Gross Income - What Is Income

What Is Income

Individuals, corporations, members of partnerships, estates, trusts, and their beneficiaries ("taxpayers") are subject to Income tax in the United States. The amount on which tax is computed, taxable income, equals gross income less allowable tax deductions.

The Internal Revenue Code states that "gross income means all income from whatever source derived," and gives specific examples. The examples are not all inclusive. The term "income" is not defined in the law or regulations. However, a very early Supreme Court case stated, "Income may be defined as the gain derived from capital, from labor, or from both combined, provided it is understood to include profit gained through a sale or conversion of capital assets." The Court also held that the amount of gross income on disposition of property is the proceeds less the capital value (cost basis) of the property.

Gross income is not limited to cash received. "It includes income realized in any form, whether money, property, or services."

Following are some of the things that are included in income:

• Wages, fees for services, tips, and similar income. It is well established that income from personal services must be included in the gross income of the person who performs the services. Mere assignment of the income does not shift the liability for the tax.
• Interest received, as well as imputed interest on below market and gift loans.
• Dividends, including capital gain distributions, from corporations.
• Gross profit from sale of inventory. The sales price, net of discounts, less cost of goods sold is included in income.
• Gains on disposition of other property. Gain is measured as the excess of proceeds over the taxpayer's adjusted basis in the property. Losses from property may be allowed as tax deductions.
• Rents and royalties from use of tangible or intangible property. The full amount of rent or royalty is included in income, and expenses incurred to produce this income may be allowed as tax deductions.
• Alimony and separate maintenance payments.
• Pensions, annuities, and income from life insurance or endowment contracts.
• Distributive share of partnership income or pro rata share of income of an S corporation.
• State and local income tax refunds, to the extent previously deducted. Note that these are generally excluded from gross income for state and local income tax purposes.
• Any other income from whatever source. Even income from crimes is taxable and must be reported, as failure to do so is a crime in itself.

Gifts and inheritances are not considered income to the recipient under U.S. law. However, gift or estate tax may be imposed on the donor or the estate of the decedent.