What is the difference between gross income and net income?

The distinction between gross income and net income is fundamental in understanding personal and business finance. Gross income typically refers to the total earnings received by an individual or business before any deductions are made, such as taxes and other expenses. This figure provides a clear picture of the total income generated from various sources, including salaries, bonuses, and investment incomes.

Net income, on the other hand, is the amount remaining after all deductions have been applied, most notably taxes. It reflects the true profitability or take-home pay and is what individuals or businesses actually retain for spending or saving.

In this context, the answer highlights that gross income includes all earnings before taxes, while net income represents what is received after taxes have been accounted for. This understanding is crucial for financial planning, tax preparation, and assessing overall financial health.

The other choices misrepresent the definitions of gross and net income in various ways. For example, some might confuse gross income with a company's revenue or mix up the timing of earnings versus deductions. Understanding the correct definitions helps clarify financial statements and personal budgeting.