How to Calculate Gross Income for Tax

Calculate Gross Income for Tax

How to Calculate Gross Income for Tax. Gross income can be defined as the income from all sources prior to any deduction or taxes. From a company's perspective it has to be total revenues earned after deducting the cost of sold goods. In the following steps, we will help you calculate the gross income for tax purposes.

Gross Income for Companies

Step 1

Determine your gross receipts. Any income that is connected to your business qualifies to be called business income. This includes any receipts in cash, checks, credit card payments, rents, dividends, promissory notes, waived off/canceled debts, damages, barter deals and economic injury payments.

Step 2

Subtract returns and allowances from the gross receipts and calculate the net receipts. Returns and allowances consist of refunds to customers, rebates, discounts or any allowance on the sales price.

Step 3

Determine the cost of goods sold. For that you need to consider the following: a) total inventory as on the first day of the year, b) net purchases and c) labor costs and other costs. From the sum of all these, deduct the total inventory as on the last day of the year and you will arrive at the cost of goods sold.

Step 4

Deduct the cost of goods sold from net receipts and add other income like fuel tax credits and you have your Gross Income.

Gross Income for Individuals

Step 1

Determine your income from every source. This includes compensation of all sorts, interests, rents, gains from property deals, royalties, dividends, alimony, annuities, life insurance income, pension and any other source except the ones exempted by the Law.

Tip

The complete list of incomes specifically included in gross income is listed in the Internal Revenue Code Section 71-90 and following and the incomes excluded from gross income are listed in IRC Section 101-140.