Intuit Academy Tax Practice Exam 2025 – 400 Free Practice Questions to Pass the Exam

Taxable income encompasses a wide array of earnings, and option B identifies several key categories that fall under this classification: interest, dividends, and rental income.

Interest income, such as that earned from savings accounts or bonds, is subject to taxation because it is an earnings mechanism recognized by the IRS. Dividends, which are payments made by corporations to shareholders from their profits, are also taxable when received. Additionally, rental income generated from leasing property is usually taxable, as it reflects profit derived from real estate investments.

Other forms of income, such as wages and salaries, while indeed taxable, are not comprehensive enough to represent the variety of taxable income types. In contrast, inheritances and gifts typically are not subject to income tax, even though they may have implications for estate or gift taxes. Investment income can also include tax-exempt interest in certain cases, which further clarifies that not all investment returns are taxable.

Thus, the correct understanding is that interest, dividends, and rental income constitute types of taxable income, highlighting their relevance in the context of taxation.