Final answer:
Bob borrowing $100 from Dave doesn't create gross income. Loans are considered debt obligations, not income, thus they don't affect taxable income within the tax code. Borrowed money is not reported as income on tax forms like the 1040 or 1040EZ.
Step-by-step explanation:
When Bob borrows $100 from Dave, this transaction does not constitute gross income for Bob. According to the basic concepts of taxation, gross income is the income you receive from various sources such as wages, interest income, and unemployment compensation, which are subject to federal income tax. A loan is not income; it is a debt obligation that Bob must repay to Dave. Therefore, borrowing money does not result in taxable income.
On a tax return, you would calculate taxable income by taking the adjusted gross income and subtracting the standard deduction and exemptions as outlined on the IRS form 1040 or 1040EZ. In this scenario, a loan would not appear on Bob's tax form as income, and it would not impact the computation of his taxable income.
However, when examining Net Annual Income or adjusting for standard deductions and exemptions, the principal amount of the loan would not be included since it doesn't count as income earned. Moreover, when calculating the monthly income, the loan would again not come into the picture as it is not an income source that is to be reported after taxes.