What does 'gross income' refer to?

The concept of 'gross income' refers to all income earned by an individual or entity before any deductions or taxes are applied. This total encompasses all sources of income, including wages, salaries, bonuses, and other forms of compensation, as well as income derived from investments, rental properties, and business activities.

It is fundamental in taxation because it establishes the base upon which taxable income is calculated, and it is crucial for understanding an individual's overall financial situation. The significance of gross income is also reflected in tax forms and the computation of federal tax liabilities, where it serves as the starting point before applying any allowable deductions or credits.

This understanding differentiates gross income from other terms like net income, which is calculated after subtracting deductions, expenses, and taxes. Therefore, the correct identification of gross income as the total income earned before these considerations is essential in tax practice and personal finance.