The definition of gross income in the tax law is:
- All items specifically listed as income in the tax law
- All cash payments received for goods provided and services performed
- All income from whatever source derived
- All income from whatever source derived unless the income is earned illegally
Concept Introduction:
As per the provisions of income tax, income is categorized into two types; gross income and taxable income. Gross income is the total income of a person before allowing deductions from the income. Taxable income is income after allowing the deduction from the gross income. Tax is calculated on taxable income.
To choose: The correct definition of gross income.
Answer to Problem 1MCQ
The correct option is a.
Explanation of Solution
Explanation for correct answer:
Gross income includes all the items specified as income under the income tax law. Hence the correct option is a.
Explanation for incorrect answers:
b.
All cash payments received for goods provided and services performed are considered as revenue as per the income tax law. The income is calculated after subtracting expenses from the revenue. Hence this option is not correct.
c.
An item comes under the provisions of the income tax if it is specifically mentioned in the income tax law. So, gross income does not include income from any random source. Hence this option is not correct.
d.
Income tax is applied to legal as well as an illegal source of income. Hence this option is not correct.
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Chapter 2 Solutions
Income Tax Fundamentals 2020
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- Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage Learning
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