Gross income refers to the total income earned by an individual or business before any deductions or taxes are subtracted. It represents the total revenue or earnings generated from various sources, including employment, self-employment, investments, rental income, and other forms of income.
For individuals, gross income includes wages, salaries, tips, bonuses, commissions, self-employment income, rental income, interest income, dividends, capital gains, and any other sources of income. It encompasses all income received, whether it is regular or irregular, taxable or non-taxable.
For businesses, gross income represents the total revenue generated from sales of products or services, without deducting any operating expenses, taxes, or other costs associated with running the business.
Gross income is an important starting point for determining taxable income. After calculating gross income, various deductions, exemptions, and allowances are applied to arrive at adjusted gross income (AGI) or taxable income. From taxable income, applicable tax rates are used to determine the amount of income tax owed to the government.
It's worth noting that gross income is distinct from net income or net profit, which represents the income or profit remaining after deducting all expenses, taxes, and deductions from the gross income. Net income provides a clearer picture of the actual financial performance or take-home income after accounting for all costs and obligations.