What is the difference between gross income and net income?

Gross income refers to the total earnings an individual or business receives before any expenses are deducted, including taxes and other deductions. It represents the full amount of income generated during a specific period, from wages, salaries, bonuses, and other forms of compensation or revenue.

Net income, on the other hand, is what remains after all deductions are made from gross income. This includes taxes and any other applicable expenses. It essentially reflects the actual income that an individual or business takes home and can be used for savings, investments, or spending.

The distinction between these two income types is crucial for understanding personal finances, as it impacts budgeting and financial planning. Net income is typically the figure individuals use to assess their financial situation, as it dictates their disposable income.

This makes the choice stating that gross income is total earnings before taxes, and net income is after deductions the most accurate representation of the definitions of these income terms.