Income is a stream, series, or lump sum of cash or cash equivalents that is paid to an individual or entity based on work performed, goods sold, ownership rights, or by being a creditor to whom interest is paid.
It is received when a net result is positive, and is sometimes referred to as the “bottom line.” Income can be viewed from a itemized, current perspective or as a balance sheet item for an entire accounting period, such as a year. It also might be discussed as a gross (pre-tax) or net (post-tax) amount.
Net income for a business is also called earnings, and it is found by reducing total revenue for the period by the operating expenses and amortization, depreciation, interest payments, and taxes. It is the net result of the business operations.
Earnings for a business can then be passed on to their investors in the form of dividends, which are a form of income even if they are reinvested, unless the dividend is reinvested in a tax-deferred plan. Companies can retain earnings and not pay them out directly to shareholders in the form of dividends, but it will still increase the shareholder’s stock price when earnings are strong.
Other types of investments that can be used for income included real estate, bonds, some options strategies, and more. The most prevalent way that income is earned is through time spent working at a job, of course. For most people, income from work will be the most important financial force in their lives, regardless of the amount of investing or speculating they are doing.
Some people earn steady income on an hourly or salaried basis, while some earn income through commissions on products. Income can be deferred in the form of defined contribution plans, such as 401(k)s, and deferred compensation plans, which are often reserved for executives only. These plans can lower the taxable income of a person in a given year.
When the money is withdrawn from these plans in retirement, it is fully taxable as income. The amount of income a person claims determines the rate at which their income will be taxed by the federal government, and the state government if their state has income taxes.
People save for retirement to make sure they have income in retirement, besides what may be provided by social security checks.