What is gross income?
Gross income — also known as gross profit, pre-tax income or before-tax income — measures total income and revenue from all sources. Gross income has slightly different meanings for companies and individuals. For companies, gross income is total revenue minus the cost of goods sold. For individuals, it means total income before tax deductions and tax charges.
Individuals calculate gross income based on total wages or salary before any tax deductions are subtracted. Other sources of gross income include rental income, tips, capital gains, dividends, interest income, and alimony. After subtracting above-the-line deductions, you are left with adjusted gross income (AGI). Further below-the-line deductions are subtracted from AGI to arrive at taxable income. Depending on the number of deductions or exemptions that apply, taxable income can be significantly less than gross income.
Businesses refer to this measure interchangeably as gross income or gross profit. Gross income represents the amount that a company earns from the sale of goods or services, excluding the costs of those goods and services. It is the simplest measure of a company’s profitability, and is often represented as gross profit margin. Gross income excludes costs related to selling, administration, taxes, and other expenses.
Net income is a related term. For individuals, net income is income after all tax deductions. For a business, net income is the income available after all expenses have been accounted for. Operating profit is a related measure for businesses. While gross profit only includes the direct costs of production, operating profit figures in certain additional costs, excluding debt payments and taxes.
Do you know which deductions you can claim? Use Bankrate’s tax calculators to see how much you can deduct from your gross income.
Gross income example
If a business reports $100,000 of annual revenue and $50,000 in cost of goods sold, their gross income for the year would be $50,000. Alternatively, if an individual has an annual salary of $50,000, plus an additional $$20,000 in rental income and also made $3,000 from selling stock, their gross income would amount to $73,000.