Gross vs Net Income: What is the Difference?

Understanding the difference between net income and gross income is essential to knowing your real buying power and savings rate.

So, if you’re trying to save up for a house down payment or saving up for medical school, you’re in the right place!

Gross Income vs Net Income: What’s the Difference?

Individuals and businesses both use the terms gross income and net income. However, the net income has different meanings depending on the deductions or expenses

Individual Gross income is the total income before any deductions are applied, such as federal income tax, state income tax, local income tax, Social Security, and Medicare.

Business A business gross income also is a company’s total revenue before accounting for any expenses, such as operating expenses, depreciation, costs of goods sold, etc.

Net income also can be used in other financial statements. Businesses can also use net income in the balance sheet and the cash flow statement.

Individual List of Deductions

Federal income tax The Internal Revenue Service (IRS) imposes a tax on all income sources. The government uses these taxes to make changes and improvements to various parts of the country, such as military, infrastructure, education, and aid where needed.

Federal income tax

The Internal Revenue Service (IRS) imposes a tax on all income sources. The government uses these taxes to make changes and improvements to various parts of the country, such as military, infrastructure, education, and aid where needed.

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