Corporate Income Tax Practice Exam 2026 – The Complete All-in-One Guide for Exam Success!

Ordinary income is defined as the revenue that a corporation generates from its primary business operations, such as selling goods or services. This type of income is typically recognized as part of the company’s ongoing operations and ordinary course of business activities. It is subject to standard corporate income tax rates. This contrasts with capital gains, which are realized from the sale of capital assets, such as stocks, real estate, or other investments, and usually applies when those assets are sold for more than their purchase price.

The distinction lies in the nature of the income: ordinary income arises from the regular activities that constitute the main purpose of the business, while capital gains are linked to investment activities and transactions involving asset appreciation. Understanding this distinction is fundamental when evaluating a corporation's financial and tax obligations.