Gross Income

Whether you are an individual or running a business, it is essential to understand the gross income. Many professionals often get confused between gross income and net income. 

What is Gross Income? 

Gross income is the income one has earned before taking out the taxes, expenses, and other deductions. Gross income is different for individuals and businesses. For individuals, the total income he or she earns from all sources, including cash, wages, rental income, interest income, and dividends, comprises gross income. It’s also called gross pay if the individual is on paycheck. 

For businesses, gross income refers to the total revenue minus COGS (cost of goods sold). The revenue sources of the businesses consist of selling goods and services, capital gains from investments, intellectual properties, income from rental property, etc. Businesses often use gross income (instead of net income) to better gauge the product-specific performance of the business. 

How to Calculate Gross Income: 

The calculation of gross income for both entities (individual and business) are more or less similar.  

Gross Income of Individuals:  

As the gross income of individuals is the total income before deducting the tax, the incomes such as salary, dividend, interest, payment, rental payments, alimony, tips, and capital gains. Hence the individual gross income = (salary/wages + rental income + investment income + other income). Suppose Donal’s salary is $200,000; he earns $30,000 in rental income and $15,000 as interest. Therefore, his gross income is $2,45,000. 

Gross Income of Business: 

The calculation of the business gross income is derived by the formula Gross Income=Gross Revenue−COGS. Here COGS stands for the cost of goods sold. Let’s assume gross income is $500,000 and COGS is $200,000, then gross income is $300,000. 

Gross Income vs. Net Income: 

The following table describes the difference between gross income and net income: