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Gross refers to the whole of something, while net refers to a part of a whole following some sort of deduction. For example, net income for a business is the income made after all expenses, overheads, taxes, and interest payments are deducted from the gross income. Similarly, gross weight refers to the total weight of goods and its packaging, with net weight referring only to the weight of the goods.
Gross vs. Net in Economics
In economics, "gross" means before deductions, e.g., Gross Domestic Product (GDP) refers to the total market value of all final goods and services produced within a country, in a given period of time, usually a calendar year. Net Domestic Product (NDP) refers to the Gross Domestic Product (GDP), minus depreciation on a country's capital (economic) goods. (The NDP is thus, in effect, an estimate of how much the country has to spend to maintain its current GDP.)
Gross vs. Net in Accounting
Gross vs. Net Income
In accounting, gross profit, gross income, or gross operating profit all refers to the difference between revenue and the expense of providing a service or manufacturing a product, prior to deducting overheads, payroll costs, taxes, and payments on interest. Net profit, on the other hand, is the gross profit, minus overheads and interest payments and plus one-off items for a certain period of time.
In the UK, the VAT (a "value added tax" that is a sales tax) is only included in a "gross" amount; the "net" amount is calculated before tax.
Gross Margin vs Net Margin
Gross margin is the ratio of gross profit to revenue. Net margin is the ratio of net profit to revenue.
Gross vs Net Pay for Individual Salaries
The cash that employees get every paycheck is their net pay, which is less than their total salary aka gross income. Employers are required to withhold federal — and sometimes state and local — income taxes from each paycheck. The amount of money withheld as taxes depends upon the withholding rate. This depends upon the employee's tax filing status, tax bracket and the number of allowances chosen by the employee in their W-4 form.
Independent contractors, unlike employees, tend to get paid in full. It is their responsibility, rather than the client employing them, to pay their taxes on time. Companies are required to report payments made to independent contractors so that the IRS can verify if their tax returns were filed accurately and all income was reported.
Leasing
Gross and net leases refer to what expenses the tenant is obligated to pay in addition to the agreed upon rent. Typically these include utility bills and property taxes. Most commercial leases require the tenant to pay for property maintenance and upkeep; insurance of the property; utility bills like power, water and sewer; and property taxes. This type of lease is called a gross lease.
A net lease is one where the tenant is only required to pay the rent. But there are other types of net lease that entail more costs:
- single net lease: tenant pays rent and property taxes
- double net lease: tenant pays rent, property taxes and insurance
- triple net lease: tenant pays rent, property taxes, insurance and maintenance
