Legal Definitions - gross income

Gross income is the total amount of money and value an individual or business receives from all sources during a specific period, typically a tax year, before most deductions, exemptions, or adjustments are applied. It represents the starting point for calculating taxable income.

While gross income includes nearly all forms of income, certain specific items, such as gifts, inheritances, or child support payments, are generally excluded by tax law.

• For individuals, gross income encompasses all earnings from employment, investments, property, and other activities.
• For businesses, it generally refers to the total revenue generated from sales or services, reduced by the direct costs associated with producing those goods or services (known as the cost of goods sold).

Here are some examples to illustrate gross income:

• Example 1 (Individual with multiple income streams): Sarah works as a marketing manager, earning an annual salary. In addition, she receives quarterly dividends from her stock investments and earns a small amount of interest from her savings account. She also occasionally sells handmade jewelry online as a hobby.

  How it illustrates gross income: Sarah's gross income would be the sum of her marketing manager salary, the dividends received from her investments, the interest earned on her savings, and the total revenue from her jewelry sales (before deducting the cost of materials or platform fees). This combined total represents all her income sources before any personal deductions, such as contributions to a retirement account or student loan interest, are considered.

• Example 2 (Small Service-Based Business): "Bright Ideas Consulting" is a small firm that provides strategic advice to other businesses. In a given year, they bill clients for a total of $300,000 in consulting fees. Their only direct cost related to delivering these services is $20,000 paid to a specialized subcontractor for a specific project.

  How it illustrates gross income: For Bright Ideas Consulting, their gross income would be calculated by taking their total consulting fees of $300,000 and subtracting the $20,000 paid to the subcontractor. This results in a gross income of $280,000, which reflects the revenue generated directly from their services before accounting for other operating expenses like office rent, employee salaries, or marketing costs.

• Example 3 (Independent Contractor): Michael is a freelance photographer who specializes in event photography. Throughout the year, he charges clients a total of $65,000 for his photography services. He also occasionally licenses some of his existing photos for use in magazines, earning an additional $3,000.

  How it illustrates gross income: Michael's gross income would be the combined total of his $65,000 in freelance photography fees and the $3,000 from licensing his photos, totaling $68,000. This figure represents all the income he generated from his professional activities and intellectual property before he accounts for business expenses such as camera equipment, editing software subscriptions, or travel costs to events.