such accounts. The type of IRA that is best for you (traditional or Roth) will depend on several factors, such as your earnings level, how long you have until retirement, and your estimated tax brackets before and after retirement.

indirect cost: Items of overhead that do not vary directly with the volume of activity in a business. Examples of indirect costs would be insurance, utilities, and building maintenance.

indirect method: A method of reporting net cash flow from operations that involves converting accrual-basis net income to a cash basis.

inflation: An increase in the general price level of goods and services; alternatively, a decrease in the purchasing power of the dollar.

injured spouse relief: Injured spouse relief is different from innocent spouse relief. When a joint return is filed and the refund is used to pay one spouse's past-due child and/or spousal support, a past-due federal debt, or past-due state income tax, the other spouse may be considered an injured spouse. The injured spouse can claim his or her share of the refund using Form 8379, Injured Spouse Claim and Allocation.

innocent spouse relief: A provision in the income tax law which protects one spouse from the tax liability of the other when there has been a gross understatement of the tax and the innocent spouse had no reason to know of the understatement by his or her spouse.

insider trading: Insider trading refers to the buying and selling of stock by certain shareholders of a corporation. If a trade is based on material information about the company that is known only to shareholders and/or employees of the company and not the general public, the trades are forbidden by the Securities and Exchange Commission (SEC). Illegal insider trading also occurs when corporate insiders provide "tips" to family members, friends, or others, and those parties buy or sell the company's stock based on that information.

insolvent: All short-term debt included on the balance sheet, including that portion of long-term debt which will be payable within one accounting period, usually one year. When current liabilities are greater than current assets, this condition is termed "insolvent".

installment sale: A sale with a series of payments over a period of months or years. In other words, the seller carries the paper or finances the sale. The income tax on an installment sale generally can be paid as the money is received.

insurable interest: A person's interest in another person's property is such that the destruction of the property would cause a financial loss to him or her. You are not allowed to insure people or property unless you have an insurable interest.

insurance twister: An insurance twister is a dishonest salesperson who will use improper number comparisons and a deceptive sales presentation to entice you into canceling an insurance policy in favor of buying one that he or she is offering. You should get a second opinion if a salesperson is suggesting that you cancel a current insurance policy. Twisters like to put as little as possible in writing and they usually try to create a sense of urgency for changing the new policy.

intangible assets: Long-lived assets without physical substance that are used in business, such as licenses, patents, franchises, and goodwill.

intercompany transaction: A transaction between a parent company and a subsidiary company.

interest: The payment (cost) for the use of money.

interest rate: The cost of using money, expressed as an annual percentage.

internal auditors: An independent group of experts in controls, accounting, and operations, who monitor operating results and financial records, evaluate internal controls, assist with increasing the efficiency and effectiveness of operations, and detect fraud.

internal control structure: Safeguards in the form of policies and procedures established to provide management with reasonable assurance that the objectives of an entity will be achieved.

Internal Revenue Service (IRS): The taxing authority of the United States.

inter vivos trust: A trust that becomes effective during the lifetime of the one who establishes it (the settlor) as opposed to a testamentary trust that takes effect at the death of the settlor.

intestacy laws: The state law that determines what will happen to your assets if you die without a will.

intestate: One who dies without a valid will is said to have died intestate.

inventory: Goods held for resale.

inventory cutoff: The determination of which items should be included in the year-end inventory balance.

inventory turnover ratio: A measure of the efficiency with which inventory is managed; computed by dividing cost of goods sold by average inventory for a period.

investing activities: Transactions and events that involve the purchase and sale of securities (excluding cash equivalents), property, plant, equipment, and other assets not generally held for resale, and the making and collecting of loans.

involuntary conversion: The destruction or loss of property through theft, casualty, or condemnation. For federal income tax purposes, any gain on such a conversion is not taxable if qualified replacement property is purchased within certain time limits.

IRA: IRA stands for individual retirement account. IRAs provide special tax benefits for those who set up and contribute to such accounts. The type of IRA that is best for you (traditional or Roth) will depend on several factors, such as your earnings level, how long you have until retirement, and your estimated tax brackets before and after retirement.

issued stock: Authorized stock originally issued to stockholders; it may or may not still be outstanding.

itemized deduction: Amounts paid by an individual taxpayer for personal and quasi-business expenses that can be deducted in computing taxable income, such as medical expenses, property and income taxes, mortgage and investment interest, charitable contributions, moving expenses, casualty and theft losses, and certain miscellaneous expenses.

IPO (initial public offering): The first sale of stock in a corporation to the general public. This is an area where the unsophisticated investor can pay a dear price to learn about investing in new companies. Have a long talk with your investment advisor before jumping into an IPO.

IRA: See individual retirement account and Roth IRA.

irrevocable trust: A trust that cannot be terminated (revoked) by the one who originates it.