Gross income has a different definition for different situations. For example, when referring to salaries and wages, it refers to one thing, but when discussing business profits it means another.
Gross Income (Salary)
An employee’s gross income is all income earned before taxes. That can include a variety of sources too, including some employees may not realize. This is not the amount an employee takes home, however. Withholding tax and deductions must be taken out before an employee is paid his or her true salary, or his or her net income. Examples of gross income include:
- Compensation for work provided. This includes salaries, wages, commissions, and fees.
- Income received from trade.
- Gains received from property dealings.
- Interests made on investments or security deposits.
- Royalties and royalty payments. These typically are a result of publishing contracts for musicians and writers, and are based on sales of a product.
- Dividends or any distribution of property made by a business to its shareholders out of that business’s profits.
- Annuities or fixed lump sums of cash throughout a person’s life.
- Prizes and winnings, including lottery and other gambling winnings. Some corporations often dish out prize money for various occasions, which is also included. Gift cards are also considered in this category.
- Income from life insurance of endowment contracts.
- A partner’s share from the net income of a general professional partnership.
- Profit from the sale of inventory.
- Fringe benefits. These cover a wide variety of things. Cars and flights, free or discounted commercial flights, vacations, discounts on property or services, memberships in country clubs, and tickets to entertainment or sporting events are all examples of fringe benefits. Bonuses are the most common example of fringe benefits. However, not all fringe benefits fall under gross income.
Based on the above, it may seem like almost all revenue sources can be considered gross income. But that is not the case. Examples of exclusions from gross income include:
- Tax exempt interest.
- Some Social Security benefits.
- Gifts (not including those from employers - that is compensation) and inheritance.
- Scholarships to universities.
- Certain employee benefits, such as group health insurance, and cafeteria plans.
- Gain up to $250,000 on the sale of single person’s personal residence.
Gross income (when referring to the employer side of business) is the amount of revenues that exceed the costs of goods sold. Essentially, it is the amount of income left over after the costs of making a business or corporation’s product is taken into to account. Computing this can show how much can be spent on paying operating costs. Net income for a business is calculated by subtracting all operating expenses from gross income.
These free resources should not be taken as tax or legal advice. Content provided is intended as general information. Tax regulations and laws change and the impact of laws can vary. Consult a tax advisor, CPA or lawyer for guidance on your specific situation.