How is gross income defined?

Gross income is defined as the total income earned before any taxes or deductions are taken out. This includes all sources of income such as wages, salaries, bonuses, rental income, investment income, and any other earnings. Understanding this definition is crucial because gross income serves as the starting point for calculating taxable income and net income.

In personal finance, knowing your gross income helps you understand your overall earning potential and is essential for budget planning and financial assessments. It is the figure often used when applying for loans or mortgages, as lenders want to see your total earnings before any deductions to evaluate your creditworthiness and repayment capacity.

This definition differentiates gross income from other financial concepts. For instance, net income, which comes after taxes and deductions, presents a more accurate picture of spendable income, while the difference between income and expenses would represent net profit or loss in certain contexts.