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What is Income?


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Income Defined

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Definition: Income
Simply put, income is defined as money the comes into your personal household, usually generated as compensation in the form of a paycheck for work you have done. Other sources of income come from selling goods or services by doing a side job, getting paid for consulting services or selling products you've made or are reselling on eBay, at craft fairs or other venues.

Another form of income is passive income, which is generated when you rent out rooms, homes or apartments, or you earn capital gains, interest or dividends on investments or interest bearing accounts like savings accounts or some checking accounts.

Other types of income come from royalties, which are gained from agreements made relating to copyrights, patents, or gas, mineral or petroleum properties. Even bartering can be a way of generating income, if you strike a really good deal.

If you're reporting income on a tax return, tax software will help you to determine what monies taken in over the past year are income when you go through the tax interview.

Net Income
Net income refers to take home pay or the amount of money earned after payroll withholding such as state and federal income taxes, social security taxes, and pretax benefits like health insurance premiums. If you are enrolled in a flexible spending account to pay for medical costs, the amount withheld from each check is also on a pre-tax basis. Net Income is gross income less deductions.

Financial software figures your net income for you and keeps a running total which you can find on reports in the software. Record income in the account register as a split transaction which includes gross pay and the taxes and pre-tax deductions found on your paycheck stub. If you have direct deposit, ask the human resources department or a person who manages payroll how you can get a record of each check with these details.

Some personal finance software, like Quicken, has a feature for entering your paycheck information once, then each time you're paid, the taxes and pre-tax deductions are netted out from the gross pay. However, income taxes fluctuate by a few pennies throughout the year and you should check paycheck entries entered as a scheduled transaction by the software each pay period and make adjustments as needed.e adjustments as needed.

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