If you are living and working in Singapore, you may have heard of the term “gross income” before. But what does it mean and how does it affect you? In this blog post, we will explain what gross income is, how to calculate it, and why it is important for your financial planning.
What is Gross Income?
Gross income is the total amount of money that you earn from any source of employment or business before any deductions are made. It includes your basic salary, overtime pay, commissions, bonuses, allowances, tips, and any other income that you receive from your work. It also includes any income that you earn from other sources, such as investments, businesses, or other jobs.
Gross income is different from net income, which is the amount of money that you have left after deducting personal income tax and employee Central Provident Fund (CPF) contributions. Net income is also known as take-home pay or disposable income.
How to calculate gross income?
The way to calculate your gross income depends on how you are paid. If you are a full-time employee who receives a fixed monthly or yearly salary, you can simply divide your annual salary by 12 to get your gross monthly income. For example, if you earn $60,000 per year, your gross monthly income would be $5,000.
If you are paid by the hour, you need to multiply your hourly wage by the number of hours that you work per week, and then multiply that figure by 4 to get your gross monthly income. For example, if you earn $20 per hour and work 40 hours per week, your gross monthly income would be $3,200.
If you are self-employed or run a business, you need to subtract your monthly business expenses from your total monthly revenue to get your gross monthly income. For example, if you earn $10,000 in revenue and spend $3,000 on business expenses in a month, your gross monthly income would be $7,000.
Why gross income is important?
Knowing your gross income is important for several reasons. First, it helps you to file your taxes accurately and claim any deductions or reliefs that you are eligible for. In Singapore, personal income tax rates range from 0% to 22% depending on your taxable income. Taxable income is calculated by deducting various allowances and reliefs from your gross income. The more deductions you can claim, the lower your taxable income and tax liability will be.
Second, it helps you to plan your budget and manage your expenses. By comparing your gross income with your net income, you can see how much money is going out of your pocket every month for taxes and CPF contributions. You can then allocate the remaining amount for your essential and discretionary spending, as well as saving and investing for your future goals.
Third, it helps you to qualify for loans and credit cards. Banks and other lenders use your gross income to assess your creditworthiness and determine how much money they can lend you and at what interest rate. Generally, the higher your gross income, the more likely you are to get approved for a loan or credit card and enjoy better terms and conditions.
Summary
Gross income is the total amount of money that you earn from any source of employment or business before any deductions are made. It includes your basic salary, overtime pay, commissions, bonuses, allowances, tips, and any other income that you receive from your work. It also includes any income that you earn from other sources, such as investments, businesses, or other jobs.
Gross income is different from net income, which is the amount of money that you have left after deducting personal income tax and employee Central Provident Fund (CPF) contributions. Net income is also known as take-home pay or disposable income.
The way to calculate your gross income depends on how you are paid. If you are a full-time employee who receives a fixed monthly or yearly salary, you can simply divide your annual salary by 12 to get your gross monthly income. If you are paid by the hour, you need to multiply your hourly wage by the number of hours that you work per week, and then multiply that figure by 4 to get your gross monthly income. If you are self-employed or run a business, you need to subtract your monthly business expenses from your total monthly revenue to get your gross monthly income.
Knowing your gross income is important for several reasons. First, it helps you to file your taxes accurately and claim any deductions or reliefs that you are eligible for. Second, it helps you to plan your budget and manage your expenses. Third, it helps you to qualify for loans and credit cards.
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