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What is "gross income" and more importantly, why do we even care?
This is one of the most pivotal of income tax questions.
"Gross Income" is one of the most important income tax rules and it really is a starting point in income tax calculation and in understanding how much you owe Uncle Sam.
Now, let's confuse you by getting all taxy and legal. Don't worry, we'll ease the pain and translate these income tax rules, once we're done with the legal jargon.
Section 61 of the Internal Revenue Code defines "gross income" as:
All income, from whatever sources derived.
Can you see the problem with that definition? It's exceedingly broad and doesn't really define much. In fact, it essentially just defines "income" as "income." It's somewhat like saying "the definition of 'dog' is 'a doglike animal.'"
Perhaps a little elaboration is in order.
Luckily, the income tax rules do give the taxpayer some guidelines on what items are generally considered in "gross income." The diagram below illustrates which items the IRS considers as income. Of course, keep in mind that the Internal Revenue Code is a maze of riddles and exceptions. No diagram can fully and adequately explain the intricacies and delusions of the income tax rules. Nevertheless, this list can serve as a good starting point in understanding your income tax calculation and in deciding which income tax questions you might want to bring to the attention of your tax professional.
Stay tuned for more posts in the Be Tax Savvy! series...