For federal income tax purposes, death proceeds from a life insurance policy are generally included in what?

When considering federal income tax purposes, death proceeds from a life insurance policy are generally included in the insured's gross estate. This reflects the tax treatment established by the Internal Revenue Code, which states that the full value of life insurance proceeds payable upon the death of the insured must be included in the gross estate when the insured retains any incidents of ownership in the policy. This principle exists because the death benefit represents a financial asset that can be taxed as part of the total value of the estate upon the insured's death.

This inclusion in the gross estate does not mean that the benefits are directly taxed as income to the beneficiary at the time of the insured’s death; rather, it affects the overall value of the estate for estate tax considerations. As a result, if the total estate value exceeds the estate tax exemption limits, it may be subject to federal estate tax.

The other answer choices do not accurately reflect the treatment of life insurance proceeds for federal tax purposes. The proceeds are not included in the beneficiary’s income, which is excluded from taxable income under IRS rules. Similarly, they do not factor into annual taxable income, nor are they categorized as charitable contributions unless specifically designated to a charity upon the death of the insured.