What is included in the definition of gross income?

The definition of gross income encompasses all income from whatever source derived, which is the rationale behind selecting this answer. This broad definition includes wages, salaries, bonuses, business income, dividends, interest, capital gains, and other forms of income. The principle that all income, unless specifically excluded by law, is subject to taxation is foundational to the U.S. tax system.

In contrast, the first option only considers wages and salaries, which represents just a segment of gross income rather than the entirety. The third option mentions income from gifts or inheritance, but such income is typically excluded from gross income under tax law. Finally, the fourth option talks about income that is exempt from taxation, which would not be included in gross income since it specifically refers to types of income that do not count towards the taxable income. Therefore, the comprehensive nature of the correct answer highlights the wide-ranging sources of income that contribute to an individual's gross income.