What is 'Gross Income'
Gross income, also known as gross pay, is an individual's total pay before taxes or other deductions. This includes income from all sources and is not limited to income received in cash, but can include property or services received.
For companies, gross income can also be known as gross profit. In this case, a company's gross income is the revenue from all sources minus costs of goods sold (COGS).
BREAKING DOWN 'Gross Income'
For some individuals, gross income is simply their salary before taxes and deductions. The dollar amount individuals receive from their paycheck after all the tax and other deductions are made is the take-home pay, also called net pay. But for other individuals, there are various types of income that should be included when calculating gross income.
Calculating Individual Gross Income
The gross income is used by lenders or landlords to determine whether an individual is a worthy borrower or renter. When filing U.S. taxes, gross income is the starting point before subtracting deductions to determine tax owed.
Gross income can include items beyond salary or employment income. The most common items that should be included when calculating an individual's gross income include salary or wages (including tips), dividends or interest received, alimony, pension, capital gains and rental income. There are income sources that are not included in gross income for tax purposes but may still be included when calculating gross income for a lender or creditor. The most common non-taxable income sources are certain Social Security benefits, life insurance payouts, some inheritances or gifts, and state or municipal bond interest.
As an example, let's say an individual has a $75,000 annual salary. They also generate $1,000 a year in interest from a savings account, collect $500 per year in dividends from a company they own stock in, and generate $10,000 a year from rental property income. Their gross annual income is $86,500.
Calculating Company Gross Income
Gross income is a line item that is sometimes included in company's income statement but is not required. If not displayed, it's calculated as gross revenue minus COGS.
Company Gross Income = Gross Revenue - Cost of Goods Sold (COGS)
Gross income is sometimes referred to as gross margin, however, gross margin is more correctly defined as a percentage, 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.
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