Having a job and earning profit from some investments means generating annual income. In this article, you will learn what annual income is and how to calculate it. The article also describes other types of revenue, which are often confused with annual income. Keep reading to learn more about the topic.
Understanding Annual Income
Annual income is a total a person makes in a year before calculating deductions that are taken away from pay. For instance, if a person gets a $60,000 yearly salary, then it’s annual income. It’s worth mentioning that this individual doesn’t actually get $60,000 because of all deductions in favor of taxes.
Annual income is calculated by adding up how much a person makes from January of one current year to the last day of December in the same year. But in some cases, for example, when calculating the annual income of governmental organizations, they calculate annual income based on the fiscal year — the first day of October of a year and the last day of September in the following year.
Company’s Annual Income
The annual company’s income is the total it makes from its business operations during one specific financial year. It is calculated by adding the following components:
- Gains from selling products or services.
- Income from selling equipment or the company’s assets.
- Capital gains from selling the company’s shares.
- Income from interest or fees generated thanks to the company’s intellectual property.
If you own a company and generate income from all or several of these sources, you have to add them up to get the company’s annual income.
Individual’s Annual Income
An individual’s annual income is all money a person gets during one financial year. A financial year for individuals starts from April 1st and ends on March 31st of the following year.
The majority of the individual annual income calculators include the following:
- Salary, wage, bonuses, commissions, overtime pay.
- Provident fund.
- House rental allowances.
- Net income from having a business or a second job.
- Interest or dividends.
- Dearness allowance.
Adding up all of these sources would reflect your annual income.
How to Convert Hourly, Daily, Weekly, Monthly Income to Annual Income?
As mentioned, an individual is supposed to calculate salary or wage as one of the components of annual income. If the individual also has other profit sources, they add them up. But first, how do you calculate hourly, daily, etc., salaries to annual income?
Here is what you need to do to convert wage or salary to annual income if your working day lasts for 8 hours:
- hourly — multiply by 2,000;
- daily — multiply by 200;
- weekly — multiply by 50;
- monthly — multiply by 12.
Here is a simple explanation of why one must use these multipliers: in the US, it is typical to work 8 hours per day, 5 days per week, and 50 weeks per year. If a person earns hourly wages, then 8 x 5 x 50 = 2000. The same calculations are applied to daily, weekly, monthly salaries to find the multiplier. If you work for 12 hours or more, you can calculate the multipliers on your own.
Gross Annual Income vs. Net Annual Income
People often confuse gross or net incomes with annual income. Both gross and net income types fall under the annual income umbrella term, but they have significant differences. Keep reading to learn more about these differences.
It’s the amount of revenue an individual receives during one financial year before deductions and filing taxes. Landlords or lenders often use this type of profit before approving the candidate who wants to borrow money or rent a property.
It’s the money a person makes upon filing taxes and paying all deductions. One might say it’s the actual profit an individual makes. This is disposable revenue a person can use to pay for their needs. A business’s net income is its revenue during a financial year upon paying taxes.
Calculating Annual Income
You can use the following instruction to calculate annual income. You may also choose an online calculator to make it easier.
Determine Sources of Profit
The very first step is to determine all eligible sources of profit. An individual may have one full-time job and one part-time job, generate revenue from rental, etc. Individuals should include all sources and list exactly how much they earn from April 1st of one year to March 31st of the following year.
The next step is to add up all the numbers. For example, Susan earns a monthly salary of $2,000, so it’s $24,000 per year. Susan also has generated $9,000 from interest payments and $10,000 from capital gains. Here is how the calculation should look:
$24,000 + $9,000 + $10,000 = $43,000
So, Susan’s annual income is $43,000. This is the profit Susan gets before tax payment. When Susan files her taxes, she will get a net income.