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.
Gross income is the salary or wage an individual receives from an employer for their work, before taxes or other deductions have been subtracted. And the amount can be broken down by annual, monthly, weekly, daily, or hourly rate.
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.
Gross Annual Income
Gross annual income is the monetary amount an individual makes each year before deductions and taxes are taken out. For example, when you receive a job offer from an employer, the gross annual income is the amount listed on your offer letter or employment contract.
Gross monthly income is the amount of money an individual earns each month before taxes or deductions are subtracted. Your gross monthly income can be calculated with the following formula:
Gross monthly income = Annual income / 12 months
Let's dig into the difference between gross income and net income.
Gross vs. Net Income
Gross income is an individual's total earnings before any deductions. Net income is the amount of money a person makes after deductions like taxes and benefits (e.g., retirement plan contributions and healthcare premiums) are subtracted.
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.
What is adjusted gross income?
Adjusted gross income (AGI) is the amount of money you've earned throughout the year from your job, self-employment, dividends, or interest from a bank account, minus adjustments like IRA contributions, alimony payments, tuition, and more. AGI is used during the tax preparation process.
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.
Originally published Jan 17, 2019 7:30:00 AM, updated January 17 2019