Question

Explain gross income and exclusions in your own words.

Answer 1

With regards to the income tax law in United State the gross income is considered as thestarting point for determining Federal and state income tax of the various taxpayers namely the individuals, corporations, estates and trusts, regardless of whether they are resident or are non-resident.      .. Certain typesof income are specifically excluded from gross income for tax purposes. The term Gross income is not limited to the cash received but It includes the income realized in any form, whether in monetary form or in the form of property or in the form of services. That is the term gross income includes both receipts in cash and in kind also.

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

• Wages, fees paid for the services rendered, remuneration in the form of tips etc. It is clearly stated that the income from personal services that are rendered must be included in the gross income of the person who performs the services irrespective of whether the income is assigned to another person or not.
• Interest received , Dividends, including the capital gain distributions, from corporations.^[11]
• Gross profit earned from sale of inventory.
• State and local income tax received in the form of refunds, to the extent that they were previously deducted etc .

Gifts and inheritances are not considered income to the recipient under U.S. law

Gross Income is recognized as follows a taxpayer using the cash method of accounting recognizes the income when received. A taxpayer using the accrual method of accounting recognizes income when earned. Income is generally considered as earned.

The various Exclusions from gross income are as follows:

1. Interest that is Tax exempt For Federal income tax, interest on state and municipal bonds is excluded from gross income.^[28] Some states provide an exemption from state income tax for certain bond interest.
2. Some Social Security benefits. The amount of social security benefits that are exempt has varied by year. The exemption is phased out for individuals with gross income above certain prescribed amounts.^[29]
3. Gifts and inheritances. Though a "gift" from an employer to an employee is considered compensation, and is generally included in gross income.
4. Life insurance proceeds that have arisen to the insured person as a result of the death of the.
5. Meals and lodging provided to employees on employer premises for the convenience of the employ etc.