Gross Income

Gross Income refers to the total earnings an individual or business receives before any deductions such as taxes, expenses, or retirement contributions. For individuals, it includes wages, salaries, bonuses, rental income, investment returns, and other sources of income. For businesses, it represents total revenue minus the cost of goods sold (COGS) but before deducting operating expenses, taxes, and interest. Gross income serves as a foundational number for calculating net income and taxable income.

Key Facts

• Scope: Includes all income from all sources before any deductions.‍
• Personal Use: Used to calculate adjusted gross income (AGI) and taxable income on tax returns.‍
• Business Use: Reflects profitability before expenses; often referred to as gross profit.‍
• Tax Reporting: Must be reported to tax authorities annually (for example, on Form 1040 in the U.S.).‍
• Financial Significance: Crucial for assessing an individual’s or company’s earning power.

1. What is the difference between gross income and net income?

Gross income is the total amount earned before any deductions, while net income is what remains after all expenses, taxes, and deductions are subtracted.

2. What counts as gross income for an individual?

Gross income for individuals includes wages, salaries, tips, bonuses, rental income, interest, dividends, capital gains, and any other form of income.

3. How is gross income calculated for a business?

For a business, gross income (or gross profit) is calculated as total revenue minus the cost of goods sold (COGS).

4. Why is gross income important for taxes?

It forms the basis for determining how much of your income is taxable. From gross income, you subtract deductions to get adjusted gross income (AGI) and ultimately taxable income.

5. Is gross income the same as salary?

Not necessarily. Salary is one component of gross income. Gross income may also include bonuses, side income, and investment earnings.