What generally dictates whether income is taxable or not?

The determination of whether income is taxable largely revolves around how it is classified and reported according to tax law. Taxable income generally refers to any income that is not exempt and must be reported on tax returns.

Among the options provided, the notion that income is taxable if it can be used to acquire food or shelter doesn't capture the full essence of tax law. The actual crux of whether income is taxable or not lies primarily in whether it is reported on a tax form. Income must be declared, and once it's reported properly, it is liable for taxation unless a specific exemption applies. This compels individuals and entities to accurately account for all sources of income, adhering to the tax code, which defines many categories of taxable income including wages, interest, dividends, and business revenue.

As for the other options, while capital gains can have specific tax implications and employment income is indeed typically taxable, the overarching principle that dictates taxability hinges on reporting income on a tax form. This ensures transparency and compliance with tax regulations, leading to accurate assessment and collection of taxes owed.