Gross Income Definition
Define Gross Income in Simple Terms
Gross income can be thought of in two ways; one for individuals and the other for companies. For individuals, this is their total pay from their employer before any other deductions, plus any secondary forms of income such as a pension, social security, investments, and so on. For businesses, this is their total revenue minus the cost of goods sold. It is different from net income, which takes into account both COGS and all other operating expenses.
What Does Gross Income Mean in Finance?
Gross income is one of the simplest metrics used to determine a company’s overall profitability. Because it does not take into account any expenses besides the cost of producing the goods a company has sold, it gives an idea of the total amount of revenue made from doing business.
Gross Income Example
When applied to individuals, gross income is used by lenders to determine the worthiness of a borrower to take out a loan or rent property. Higher gross income generally translates to a better ability to pay off debts. Gross income is also the starting point the IRS uses to calculate an individual’s income taxes. For example, say an individual earns $60,000 in a year from their job, plus $2,000 in interest from savings, plus $1,500 from interest paid on bonds held, plus another $5,000 other money earning sources. Their gross income is $68,500, and they will be taxed based on this amount, before considering any possible deductions.
Gross Income Definition FAQs
About the Author
True Tamplin, BSc, CEPF®
True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.
True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.