Money Matters (Part 2) - Gross Income vs. Net Income

Pop quiz! – What’s the difference? Not sure? Well, we’re here to let you know the big differences between Gross income and Net income.

Income for Individuals

For an individual, gross income is defined as all income you receive in the form of money, goods, property and services, which are not exempt from tax. If you are employed, your gross income will also include all amounts from working including bonuses.

Your net income is then the amount after all deductions have been made from taxes, insurance, etc.

Income for Businesses

For businesses it is slightly different. Here, the gross income is the summary of all the income your business earns.

To calculate this, you must combine the total of all cash, cheques, and credit card charges, credit card charges, rental income, interest and dividends, canceled debts, promissory notes, kickbacks, damages and lost income payments your business received during the year. Even if your business routed the money to a third party, you must still claim it as income. You shouldn't deduct any expenses when calculating your gross income.

To calculate your net income, you must deduct business expenses from your gross income. These typically are expenses such as cost of good sold, advertising expenses, insurance, legal fees, office expenses, maintenance, etc.  Similarly, if you use a portion of your home for business purposes, you may be able to deduct expenses for the maintenance of the space.

Calculating your gross and net income allows you to identify your largest expenses, thus allowing you to make improvements.