Your gross income comprises income from all sources unless it is allowed to be specifically excluded or deferred by the IRS. It includes active income from wages or a business, passive income from activities in which the taxpayer does not actively participate, and portfolio income from interest, dividends, and capital gains from securities. Total income also includes alimony, business income, taxable IRA distributions, tax refunds from the previous year (but only if the excess was deducted from the previous year), royalties, farm income, unemployment compensations, taxable Social Security benefits, and any other income. It also includes some losses, such as net capital losses (up to $3,000 per year), sole proprietorship losses, and active participation real estate losses.

Occasionally the IRS allows certain sources of income to be excluded from your total income. These waived amounts are referred to as exclusions. These exclusions include certain employer-provided fringe benefits, life insurance proceeds that were received because of a death, scholarships or grants not in excess of college expenses, interest on U.S. Series I or EE savings bonds (when the principle and interest from these bonds have been used for qualified educational expenses), municipal bonds (where interest is tax-free on state and local debt), inheritances (up to a specific amount), earnings on qualified retirement accounts, child support payments, and welfare benefits. Income from all sources minus exclusions gives your gross income.

Deferrals include contributions, earnings and interest on qualified retirement accounts. Taxes on these accounts are deferred until the individual(s) retire and withdraw funds from these accounts. Income also includes some losses, such as net capital losses (up to $3,000 per year), sole proprietorship losses, and active participation real estate losses.