What is Gross Income?
In the United States, individuals, members of partnerships, corporations, estates and trusts must pay income tax on their gross income (which is the value before tax).
According to Title 26 of the United States Code along with Section 61 of the Internal Revenue code, gross income is the total income from whatever sources it may come from before any taxes applied to the income. The gross income is the starting point in figuring out just what income is applicable to be taxed under the federal income tax
Sources of gross income can include:
• Gross income from a business
• Compensation for fees, services, fringe benefits, commissions, and other similar items
• Gains when dealing with property
• Alimony and other separate maintenance payments
• Income resulting endowment contracts and life insurance
• Share of partnership gross income
• Income resulting from discharge of indebtedness
• Income from an interest in a trust or estate
• Income of a decedent
In general, all income from whatever source can be considered a part of gross income unless it is specifically excluded by law, such as inheritances or gifts, although there may be an estate or gift tax on the donor.
The United States Supreme Court has taken this interpretation of gross income this to mean that under Article 1 Section 8 Clause 1 of the U.S. Constitution, the federal government can use its full power to tax the gross income as directed by the powers given to it in the Constitution. This power also is from the 16th amendment which says Congress can create an income tax without states approval.
Some items that are excluded gross income and do not get taxed are:
• Social Security benefits, although this exemption is often not given to individuals who have a gross income over a certain amount
• Tax exempt interest such as state and municipal bonds which do tax under the federal income tax
• Life insurance proceeds
• Inheritance and gifts
• Scholarships, although certain types do get taxed, such as teaching scholarships
• Compensation for sickness or injury
• Meals and lodging given to an employee on an employer’s premises for the employer’s convenience
• Specific employee benefits such as group health insurance, certain fringe benefits
• Specific elective deferrals of an employee’s salary, such as for a 401k plan
• Contributions received by a corporation to a capital
• Profit of up to a quarter of a million dollars or half a million on a married joint tax return when selling a personal residence