Intuit Academy Tax Practice Exam 2025 - Free Tax Practice Questions and Study Guide

Wages and salaries received for services are classified as ordinary income because they are payments made in exchange for labor or services rendered. This form of income is part of an individual's regular earnings and is subject to income tax as per the ordinary income tax rates. Ordinary income typically includes salaries, wages, bonuses, commissions, and similar forms of compensation derived from employment or self-employment.

In contrast, rental income from property is a form of passive income but is not categorized as ordinary income under the same context as wages. While it is taxable, it is reported differently. Capital gains from stock sales are considered investment income that arises from the sale of an asset at a profit, which is taxed at capital gains tax rates, often differing from ordinary income rates. Inheritance received from a relative generally does not fall under taxable income for the recipient, allowing for a unique treatment in tax law that excludes it from being considered ordinary income for tax purposes.