What is Gross Income

Gross Income refers to the total amount of money received by an individual or business during a certain period without considering taxes, expenses or other deductions they might incur within the same period.

Two metrics have to be considered when discussing the amount of money earned by a business or an individual. First, is the amount of money an individual or company receives from various sources such as gifts, wages, sales, or credits. Second, are the expenses the business or individuals incur. Generally, we tend to refer to an individual’s or business’s incoming funds as “gross income.” 

For businesses, the term “gross income” is often used interchangeably with “gross profit.” It is the total revenue earned from sales minus the expenses for running the business, or cost of goods sold (COGS). For example, a business with a revenue of $20 million and expenses of $8 million will register a gross income of $20 million and a net income of $12 million.

For individuals, gross income refers to the sum of all the money earned before other deductions including taxes. Individual income can be in the form of salary, rental income, tips, and hourly wages among others. 

Overall, gross income is the starting point of all financial management both for individuals and businesses.

Key Points About Gross Income

• Individual Gross Income: This is mainly used by landlords and lenders to determine whether an individual is a worthy renter or borrower respectively.
• Federal and State Income Taxes: For individuals, gross income acts as the starting point when filing federal and state income taxes. The tax owed is determined before subtracting deductions.
• Company Gross Income: Companies use gross income to evaluate the performance of a business based on its product or service offerings.
• Business Expenses: For businesses, focusing on gross income and the amount of expenses is an effective way of determining what drives success or failure in the company. For example, a business is likely to fail when expenses consume a significant chunk of the gross income. 

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