What Is Gross Annual Income?
When figuring out your taxes, you always need a starting point. What is gross annual income? It is the starting point to calculating your taxes.
What Is Gross Annual Income?
Whether federal or state, the number one tax you will pay is your income tax. As is often the case with the tax code and regulations issued by the Internal Revenue Service, there are different types of income. In fact, there are a lot. Categories include dividend income, net income, and gross annual income just to name a few.
So, what is gross annual income? Gross annual income is a grab bag of all of your earnings for a particular year. The figure represents everything you made prior to taking any deductions, tax credits and so on. A simple example often helps with taxes, so let’s take a look.
Assume I am an employee for Ye Old Huge Corporation. I work 40 hours a week and take my annual two week vacation. I earn $45,000 a year for doing my job. I earn no additional revenue from any other source. My gross annual income is $45,000 for tax purposes. When it is time for me to prepare my tax returns, this is the number I start out with. I will then reduce this amount by any deductions I can claim. The resulting figure is my net income, the number I will use to go to the tax tables and figure out the amount of tax I have to pay.
Figuring out your gross annual income can be a bit more complex if you are not a salaried employee with no other earnings. If you own a small business that is not a business entity, for instance, you have to first figure out your profit using Schedule C for IRS form 1040. Some people refer to the overall revenues from your business as your gross annual income, but this is not correct. The gross annual income from a small business that is not incorporated is really your profit after deducting all your business expenses.
At the end of the day, gross annual income is really a measure of everything you worked long and hard for during a particular year. Once you figure it out, your goal is to whittle it down as much as possible by claiming tax deductions and tax credits.