Character is the type of income to calculate the taxpayer's tax liability. In the United States, the
Supreme Court decided (
Commissioner v. Glenshaw Glass Co.
''Commissioner v. Glenshaw Glass Co.'', 348 U.S. 426 (1955), was an important income tax case before the United States Supreme Court. The Court held as follows:
*Congress, in enacting income taxation statutes that comprehend "gains or profits an ...
) that income is an accession to wealth, however
capital gain
Capital gain is an economic concept defined as the profit earned on the sale of an asset which has increased in value over the holding period. An asset may include tangible property, a car, a business, or intangible property such as shares.
A ...
is of different character from
ordinary income
Under the United States Internal Revenue Code, the ''type'' of income is defined by its character. Ordinary income is usually characterized as income other than long-term capital gains. Ordinary income can consist of income from wages, salar ...
. Ordinary income includes
earned wage income
Earning can refer to:
* Labour (economics)
* Earnings of a company
*Merit
Merit may refer to:
Religion
* Merit (Christianity)
* Merit (Buddhism)
* Punya (Hinduism)
* Imputed righteousness in Reformed Christianity
Companies and brands
* Me ...
and
interest income from lending.
Capital Income
U.S.
The
IRS
The Internal Revenue Service (IRS) is the revenue service for the United States federal government, which is responsible for collecting U.S. federal taxes and administering the Internal Revenue Code, the main body of the federal statutory tax ...
characterizes income or loss as a capital gain or loss depending on how the taxpayer generates the gain or loss. When the taxpayer invests in real estate or
security and then later sells that piece of real estate or security, the IRS characterizes the amount that exceeds the purchase price as capital income while the amount that falls short of the purchase price is capital loss. The IRS refers to the purchase price as the
tax basis.
When the IRS characterizes income as capital gain, it enjoys a lower tax rate than ordinary income.
Ordinary Income
U.S.
The IRS characterizes ordinary income as income generated from earned wage income or interest income earned from lending.
The IRS taxes ordinary income according to a progressive rate determined by the amount of income. It is a
progressive income tax.
See also
Internal Revenue ServiceOfficial website
*
Taxable income Taxable income refers to the base upon which an income tax system imposes tax. In other words, the income over which the government imposed tax. Generally, it includes some or all items of income and is reduced by expenses and other deductions. ...
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Taxation in the United States