H&R Block Income Tax Practice Exam

Net income derived from business is included in gross income because, under the Internal Revenue Code, all income received by an individual or business, regardless of the source, must be reported unless specifically excluded by law. Gross income encompasses all income received in the form of money, goods, property, and services that are not exempt from tax.

For individuals and entities engaged in a business, after deducting expenses directly associated with the operation of that business, the remaining net income contributes to the overall gross income reported on tax returns. This includes income from various business structures, including sole proprietorships, partnerships, and corporations.

The other options would imply conditions under which net income might not be included in gross income, which is not accurate given the broad definition of gross income. Hence, the assertion that net income from business is included in gross income stands true for all business entities.