What is gross annual income?
Determining your gross annual income can be vital in figuring out your tax burden or for obtaining services based on your income. Your gross annual income, net annual income and adjusted gross income are different values. Understanding and differentiating the sums is key to minimising your taxes as well as making sure you are getting the full benefit of any income-based opportunities.
Your wages from employment are likely the largest source of personal income. The amount of actual money you receive from working, if your employer deducts taxes from your pay, is your gross income received from that employer. The amount left over after deducting taxes is your net income. Your rate of pay multiplied by the frequency (up to one year) results in your annual gross income from that source. If your rate of pay is £13 per hour and you work 2,000 hours per year, your annual gross income is £26,000.
The gross annual income for a business is the amount of earnings after business expenses. Business expenses include payroll, supplies and other services essential for running your business, as well as other costs related to your business. The gross annual income is necessary for establishing your business' earnings for tax purposes. While wage earners have a simpler format for determining annual gross income, business owners and self-employed people will have to include expenses when determining gross annual income.
Taxes are applied to gross annual income. The goal is to lessen accurately the amount to which your taxes will be applied. Approved deductions will decrease the amount of your gross annual income and, therefore, lessen the amount of taxes you will have to pay. Taxes are applied based on tax brackets and deductions not only can reduce the amount of taxes paid by reducing the annual gross income, but also can move your income from a higher to a lower bracket. The lower the tax bracket, the less the tax-rate percentage.
Deductions can include any expense for your business, approved donations and applicable depreciation of real assets. The amount left over after all approved deductions and exemptions is called the adjusted gross annual income. Consult an accountant or tax specialist for specific deduction rules.