Gross Income is the total income earned by an individual or entity before any deductions or taxes are applied.
Gross Income represents the total earnings or revenue generated from all sources before any expenses, deductions, or taxes are subtracted. In finance and wealth management, it includes wages, interest, dividends, rental income, and other income streams prior to adjustments. For family offices and wealth managers, gross income is a foundational figure used to assess financial health, tax planning, and investment decisions. It provides a comprehensive view of the total inflow of resources before liabilities reduce net income.
Understanding gross income is critical in shaping investment strategies, tax reporting, and wealth governance as it establishes the baseline from which taxable income and potential tax liabilities are calculated. Higher gross income can expand the capacity for investment and influence the structure of portfolios while also impacting the applicability of various tax credits and planning opportunities. Accurate assessment of gross income ensures effective budgeting, resource allocation, and compliance with tax regulations, which are all vital components in managing multigenerational wealth for family offices.
Suppose a family office earns $1,000,000 from various sources: $700,000 in investment income, $200,000 in rental income, and $100,000 in business income. The gross income is $1,000,000 before any deductions or taxes are applied.
Adjusted Gross Income
Adjusted Gross Income (AGI) is derived from Gross Income by subtracting allowable adjustments and deductions. AGI is used as a measure of taxable income and determines eligibility for various tax benefits. While gross income shows total earnings, AGI provides a more precise figure for tax calculation purposes.
What is included in gross income?
Gross income includes all income earned from wages, interest, dividends, rental properties, business income, and other sources before any deductions or taxes are accounted for.
How does gross income differ from net income?
Gross income refers to total earnings before deductions, while net income is the amount remaining after all expenses, taxes, and deductions have been subtracted from the gross income.
Why is gross income important for tax planning?
Gross income establishes the preliminary figure used to calculate taxable income, helping to identify potential tax liabilities and plan strategies to optimize tax efficiency.
