The difference between gross and net income is that gross income is the total amount of income made and net income is the total amount of income made after taxes and other expenses have been subtracted. The total gross income or gross amount can refer to total profit or total sales.Continue Reading
Salaried employees are taxed on their gross income while businesses and self-employed people are taxed on their net income. This was established in the Income Tax Act of 1961 for the United States. The net income expenses can include selling, general and administrative expenses as well as interest payments.
The term "gross margin" is equal to the gross income as a percentage or revenue whereas the net margin is equal to the net income as a percentage of revenue. Net income is sometimes referred to as "the bottom line" because net income is always listed at the bottom of an income tax statement. In the United Kingdom, net income is also known as "profit attributable to shareholders."
An example of net income and gross income would be a self-employed businessman. Say he makes $50,000 for the year, but he has $20,000 in deductions (expenses) and credits. This means that he has a taxable income of $30,000. Then his income tax of $5,000 will need to be subtracted to arrive at $25,000. So, $25,000 is his net income and $50,000 is his gross income.Learn more about Financial Planning
The formula for operating income is gross income minus operating expenses minus depreciation and amortization. Operating income is the revenue that remains after all variable and fixed costs are accounted for.Full Answer >
Some reasons people make early withdrawals from their IRAs include disability, death of the IRA owner, medical expenses, purchase of a first home, costs of higher education, active military duty, payment of health insurance premiums during unemployment and payment of back taxes to the IRS. The IRS excuses the early distribution tax penalty for these withdrawals. Other reasons include a falling stock market, the payment of debt and early retirement.Full Answer >
If you itemize your taxes, you can deduct your mortgage interest; state and local taxes; charitable donations; and medical expenses that exceed 10 percent of your adjusted gross income, explains TurboTax. If you claim the standard deduction, you deduct a set figure determined by the Internal Revenue Service.Full Answer >
Deferred compensation, or the deferring of taxes on income until it’s withdrawn, can refer to pensions, stock options and retirement plans. Qualifying plans that allow for deferral of taxes must comply with the Employee Retirement Income Security Act of 1974. Other types of deferred compensation are typically taxed when earned.Full Answer >