Learn something new every day
More Info... by email
Net income after taxes is the amount of money a person or business receives after the government has taken its slice. It compares to gross income, which is the amount of money received before taxes have been deducted from the total. Net and gross are commonly used accounting terminology.
Whether someone receives a net or gross income depends on the country’s tax system and the type of work conducted. Most regular salaried positions in Europe and the United States, for example, will pay a net income after taxes. The employee will then be able to see the gross total, the amount of tax deducted and the net total.
The salaried position with a fixed or regular income will calculate the amount of tax based on the person earning the same amount of money every month. The monthly salary is multiplied by 12 and then slotted into a tax bracket. If an employee receives a bonus one month, the tax system will assume they get paid that every month. This means their net income after taxes will be lower than it should be. In this case the employee will have to seek a tax refund.
Some jobs, such as writers and freelance contractors, don't come with a regularly taxed salary, so those workers will have to fill out tax self-assessment forms. The worker will calculate his or her total gross income and either submit an estimated tax payment or wait for the government to decide how much tax is owed. In these cases, the worker must set aside an estimated tax budget to pay the tax bill later on.
Net profit is often the term used to describe net income when referring to companies. The net income after taxes for companies, especially large ones, is an extremely complicated endeavor. This explains why companies need to hire accountants or have an accounting department.
Net income after taxes is based on profit, not total income. This means the amount of money brought in, or revenue, must be off-set against the costs of running the business, or expenditure. To make matters more complicated, businesses are often allowed to claim tax money back on expenditures such as fuel costs, supplies, equipment and even Internet connections.
Once expenditures have been deducted from revenue, taking into account money returned from tax deductions and other business incentives, the company is left with its gross income, or gross profit. This profit is then subjected to business taxation, which varies from country to country; only then does the company learn its net income after taxes. Most companies declare both their pre-tax and post-tax incomes to markets and shareholders.