Which income type is excluded from gross income?

• A. Employment bonuses
• B. Life insurance proceeds
• C. Gains from property sales
• D. Royalty income

Answer: (B)

Life insurance proceeds are excluded from gross income because they are considered a form of financial support provided to beneficiaries upon the death of the insured person. The Internal Revenue Code specifically states that amounts received as a death benefit from a life insurance policy are not taxable to the beneficiary. This exclusion is designed to prevent double taxation on income that was already taxed during the insured’s lifetime.

In contrast, employment bonuses are additional compensation for work performed and are taxable as ordinary income. Gains from property sales are typically subject to capital gains tax, which means they contribute to gross income. Royalty income received for the use of intellectual property or natural resources is also considered taxable income, contributing to gross income. Therefore, life insurance proceeds stand out as the only type in this question that is excluded from gross income.