Changes

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 [[capital gain]].  Ordinary income can consist of  income from [[wages]], [[salaries]], tips, [[Commission (remuneration)|commissions]], bonuses, and other types of compensation from employment, [[interest]], [[dividends]], or [[net income]] from a [[sole proprietorship]], [[partnership]] or [[LLC]]. [[Passive income|Rents]] and [[royalties]], after certain [[Tax deduction|deductions]], [[depreciation]] or [[Tax depletion|depletion]] allowances, and gambling winnings are also treated as ordinary income.  A "short term capital gain", or gain on the sale of an asset held for less than one year of the [[Capital_gains_tax#United_States |capital gains holding period]], is taxed as 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 [[capital gains]].  Ordinary income can consist of  income from [[wages]], [[salaries]], tips, [[Commission (remuneration)|commissions]], bonuses, and other types of compensation from employment, [[interest]], [[dividends]], or [[net income]] from a [[sole proprietorship]], [[partnership]] or [[LLC]]. [[Passive income|Rents]] and [[royalties]], after certain [[Tax deduction|deductions]], [[depreciation]] or [[Tax depletion|depletion]] allowances, and gambling winnings are also treated as ordinary income.  A "short term capital gain", or gain on the sale of an asset held for less than one year of the [[Capital_gains_tax#United_States |capital gains holding period]], is taxed as ordinary income.

Ordinary income stands in contrast to capital gains, which is defined as gain from the sale or exchange of a capital asset. The definition of capital asset under the tax law can be explained by noting that your house is a capital asset to you the homeowner but if you bought it from a land developer who had many houses on many lots, each of those houses was inventory when he sold them and hence was not a capital asset to him, just as clothing would be inventory and not a capital asset to [[Saks Fifth Avenue]].  

Ordinary income stands in contrast to capital gains, which is defined as gain from the sale or exchange of a capital asset. The definition of capital asset under the tax law can be explained by noting that your house is a capital asset to you the homeowner but if you bought it from a land developer who had many houses on many lots, each of those houses was inventory when he sold them and hence was not a capital asset to him, just as clothing would be inventory and not a capital asset to [[Saks Fifth Avenue]].