Gross Income is the total earnings an individual or business receives before any deductions such as taxes, expenses, or contributions. It represents the full amount earned from all sources. In contrast, Net Income is the amount remaining after all deductions (including taxes, expenses, and other costs) are subtracted from the gross income. For individuals, net income is often called “take-home pay,” while for businesses, it is the actual profit after all costs.
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Key Facts
- Gross Income: Total earnings before deductions; includes wages, bonuses, rental income (for individuals), or revenue minus cost of goods sold (for businesses).
- Net Income: Earnings after all expenses, taxes, and deductions; reflects actual profit or take-home pay.
- Personal Finance: Net income shows what individuals can spend or save after taxes and withholdings.
- Business Finance: Net income indicates true profitability, used to assess financial health and make decisions.
- Tax Reporting: Both figures are important for tax filings, budgeting, and financial planning.
1. What is the difference between gross income and net income?
Gross income is your total earnings before deductions, while net income is what remains after subtracting taxes, expenses, and other withholdings.
2. Which income is more important for budgeting?
Net income is more important because it reflects the actual money you have available to spend or save.
3. How do businesses calculate gross and net income?
Businesses calculate gross income as revenue minus cost of goods sold, and net income as gross income minus all other expenses, taxes, and interest.
4. Why does net income matter for individuals?
Net income shows the real amount available for living expenses, savings, and investments after all mandatory deductions.
5. Can net income ever be higher than gross income?
No. Net income is always equal to or less than gross income because deductions reduce the total earnings.
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