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NLT Chapter 4: Gross Income: Exclusions and Inclusions

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This chapter explains what counts as gross income for tax purposes and what can be excluded. It covers common sources of taxable income, such as wages and business profits, and highlights tax-free income like gifts, life insurance payouts, and scholarships used for tuition. Understanding these distinctions is key to correctly filing your taxes and maximizing benefits.

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1. Which of the following is considered part of gross income?
Inheritance from a relative Welfare benefits Wages and salaries Proceeds from life insurance
2. Business income includes earnings from:
Selling personal items at a garage sale Occasional freelancing Operating a business or professional practice Interest from personal savings accounts
3. Which of these is NOT taxable as gross income?
Dividends from corporate stocks Gifts from a family member Bonuses from employment Rent received from property leasing
4. Gains derived from dealings in property are considered income if they are:
Only from real estate sales Only from sales of personal cars From any property, real or personal Exempt if the property was inherited
5. Which of the following is an excluded income for federal tax purposes?
Scholarships used for tuition Income from short-term freelance jobs Interest earned from a bank fixed deposit Wages received from a part-time job
6. Life insurance proceeds are taxable when:
They exceed the premiums paid They are paid upon the death of the insured They are used to pay for funeral expenses They are not taxable
7. Which income type is NOT typically excluded from gross income?
Compensatory damages for personal injury Welfare payments Lottery winnings Disaster relief payments
8. Fellowship grants are non-taxable when used for:
Personal living expenses Tuition and course-related expenses Travel for leisure Investing in stocks
9. What kind of employee benefits are generally excluded from taxable income?
Personal vacation expenses Contributions to health and retirement plans Bonuses for performance Cash gifts from employers
10. Why is it important to understand which income is taxable and which is not?
To avoid overpaying taxes To comply with federal tax laws To correctly file tax returns All of the above
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