What is Gross Income: Internal Revenue Code Definition
Glenn Tyndall, CPA
The Internal Revenue Code states that "gross income means all income from whatever source derived,” except for those items specifically excluded by the Internal Revenue Code Sec. Gross income is the starting point for determining federal and state income tax of individuals, corporations, and estates and trusts
What is Income?
15 most common types of “gross income” are from (IRC Sec. 61):
- Compensation for services
- Gross income from businesses
- Gains from dealing in property
- Alimony and separate contracts
- Income from life insurance and endowment contracts
- Income from discharge of debt
- Partner’s share of partnership income
- Income “in respect of a decedent”
- Income from interest in estate or trust
Although the definition of income is comprehensive so that all income items seem to fall into the definition, there is a detailed list of income and exclusions included in the Internal Revenue Code.
Year of inclusion
A taxpayer must include income as part of taxable income in the year recognized under the taxpayer's method of accounting.
- Cash basis taxpayer’s generally recognize income when cash is received.
- Tax basis taxpayer’s generally recognize income when earned regardless of when cash is received.
What is not considered income?
In addition to items specifically excluded from income, there are items that are not considered income.
The following are examples of items that are not considered income:
- Return of Capital – A return of capital, such as the return of principal invested in property or a loan, is not taxable.
- Damages – Damages that compensate an injured person for personal physical injuries are excluded from the gross income. Damages received for nonphysical injuries, such as employment discrimination or injury to reputation, are generally taxable.
- Unrealized Appreciation – Appreciation in the value of assets or property is not income; the gain in appreciated assets is realized and include in taxable income when the assets are sold.