For tax purposes, what is NOT included in income?

Prepare for the Tax Knowledge Assessment (TKA) HR Block Test with our interactive quiz featuring flashcards and multiple-choice questions. Each question offers hints and explanations. Ace your tax exam today!

The correct answer highlights the concept of capital recovery, which refers to the return of an investment or the recouping of initial costs associated with a capital asset. For tax purposes, capital recovery is not considered income because it represents funds that are not gained or earned but rather the return of previously invested money or costs. When you sell a capital asset, the proceeds may exceed your investment, resulting in a capital gain that is taxable; however, the portion of the sale price that represents the recovery of the initial investment itself is not treated as taxable income.

In contrast, wages earned from employment, interest income, and dividends from stocks are all forms of income that are fully taxable. Wages are compensation for work performed, interest is earned on savings or investments, and dividends are payments made by corporations to their shareholders as a portion of earnings. All these forms of income must be reported and are subject to taxation, differentiating them fundamentally from capital recovery.

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