Law Dictionary

gross income

noun
Updated on: 26 Jul 2017

Legal Definition of gross income

  1. :  all income derived from any source except for items specifically excluded by law

Additional Notes on gross income

Section 61 of the Internal Revenue Code lists fifteen nonexclusive items that should be included in gross income. They are (1) compensation for services, including fringe benefits and commissions; (2) gross income derived from business; (3) gains derived from dealings in property; (4) interest; (5) rents; (6) royalties; (7) dividends; (8) alimony and separate maintenance payments; (9) annuities; (10) income from life insurance and contracts for endowment insurance; (11) pensions; (12) income from discharge of a debt; (13) distributive share of partnership gross income; (14) income received (as by an estate or heir) by reason of a person's death; and (15) income from an interest in an estate or trust.


Financial Definition of GROSS INCOME

gross income

What It Is

Gross income is income before taxes or adjustments. In the accounting world, gross income is usually the same thing as gross profit (that is, revenue minus cost of goods sold).

How It Works

Let's assume restaurant chain XYZ sold $1 million worth of food last year. The cost of that food was $330,000. Thus, the company's gross income was $1 million - $330,000 = $670,000.

Let's also assume John Doe gets a job that pays $1,000 a week. Though he only brings home $750 due to payroll taxes, his gross income is $1,000.

Why It Matters

Gross income does not exclude the cost of goods sold, general and administrative expenses, or other costs (those are typically incorporated in the operating income calculation).

For individuals, gross income is not the same as taxable income. For example, if John used $250 of his $1,000 a week to invest in his 401(k) plan, his gross income would be $1,000 but his taxable income would be $750.


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