Gross income is the total amount you earn before any deductions or taxes. It includes all income sources, such as:
Wages and salaries
Interest and dividends
Investments
Rental income
Business profits
Gross income shows your total earnings but does not reflect what you take home after taxes or other deductions.
What is Adjusted Gross Income?
Adjusted Gross Income, or AGI, is your gross income minus specific deductions, also called adjustments to income. These can include:
Retirement contributions
Certain healthcare costs
Student loan interest
Alimony payments for agreements made before 2019
AGI determines eligibility for tax credits, deductions, and benefits. It is also the starting point for calculating taxable income and gives a more accurate view of your tax obligations.
Why Should You Know Your Gross Income and AGI?
Knowing these numbers helps with financial planning, tax management, and loan applications. It ensures taxes are filed correctly and you can take advantage of deductions or credits.
Why Gross Income Matters
Gives a full picture of total earnings
Helps with budgeting and financial planning
Determines loan eligibility and borrowing power
Why AGI Matters
Shows taxable income after adjustments
Affects eligibility for deductions and credits
Helps calculate your final tax bill
How to Calculate Gross Income
For businesses:
Gross income is total revenue minus the cost of goods sold (COGS), including direct costs like materials and labor.
Gross Income = Total Revenue – Cost of Goods Sold
For individuals:
Personal gross income is the sum of all earnings, including wages, salaries, bonuses, rental income, interest, dividends, and self-employment earnings.
Gross Income = Total Earnings + Other Sources of Income
How to Calculate Adjusted Gross Income
Subtract eligible deductions from gross income. These might include retirement contributions, student loan interest, and self-employment taxes.
AGI = Gross Income – Eligible Deductions
Once AGI is calculated, you can determine taxable income and identify applicable deductions and credits.
FAQs about Gross Income
What is the difference between gross income and AGI?
Gross income is your total earnings before deductions. AGI is your gross income after specific deductions are applied.
Why is AGI important for taxes?
AGI determines eligibility for deductions, tax credits, and benefits. It also helps calculate taxable income.
How do businesses calculate gross income?
Subtract the cost of goods sold from total revenue to get the business’s gross income.
Can AGI affect my loan eligibility?
Yes. Lenders often use AGI to assess income, affordability, and borrowing power.
What counts toward gross income for individuals?
Wages, salaries, bonuses, investment income, rental income, and self-employment earnings all count toward gross income.
