What are the two types of gross income?

The correct answer identifies the two types of gross income as Earned Income and Unearned Income. Earned income refers to the money derived from active participation in work or business activities. This includes wages, salaries, tips, and self-employment income, which require effort and involvement to earn.

Unearned income, on the other hand, consists of income that is not earned through direct work but rather through investments or other assets. This includes interest, dividends, rental income, and capital gains. Understanding the distinction between these two types of income is essential for tax purposes, as they may be taxed at different rates or have different implications for deductions and credits.

In contrast, other choices provide terms that, while relevant to income, do not accurately categorize gross income. Passive and Active Income generally relate to the level of involvement in earning the income rather than defining types of income directly. Gross Income and Adjusted Gross Income refers to the overall income before and after certain deductions rather than specific categories of income sources. Similarly, Earned Income and Passive Income do not correctly represent the two fundamental categories recognized in tax terminology.