What constitutes gross income for tax purposes?

Gross income for tax purposes includes all income from whatever source derived. This foundational principle is outlined in the Internal Revenue Code and encompasses various forms of income such as wages, salaries, dividends, interest, business income, and even certain non-cash benefits. This broad definition means that essentially any income received, unless specifically excluded by the tax code, contributes to a taxpayer's gross income.

Understanding this broad definition helps taxpayers recognize that their taxable income is more comprehensive than simply their salaries or wages from employment. For example, if someone sells a piece of art that they created, the proceeds from that sale would be considered gross income, despite not being a traditional form of employment.

In contrast, the other options presented reflect more limited views of what constitutes gross income. Income from employment represents only one category of income, and while investment income is indeed considered gross income, it does not encompass the entirety of what taxpayers may earn. Lastly, excluded income like gifts and inheritances represents specific types of income that are not included in gross income calculations, further highlighting the necessity of understanding the broader definition offered by the correct answer.