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Gross Income: A Comprehensive Guide to Its Legal Definition
Definition & Meaning
Gross income refers to the total income earned by an individual or a business from all sources before any deductions are made. This includes wages, business revenue, interest, rents, dividends, and other forms of income. For individuals, gross income is calculated before subtracting allowable expenses, while for businesses, it is often defined as total revenue minus the cost of goods sold, also known as gross margin. Adjusted gross income (AGI) is a related term that represents gross income after specific deductions, but before standard or itemized deductions are applied.
Table of content
Legal Use & context
Gross income is a fundamental concept in tax law and is used in various legal contexts, particularly in tax filings and financial disclosures. It is relevant in areas such as:
Taxation: Determining tax liability based on total income.
Family Law: Calculating alimony and child support obligations.
Bankruptcy: Assessing income for debt repayment plans.
Users can manage their tax filings and related legal documents using templates available through US Legal Forms.
Key legal elements
Real-world examples
Here are a couple of examples of abatement:
Example 1: An individual earns $50,000 from their job, $5,000 from rental properties, and $2,000 in dividends. Their gross income would be $57,000.
Example 2: A small business generates $200,000 in sales but incurs $120,000 in costs for goods sold. The gross income is $80,000. (hypothetical example)
Relevant laws & statutes
The Internal Revenue Code (IRC) provides the legal framework for defining gross income. Specifically, Section 61 outlines what constitutes gross income for tax purposes. Other relevant statutes may include state tax codes that define income differently.
State-by-state differences
Examples of state differences (not exhaustive):
State
Gross Income Definition
California
Includes all income sources, similar to federal definition.
New York
Has specific exclusions for certain types of income.
Texas
No state income tax; gross income is primarily a federal concern.
This is not a complete list. State laws vary and users should consult local rules for specific guidance.
Comparison with related terms
Term
Definition
Difference
Net Income
Income after deductions and expenses.
Gross income does not include deductions.
Adjusted Gross Income (AGI)
Total income after specific deductions.
AGI is a subset of gross income.
Taxable Income
Income subject to tax after all deductions.
Taxable income is calculated after gross income and AGI.
Common misunderstandings
What to do if this term applies to you
If you need to report your gross income, gather all sources of income, including wages, rental income, and dividends. Consider using US Legal Forms' templates for tax filings and related documents to simplify the process. If your financial situation is complex, consulting a tax professional may be beneficial.
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