Income 101: What is the Difference Between Net and Gross

Income is defined by Meriam Webster as, “the amount of such gain received in a period of time”. Looking deeper at the definition, we see the word gain which may be confusing because this implies all of your income is “gained” into your own personal account; to be more specific, the net is your gained income after taxes and deductions take place.

Net vs. Gross Income

Net is the adjustment of your gross. Wage-earners and corporations alike both receive a gross (total), which is then adjusted for a net (profit). For individuals, gross income can include the following: wages, salaries, & tips, royalties, and alimony money. However, there are other methods of receiving income such as, through gifts or scholarships. In another blog post, we will explain the importance of tax deductibles and exemptions; for now, it is important to note that deductions can be beneficial to taxpayers. Subtracting them from your income reduces your final gross income. So, you’re not taxed as much. Finally, your final net is the amout you take home, which has deductions like taxes subtracted out.

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