A taxpayer's gross income is essentially his or her income before any tax deductions are taken. The gross income might include income from W-2's, self employment, capital gains, or anything of value received by a taxpayer that cannot be excluded as income. From TITLE 26, Subtitle A, CHAPTER 1, Subchapter B, PART I, Sec. 61, Gross Income includes:
- Compensation for services, including fees, commissions, fringe benefits, and similar items;
- Gross income derived from business;
- Gains derived from dealings in property;
- Interest;
- Rents;
- Royalties;
- Dividends;
- Alimony and separate maintenance payments;
- Annuities;
- Income from life insurance and endowment contracts;
- Pensions;
- Income from discharge of indebtedness;
- Distributive share of partnership gross income;
- Income in respect of a decedent; and
- Income from an interest in an estate or trust.
Gross income can be viewed as a starting point as a way of determining a taxpayer's tax liability for a given tax year. It is also important for determining the AMT (Alternative Minimum Tax), which may affect some airline crewmember's with higher incomes and many itemized deductions.
Assuming a taxpayer is not affected by the AMT, gross income leads to adjusted gross income, adjusted gross income leads to taxable income, and taxable income leads to a taxpayer's tax liablility as follows:
Gross Income - Above-the-Line Deductions = Adjustable Gross Income
Adjustable Gross Income - Below-the-Line Deductions = Taxable Income
Taxable income is used to determine tax liability by looking at the tax rate tables for a given tax bracket.
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