Define "income"

1 Answer | Add Yours

clairewait's profile pic

clairewait | High School Teacher | (Level 1) Educator Emeritus

Posted on

"Income" as a basic business vocabulary word, is fairly broad.  It can be defined, basically, as money received on a regular basis, for work or through investments.  "Income," for a business, is often considered to be the money earned by the business that goes over and above what was spent on production.

Depending on the type of business you are talking about or who you ask, there are several different categories of income, and many examples within these categories.  The two most basic categories pertaining to individuals or households include:

  • Aggregate income (also called earned income) is the combined total of how much money a person or a household makes, before any taxes, benefits, or payments are taken out.  Generally, aggregate income is earned by working.
  • Discretionary is money available to spend after all taxes (or other withholding expenses) have been paid.

More specific sub-categories of income are things like:

  • Residual income: this is money earned on a continuous basis for doing something one time.  Residual income comes from things things like renting out a piece of property, earning quarterly or annual dividends on an investment, or earning royalties on a product as it sells (such as publishing a book).
  • Leveraged income: this is money that a person earns as a result of someone else working.  You may have heard of the "pyramid scheme" in business (also known as network marketing).  The person at the top of a pyramid earns a percentage of everything his team members sell.  Though the man at the top doesn't do the footwork, he is rewarded for having others on his team.  Leveraged income can work in many other ways within a company, but this example is one of the easiest to understand.
  • Passive income: as a sub-category, passive income basically defines income that requires very little (or no) work to maintain.  This includes things like investment dividends, internet companies which can be set up to almost run themselves, or (like above) income from things like rental properties.

We’ve answered 318,005 questions. We can answer yours, too.

Ask a question