Gross Income
All income from whatever source derived, unless specifically excluded by the tax law.
REG loves to test this as an inclusion-vs.-exclusion sorting drill: you’re handed a list and asked the total includible, with wrong answers built from items that feel taxable. The “tell” is a §61 item disguised next to a statutory exclusion. Memorize the high-yield exclusions the exam hides: gifts and inheritances (§102), life-insurance proceeds paid by reason of death (§101), interest on most state/local (municipal) bonds (§103, but not nonqualified private-activity or arbitrage bonds), return of capital, and §104 damages for personal physical injury or sickness. Classic traps: punitive damages and non-physical emotional-distress awards are taxable; prizes, awards, gambling winnings, and forgiven debt (COD income) are generally includible; and unemployment compensation is fully taxable.
Don’t confuse the layers. Subtracting above-the-line items yields AGI; only then do standard or itemized deductions reach taxable income. Students wrongly net deductions into the gross figure or treat a credit (which cuts tax dollar-for-dollar, not income) as a subtraction here. Hook: “from whatever source derived” means taxable unless Congress says otherwise — when unsure, include it.
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