Definition: Annual income is usually defined as all income that a person or business generates in a year. Net annual income is the total income earned by an individual or business during a period that does not include any periods in which no income is generated. Gross annual income is usually higher than net annual income because it covers all costs incurred by the business in managing operations and providing customer service. Fees or other charges not related to gross income are excluded from gross annual income.
Annual income is the total of all money you make during a year, including salary, tips, bonuses, interest, and any other cash payments you make. You should subtract annual expenses from annual income to determine your net present value. Your net present value (NPV) is the amount you could get if you sold all of your assets and immediately exchanged them for new assets at today’s market prices. The higher your net present value, the better off you are likely to be in retirement; on average, retirees have a higher net present value than people with lower incomes do at age 80. Your retirement strategy should consider how much you have contributed to your retirement funds over time and how much you want to achieve.
Annual income can include income from
- Salary and employment
- Self-employment or business
- Welfare and disability assistance
- Income from investments
- Capital gains before taxes
Calculating annual income is a fundamental part of being an independent business owner. If you are self-employed, your income will usually be determined by your business’s operations instead of personal spending. When calculating your business’s annual income, it is important to consider the income generated from all business activities regardless of whether it is earned by you personally or through a business partnership with another party such as a personal trust or separate legal entity.