There are a few finance terms that you’ll need to know in order to function as a fiscally responsible adult or business owner, and one of these is “gross income.” You’ll also need to know how to calculate this number for any loan applications or financial reports you need to submit. Show
In this article, we’ll define gross income and show you how to calculate it for your household and your business. Key Takeaways
What Is Gross Income?Gross income is the sum total of salary, profits, and any other type of earnings before any taxes or deductions are taken out. For individual employees, this means their total monthly payments before tax deductions. For businesses, the definition and calculation of gross income are a little different in that it is the total amount of income, minus the cost of goods sold. Why Is Gross Income Important?Gross income is important for both a businesses and individuals because it follows your financial history and accounting, which provides insight into your overall financial health. The reasons why it’s so crucial varies a little between individuals and businesses, but regardless, paying attention to gross monthly income can help improve or maintain financial situations in the future.
How to Calculate Gross Monthly Income for IndividualsHow you calculate your gross monthly income as an individual depends on whether you are paid an annual salary or an hourly wage. For an employee who is paid a salary, the calculations are a little bit easier. Take your annual salary pre-tax and divide it by twelve to account for every month of the year. The Equation Is: Annual Salary/12= Gross Monthly Salary If you’re an employee who gets paid hourly, getting to your gross monthly income takes a little more math but is still fairly easy. First, you find your weekly pay by multiplying your hourly rate by the number of hours you work per week. Once you have this number, multiple by 52 to get your annual salary. Past this step, you can treat this number the same as someone who receives an annual salary and just divide it by 12.
Keep in mind that as an individual, any earnings you receive outside of your job can also go towards your gross monthly income. Examples of additional income include:
How to Calculate Gross Monthly Income for BusinessesWhen handling the calculations for a business’s gross monthly income, the focus is not on hourly pay or salary. It’s about the revenue traffic that’s coming into the company. To find this number, you subtract the cost of goods sold, also known as COGS, from the gross revenue. Gross revenue means all forms of income and earnings associated with your business in a given time-frame – for this purpose, a month.
Examples of Gross Income CalculationsUnderstanding equations can give you a good general idea about how to go about figuring out your individual or company’s gross income. Seeing these equations applied to relevant examples can further this understanding and help you use the formulas in your own life. Example 1 – Hourly Employee Monthly Gross Income Calculations
Example 2 – Salaried Employee Monthly Gross Income Calculations
Example 3 – Freelance Worker Monthly Gross Income Calculations
Example 4 – Business Monthly Gross Income Calculations
What Is Net Monthly Income?Net monthly income or net sales is the amount of money an individual or business earns in one month after accounting for deductions and expenses. For an individual receiving a pay check from their employer, the most common deductions are:
Net income may also be referred to as “take-home pay,” because it’s the amount of money that you actually have in your bank after a given pay period. While gross monthly income is important for loan applications and credit approvals, net monthly income is far more important when it comes to personal financing and budgeting. For example, someone earning $48,000 as an annual salary shouldn’t assume that they have $4,000 a month to spend. Depending on what state they live in and how expensive their health insurance premiums are, their net monthly income might be closer to $3,000 a month. Gross Income FAQs
Final ThoughtsKnowing your gross monthly income or gross profit margin is important for applying for loans or need to figure out your taxable income. The bottom line is that lenders and the IRS needs to know how much money you’re paid before deductions are taken into account. The calculations for determining your gross monthly income aren’t too advanced. With a bit of multiplying and dividing, you’ll be able to get a handle on the amount of money coming in each month, no problem. What is included in monthly income?Gross monthly income is the total amount of income you receive from all sources each month. Gross monthly income includes salary, bonuses, overtime, investment income, interests, Social Security and any other income sources. Anyone extending credit will want to know your gross monthly income.
What is monthly income?Monthly income means the gross countable income received or projected to be received during the month or the monthly equivalent.
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