Do You Know the Amount of Your Gross Income?
Learn What Can Contribute to Gross Income
Gross income is the amount of money, typically on a paycheck, before payroll taxes.
For example, the gross amount of my paycheck is $800, which is my hourly wage multiplied by hours worked. But, I take home only $675 in net income.
Total gross income comes from other sources as well:
- Consistently selling on eBay, Craig's list or other online storefronts. Income from profits is (original cost of the item) - (amount sold for).
- Selling items at a swap meet, craft fair or other venues, even if the activities are a hobby.
- Rental property income.
- Self-employment, consulting and side jobs.
- Interest, dividends and capital gains from investments.
This list of income that could contribute to total gross income is not complete. Tax software will help you identify all income that needs to be reported to the government by asking questions in the tax interview, or you can ask an accountant for advice.
What Can Reduce Gross Income?
- Some business expenses, such as supply costs, gas mileage or equipment rental fees.
- Some moving expenses.
- College tuition or student loan interest.
- Contributions to certain retirement accounts.
- Penalties from financial institutions for early withdrawal of savings.
- Healthcare savings account deductions.
- Jury duty pay sent directly to the juror's employer.
- Alimony paid.
- Deduction for half the self-employment tax
What Is Adjusted Gross Income?
Adjusted Gross Income (AGI) is gross income minus tax deductions that are allowable whether or not you itemize deductions on your tax return.
Adjusted Gross Income is figured on the first page of the U.S. federal tax return, and serves as the basis for the income tax you owe.
If you're doing your taxes, use tax software to calculate AGI automatically and to accurately do other tax calculations as the software walks you through the tax interview.
What Is Net Income?
Net income refers to take home pay or the amount of money earned after payroll withholding, such as state and federal income taxes, social security taxes, and pre-tax benefits like health insurance premiums. If you are enrolled in a flexible spending account to pay for medical costs, the amount withheld from each check is also on a pre-tax basis. Net Income is gross income less deductions.
Financial software figures your net income for you and keeps a running total which you can find on reports in the software. Record income in the account register as a split transaction, which includes gross pay and the taxes and pre-tax deductions found on your paycheck stub.