Gross income

For households and individuals, gross income is the sum of all wages, salaries, profits, interest payments, rents, and other forms of earnings, before any deductions or taxes. It is opposed to net income, defined as the gross income minus taxes and other deductions (e.g., mandatory pension contributions).

For a business, gross income (also gross profit, sales profit, or credit sales) is the difference between revenue and the cost of making a product or providing a service, before deducting overheads, payroll, taxation, and interest payments. This is different from operating profit (earnings before interest and taxes).[1] Gross margin is often used interchangeably with gross profit, but the terms are different. When speaking about a monetary amount, it is technically correct to use the term "gross profit", but when referring to a percentage or ratio, it is correct to use "gross margin".

Relationship with other accounting terms

The various deductions (and their corresponding metrics) leading from net sales to net income are as follows:

Net sales = gross sales – (customer discounts + returns + allowances)
Gross profit = net sales – cost of goods sold
Gross margin = [(net sales – cost of goods sold)/net sales] × 100%.
Operating profit = gross profit – total operating expenses
Net income (or net profit) = operating profit – taxes – interest

United States

Under United States income tax law, gross income serves as the starting point for determining Federal and state income tax of individuals, corporations, estates and trusts, whether resident or non-resident.[2]

Under the U.S. Internal Revenue Code, "Except as otherwise provided" by law, gross income means "all income from whatever source derived," and is not limited to cash received.[3] Federal tax regulations interpret this general rule. The amount of income recognized is generally the value received or the value which the taxpayer has a right to receive. Certain types of income are specifically excluded from gross income for tax purposes.

The time at which gross income becomes taxable is determined under Federal tax rules, which differ in some cases from financial accounting rules.

What is income?

Individuals, corporations, members of partnerships, estates, trusts, and their beneficiaries ("taxpayers") are subject to income tax in the United States. The amount on which tax is computed, taxable income, equals gross income less allowable tax deductions.

The Internal Revenue Code gives specific examples.

References

{{OED|gross|id=81765}} {{verify source |date=September 2019 |reason=This ref was deleted Special:Diff/903878731 by a bug in VisualEditor and later restored by a bot from the original cite located at Special:Permalink/865803336 cite #1 - verify the cite is accurate and delete this template. [[User:GreenC bot/Job 18]]}}^
Resident individuals and corporations are allowed tax deductions. Nonresident individuals and corporations are both allowed deductions from gross income.^
See, e.g., 26 USC 83, regarding taxation of certain transfers of property in connection with the performance of services.^

Exclusions from gross income: U.S. Federal income tax law

The courts have given very broad meaning to the phrase "all income from whatever source derived," interpreting it to include all income unless a specific exclusion applies.[26] Certain types of income are specifically excluded from gross income. These may be referred to as exempt income, exclusions, or tax exemptions. Among the more common excluded items[27] are the following:

There are numerous other specific exclusions. Restrictions and specific definitions apply.

Some state rules provide for different inclusions and exclusions.[41]

2014-7 Certain Medicaid Waiver Payments May Be Excludable From Income.[28]

Tax exempt interest. For Federal income tax, interest on state and municipal bonds is excluded from gross income.[29] Some states provide an exemption from state income tax for certain bond interest.

Some Social Security benefits. The amount exempt has varied by year. The exemption is phased out for individuals with gross income above certain amounts.[30]

Gifts and inheritances.[31] However, a "gift" from an employer to an employee is considered compensation, and is generally included in gross income.

Life insurance proceeds received by reason of the death of the insured person.[32]

Certain compensation for personal physical injury or physical sickness, including:

Amounts received under worker's compensation acts for personal physical injuries or physical sickness,

Amounts received as damages (other than punitive damages) in a suit or settlement for personal physical injuries or physical sickness,

Amounts received through insurance for personal physical injuries or physical sickness, and

Amounts received as a pension, annuity, or similar allowance for personal physical injuries or physical sickness resulting from active service in the armed forces.[33]

Scholarships. Amounts in the nature of compensation, such as for teaching, are included in gross income.[34]

Certain employee benefits. Non-taxable benefits include group health insurance, group life insurance for policies up to $50,000, and certain fringe benefits, including those under a flexible spending or cafeteria plan.[35]

Certain elective deferrals of salary (contributions to "401(k)" plans).

Meals and lodging provided to employees on employer premises for the convenience of the employer.[36]

Foreign earned income exclusion for U.S. citizens or residents for income earned outside the U.S. when the individual met qualifying tests.[37]

Income from discharge of indebtedness for insolvent taxpayers or in certain other cases.[38]

Contributions to capital received by a corporation.[39]

Gain up to $250,000 ($500,000 on a married joint tax return) on the sale of a personal residence.[40]

Relationship with other accounting terms

United States

What is income?

See also

Further reading

References

Year of inclusion

Amount of income

Exclusions from gross income: U.S. Federal income tax law

Source of income

Taxation of nonresident aliens

Taxation of nonresident aliens