What is the difference between Gross and Net Income?

Although the two terms gross and net income look the same, there are some differences between the two. Gross income is the income generated before taxes are deducted. As an employee, the amount of money received either on a weekly or monthly basis from your employer before taxes are deducted is your gross income.

For business owners, your gross income can be determined by subtracting the cost of goods from the profit. The amount you have left before taxes are deducted by the government is your gross income. What determines how much to be paid as taxes also depends on the amount we earn, which means more earnings more taxes. Net income, on the other hand, is the amount you have left after taxes and operating expenses have been deducted from the gross income. In other words, net income is income after taxes. The knowledge of these two terms is very important, most especially for business owners.