Are you an employee or a business owner? If you're earning money from your job or business, you have an income. In the third quarter of 2018, the median weekly earnings for full-time U.S. workers was $887.

This equates to just around $44,350 in earnings per year, not adjusted for taxes or any other deductions. But what's the term to describe income before any taxes or deductions have been subtracted? The answer: gross income.

Next, we'll define gross income and learn what it means for individuals and businesses.

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The wage or salary you receive, before taxes and deductions, is known as gross income. Gross income can be broken down by different time periods. For example, you could look at gross income at an annual or monthly rate.

Now that we've described gross annual income, let's take a look at gross monthly income.

Let's dig into the difference between gross income and net income.

Here's an example to illustrate the difference between gross and net income. Let's say a person earned $1,500 and there were $400 in deductions -- their gross income is $1,500 and net income is $1,100.

Adjusted gross income (AGI) is used as a starting point for calculating your taxes. It's how much money you've earned in a year minus adjustments that include the following:

  • Alimony payments
  • IRA or retirement plan contributions
  • Student loan payments
  • Self-employed health insurance payments
  • Tuition and fees

Depending on how you're filing your taxes, you might need to use your modified adjusted gross income instead. Modified adjusted gross income (MAGI) is your AGI with certain deductions added back.

Gross Income for a Business

Gross income for individuals and businesses are a bit different. For a business, gross income, or gross margin, is calculated by subtracting the cost of goods sold from the business' sales. Cost of goods sold is the expense of creating the product (e.g., labor costs and raw materials). And sales refers to the monetary amount a business has after selling its products or services.

Whether you're looking at your individual gross income or the gross income of your business, understanding your income is essential -- especially when filling out tax forms. To learn more about accounting and finance, check out the best free and paid accounting software options next.

download free marketing budget templates
 download free marketing budget templates

Originally published Jan 17, 2019 7:30:00 AM, updated June 28 2019