Gross Income Definition and Legal Meaning

On this page, you'll find the legal definition and meaning of Gross Income, written in plain English, along with examples of how it is used.

What is Gross Income?

(n) Gross income is the total of all income of a person or entity during a period which is subject to tax after considering the allowable deductions and relief applicable to such income or person.

History and Meaning of Gross Income

Gross income is a legal term used in taxation to refer to the total amount of income earned by an individual or company before any deductions or taxes are taken out. It is often considered an important indicator of economic well-being and is used to determine eligibility for tax credits and other benefits. The concept of gross income has been around for centuries and has evolved over time to reflect changing economic conditions and tax laws.

In the United States, the concept of gross income has its roots in the federal income tax system established in 1913. The Internal Revenue Code (IRC) defines gross income as all income from any source, including wages, salaries, tips, interest, capital gains, rental income, and business profits. This definition has been refined over the years through court cases and amendments to the tax code, but the basic idea remains the same: gross income is the starting point for calculating how much tax a person or company owes.

Examples of Gross Income

Here are a few examples of how gross income might be used in different contexts:

  • An individual's gross income for the year is $50,000. After taking deductions and exemptions into account, their taxable income is $35,000.
  • A company reports gross income of $1 million on its annual tax return. After deducting expenses, its net income is $800,000.
  • A freelance writer's gross income for the month is $5,000. She deducts expenses such as office supplies and travel costs to arrive at a net income of $4,500.
  • An investment property generates gross rental income of $2,000 per month. After expenses such as maintenance and property taxes, the owner's net rental income is $1,500.

Legal Terms Similar to Gross Income

  • Adjusted Gross Income (AGI): This is the calculation of gross income minus certain deductions such as contributions to retirement accounts or student loan interest.
  • Net Income: This is the amount of income left over after all deductions and expenses have been taken into account.
  • Taxable Income: This is the portion of gross income that is subject to taxation after deductions and exemptions are applied.