Recently updated on October 25th, 2022 at 11:43 am
Did you know that small businesses pay an estimated tax rate of 19.8%? At such a high percentage, taxes will certainly decrease a portion of your income. As a business professional, you should find exactly what you make before tax season to ensure you’re gaining revenue.
Well, with this guide, you can learn how to calculate income before taxes. For your convince, we have provided not one but two ways to calculate your income depending on your needs and preferences.
Now, are you ready to get started? Here’s a quick look at how to calculate your net income:
What Is Net Income?
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Gross income is often confused with net income. However, the two are completely different.
Gross income refers to how much money you acquire during a reporting period. While net income is the amount of money, you make after subtracting business expenses.
Let’s say, for example; you make $330,00 in a month; however, you completed jobs for about $70,000. Your gross income totals to an even amount of $400,000.
Although, if you have to write checks of $40,000 to suppliers and another in $15,000 for bills, you haven’t yet paid. Your expenses equal $55,000, bringing your total income to $345,000.
How to Calculate Income Before Taxes
Calculating your net income isn’t necessarily tricky; however, they’re a few ways it can be completed: single-step or multiple-step. Although the difference between the two is, they both consider gains and losses differently.
1. Single-Step Income Statement
With a single-step income statement, just add all your profits together, then add your expenses together. From there, subtract your expenses from your overall revenue, then you’ll end up with your total net income. The last line above your tax expense displays your total income before taxes.
2. Multiple-Step Income Statement
If you choose the multiple-step income statement, it can be more challenging, but it provides you with a precise and detailed account of your net income. To get started, subtract the total of goods sold from your revenue in order to get your gross profit. Then subtract your operating costs like advertising or office supplies in order to get your operating income.
Next, list separately your nonoperating costs like any investments you’ve made or gains from lawsuits. Finally, add together the operating and nonoperating totals to find your net income.
If you need help calculating your total net income, visit www.icalculator.info. There they have specialized calculators that can help calculate overall income, income tax as well as compare industry salaries. Make sure you check it out today!
Calculate Your Net Income Today
Calculating your net income is crucial, especially when you need to compare last year’s earnings to this year. After all, it’s important to determine if your profits increased or decrease before tax season begins.
To do that, follow the single-step or the multiple-step income method. In doing so, you’ll be able to find your net income quickly and efficiently.
For more information about how to calculate income before taxes, visit our website today. We look forward to helping you!