What Is Gross Annual Income?

what is gross profits

Gross annual income includes all taxable income from any source. The United States Code lists 15 different types of earnings that contribute to it. While the Internal Revenue Service uses gross annual income as the starting point to determine your tax obligation, lenders reference it when you apply mortgages and credit.

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Earnings and Support Payments

Gross annual income includes any compensation you got in the previous year. Wages, salary, tips, commissions and fees are obvious contributors to it, but there's more. Business owners have to count what they take home for themselves. Property sale gains, unemployment compensation, rent income and royalties are among the other elements. Alimony payments count too, but child support money does not. You calculate the tax separately on capital gains and certain qualified dividends, which are also components of gross annual income.

Insurance Payments

Income from life insurance policies and endowment contracts are part of your gross income. However, don't include payments that result from the death of the insured or from life insurance payouts to chronically ill or terminal insurees. If your employer owns the life insurance contract, only the portion equal to the premiums you paid is excluded from gross income.

Gross income doesn't include employee survivor benefits from terrorist attacks or a public safety officer killed in the line of duty.

Other Income

Money from pensions, estates and trusts are part of gross income, but property received because of a gift, bequest or inheritance is not. Interest from tax-free bonds is excluded from gross income, as is anything from workers' compensation insurance. If you spent time in court, any legal damages you won don't count, but punitive damage winnings do. Payouts from accident or health insurance arrangements count only if your employer paid the premiums without including them in your income. The employer-paid premiums for accident or health plans are not part of gross income.

Special Situations

The IRS has special situations that can impact gross income. For example, a minister's rental home and allowance doesn't count as gross income. You must include any forgiven debt in your gross income unless it derives from Chapter 11 bankruptcy. Other exclusions apply to certain payments from the military and from your employer, and the cost of adoption and foster care. Proceeds from scholarships or the sale of your home can cut the gross annual amount as well, but only up to certain limits.

Source: ehow.com

Category: Forex

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