Do You Know the Amount of Your Gross Income?
Learn what can contribute to gross income
Gross income is the amount of money you earn, typically on a paycheck, before and other deductions. For example, say the gross amount of your paycheck is $800, which is your hourly wage multiplied by hours worked. You'll see this amount on the W-2 form you receive from your employer at tax time.
However, you take home only $675 in net income, which is the remainder of your gross income after taxes and other deductions. From the perspective of the Internal Revenue Service (IRS), gross income also represents the total amount of income from all sources, that you must report on your income tax return.
Sources of Income
Total gross income comes from several sources other than a W-2 job:
- , Craig's list or other online storefronts. Your gross income is the money you receive for the items. The cost of your item and any fees you paid to the online platform go in the expense portion of your income tax return.
- 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-job income
- Interest, dividends and capital gains from investments
The above list of potential income sources is not exhaustive. Tax preparation software can help you identify all income that needs to be reported to the government by answering the questions in the software's tax interview, or you can ask an accountant for advice.
What Reduces Gross Income?
- Certain 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
Some types of income don't need to be reported on your income tax return because you won't owe taxes on them. This includes certain types of income from state and municipal bonds, some Social Security benefits, certain inheritances and gifts and some life insurance payouts.
What Is AGI?
Adjusted Gross Income (AGI) represents gross income minus certain tax deductions and credits that are allowable whether or not you itemize deductions on your tax return.
Adjusted Gross Income is figured on the first page of your U.S. federal tax return, and serves as the basis for the income tax you owe. If you're doing your own taxes, you can use tax software to calculate AGI automatically and to accurately do other tax calculations as the software takes you through its tax questionnaire interview.
What Is Net Income?
Net income refers to take home pay or the amount of money earned after 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 your gross income minus deductions.
Financial software can figure your for you and keep a running total which you can locate on certain reports generated by the software. You would record income in the software's account register as a split transaction, to record gross pay and then separately record the taxes and pre-tax deductions found on your paycheck stub.