how to calculate gross income
the approach to determining gross income for an individual is slightly different than the approach for a business although both calculations are similar each type of entity uses different classifications of income and expenses for individuals the gross income metric used on the income tax return includes not just wages or salary but also other forms of income such as tips capital gains rental payments dividends alimony pension and interest after subtracting above the line tax deductions the result is adjusted gross income agi 1there are income sources that are not included in gross income for tax purposes but still may be included when calculating gross income for a lender or creditor common nontaxable income sources are certain social security benefits life insurance payouts some inheritances or gifts and state or municipal bond interest 23for non tax purposes individuals can usually use their total wages as gross income when applying for a loan individual gross income will equal the amount of money the individual earns prior to any taxes being deducted or any expenses having been paid some lenders may require the use of agi to standardize how gross income is calculated gross income is a line item that is sometimes included in a company s income statement if not displayed it s calculated as gross revenue minus cogs gross income gross revenue cogswhere cogs cost of goods sold begin aligned text gross income text gross revenue text cogs textbf where text cogs text cost of goods sold end aligned gross income gross revenue cogswhere cogs cost of goods sold gross income is sometimes referred to as gross margin there s also gross profit margin which is more correctly defined as a percentage and is used as a profitability metric the gross income for a company reveals how much money it has made on its products or services after subtracting the direct costs to make the product or provide the service business gross income can be calculated on a company wide basis or product specific basis as long as the company is using a chart of accounts that allows tracking of revenue by product and cost by product a company can see how much profit each product is making while the gross income metric factors in the direct cost of producing or providing goods and services it does not include other costs related to selling activities administration taxes and other costs related to running the overall business gross income vs net incomegross income and net income are two terms commonly used by businesses to describe profit both terms can also be used to explain how much money a household is making or taking home for an individual net income is the total residual amount of income remaining after all personal expenses have been paid for personal net income is calculated as the total amount of revenue earned less the total amount of personal expenses this differs from gross income which limits what can be deducted from total revenue earned an individual s net income more closely resembles their final paycheck amount although the individual likely has more expenses that what is deducted from their pay their paycheck is a good example of their revenue being reduced by costs for a business net income is the total amount of revenue less the total amount of expenses these expenses include cost of goods sold just like gross income however net income also includes selling general administrative tax interest and other expenses not included in the calculation of gross income gross income is a much higher view of a company while net income incorporates every facet of cost because gross income incorporates both revenue and specific expenses of driving that revenue gross income is often a better gauge for comparing dissimilar companies as it analyzes how efficiently each company generated profit examples of gross incomeassume that an individual has a 75 000 annual salary generates 1 000 a year in interest from a savings account collects 500 per year in stock dividends and receives 10 000 a year from rental property income their gross annual income is 86 500 alternatively the individual can calculate their monthly gross income is approximately 7 200 imagine that same individual pays 1 500 per month in rent 450 in student loans and 300 towards an auto loan all three of these expenses are excluded from the calculation of gross income for non tax purposes an individual s gross income only considers the revenue earned in regards to the individual s federal income tax let s imagine the individual paid 500 in student loan interest for the prior year when filing their tax return the student loan interest is an above the line deduction used to factor adjusted gross income assuming the individual earned the same amount of money this year as last the individual s agi is 86 000 86 500 500 apple s consolidated statement of operations reported total net sales of 89 5 billion for the three month period ending september 2023 the company spent 42 59 billion to generate those products and spent an additional 6 49 billion on services also as part of its cost of goods sold by subtracting apple s net sales by the total cost of goods sold apple reported a gross income of 40 43 billion apple also incurred 7 3 billion of research and development costs 6 2 billion of selling general and administrative costs and 4 04 billion for income taxes all three of these expenses are excluded when calculating gross income a company s gross income only includes the company s net sales less cogs 4