What Is Gross Income?
Let me tell you directly: your gross income as an individual is your total earnings before any taxes or other deductions come into play. It covers income from every source, not just your job, and it isn't limited to cash—property or services count too. On your paycheck, you'll see it listed as gross pay.
For a company, gross income is the same as gross margin or gross profit. You find it on the income statement as revenue from all sources minus the cost of goods sold (COGS).
Key Takeaways
- Gross income for a business is its total revenues minus the cost of goods sold.
- An individual's gross income is entered on their income tax return, and it becomes adjusted gross income, then taxable income after certain deductions and exemptions are taken.
- Individuals may also be required to report gross income when they're attempting to secure a loan.
- Businesses often use gross income instead of net income to better gauge the product-specific performance of the business.
How Gross Income Works
Understand that gross income differs between individuals and companies. As an individual, you can figure yours out by looking at a recent pay stub or multiplying your hours worked by your wage. For a company, it takes more calculation.
Lenders or landlords use your gross income to decide if you're a good borrower or renter. It's the starting point on your tax returns before deductions. For companies, gross income helps analyze how well the product side of the business is doing, focusing on what's driving success without mixing in unrelated expenses like rent.
How to Calculate Gross Income
The way you calculate gross income varies slightly for individuals and businesses, but both involve income minus specific expenses.
Individual Gross Income
Your gross income for tax purposes includes not just wages or salary, but tips, capital gains, rental payments, dividends, alimony, pension, and interest. Subtract above-the-line deductions to get adjusted gross income (AGI).
Some sources like certain Social Security benefits, life insurance payouts, inheritances, gifts, or municipal bond interest aren't taxable but might count for lenders. For non-tax needs, like loans, your gross income is usually your total wages before taxes or expenses. Some lenders might want your AGI instead.
Business Gross Income
A company's gross income is gross revenue minus COGS. It's often listed on the income statement, showing how much money is made after direct costs of products or services.
This can be company-wide or per product, as long as you track revenue and costs separately. Remember, it excludes selling, administration, taxes, and other overall business costs.
Gross Income vs. Net Income
Gross income and net income both describe profit, but they apply to businesses and households differently.
For you as an individual, net income is what's left after all personal expenses—it's like your take-home pay but accounting for more costs. Gross income only deducts limited items from revenue.
For a business, net income is revenue minus all expenses, including COGS, selling, general, administrative, taxes, and interest—not just the direct costs in gross income. Gross gives a high-level view; net covers everything.
Individual Gross Income Example
Suppose you have a $75,000 salary, $1,000 in savings interest, $500 in dividends, and $10,000 from rentals—your gross annual income is $86,500, or about $7,200 monthly.
Expenses like $1,500 rent, $450 student loans, and $300 auto loan don't factor into gross income. For taxes, if you paid $500 in student loan interest, your AGI would be $86,000 after that deduction.
Business Gross Income Example
Take Apple: for three months ending September 2023, net sales were $89.5 billion, COGS for products $42.59 billion and services $6.49 billion, so gross income was $40.43 billion.
They had other costs like $7.3 billion in R&D, $6.2 billion in selling and admin, and $4.04 billion in taxes, but those aren't in gross income—it's just net sales minus COGS.
The Bottom Line
Your gross income is the total you earn before taxes or deductions—check your pay stub for gross pay, and add other income sources if needed. You'll see it on your W-2 or 1099 at year-end.
Calculate your monthly gross by your salary before taxes or hours times rate. It differs from what you actually take home.
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