What Is Gross Income?
Gross income for an individual—also known as gross pay when it’s on a paycheck—is an individual’s total earnings before taxes or other deductions. This includes income from all sources, not just employment, and is not limited to income received in cash; it also includes property or services received.
For companies, gross income is interchangeable with gross margin or gross profit. A company’s gross income, found on the income statement, is the revenue from all sources minus the firm’s cost of goods sold (COGS).
- Gross income for an individual consists of income from wages and salary plus other forms of income, including pensions, interest, dividends, and rental income.
- Gross income for a business is total revenues minus the cost of goods sold.
- Individual gross income is part of an income tax return and—after certain deductions and exemptions—becomes adjusted gross income, then taxable income.
Understanding Gross Income
Individual gross income
An individual’s gross income is used by lenders or landlords to determine whether that person is a worthy borrower or renter. When filing federal and state income taxes, gross income is the starting point before subtracting deductions to determine the amount of tax owed.
For individuals, the gross income metric used on the income tax return includes not just wages or salary but also other forms of income, such as tips, capital gains, rental payments, dividends, alimony, pension, and interest. After subtracting above-the-line tax deductions, the result is adjusted gross income (AGI).
Continuing down the tax form, below-the-line deductions are taken from AGI and result in a taxable income figure. After applying any allowed deductions or exemptions, the resulting taxable income can be significantly less than an individual’s gross income.
There are income sources that are not included in gross income for tax purposes but still may be included when calculating gross income for a lender or creditor. Common nontaxable income sources are certain Social Security benefits, life insurance payouts, some inheritances or gifts, and state or municipal bond interest.
Business gross income
Gross income is a line item that is sometimes included in a company’s income statement. If not displayed, it’s calculated as gross revenue minus COGS.
Gross Income=Gross Revenue−COGSwhere:COGS=Cost of Goods Sold
Gross income is sometimes referred to as gross margin. There’s also gross profit margin, which is more correctly defined as a percentage and is used as a profitability metric. The gross income for a company reveals how much money it has made on its products or services after subtracting the direct costs to make the product or provide the service.
While the gross income metric factors in the direct cost of producing or providing goods and services, it does not include other costs related to selling activities, administration, taxes, and other costs related to running the overall business.
Example of Individual Gross Income
Assume that an individual has a $75,000 annual salary, generates $1,000 a year in interest from a savings account, collects $500 per year in stock dividends, and receives $10,000 a year from rental property income. Their gross annual income is $86,500.
How do I calculate my gross income?
An individual’s gross income is the total amount earned before taxes or other deductions. Usually, an employee’s paycheck will state the gross pay as well as the take-home pay. If applicable, you’ll also need to add other sources of income that you have generated—gross, not net.
What is the difference between gross income and net income?
Net income is the money that you effectively receive from your endeavors—the take-home pay for individuals. For companies, it is the revenues that are left after all expenses have been deducted.
How do you calculate gross business income?
The gross income of a company is calculated as gross revenue minus the cost of goods sold (COGS). So, if a company registered $500,000 in product sales and the cost to produce those products was $100,000, then its gross income would be $400,000.