net income

How to Calculate Net Income

Net income is the figure that you make after deductions, credits and taxes. In order to properly calculate net income, you will need financial statements, such as pay stubs and investment earnings, and a calculator. Learning how to calculate net income will help you to save, budget and do your taxes.

 Steps

Method One: Personal Net Income

1. 1
   Calculate your net annual income from your pay stubs. This method works best if you are being paid a salary or fairly even wage each week. If you are self-employed, use the calculation method below, under business net income.
   • Wage earners and salary earners usually have tax withheld from their wages and deductions figured into their pay. The accuracy of this calculation depends upon how accurate your tax withholding is. If you regularly get a very large tax refund, it may not be calculated accurately.
2. 2
   Add up how many pay periods you have in a year. The following are regular ways in which companies pay their workers.
   • If you are paid monthly, then you have 12 pay periods.
   • If you are paid twice per month, then you have 24 pay periods. This is called "semi-monthly" pay.
   • If you are paid every 2 weeks, then you have 26 pay periods. This is often called "bi-weekly" pay.
   • If you are paid weekly, then you have 52 pay periods.
3. 3
   Find an average pay stub. Multiply the amount by the number of pay periods you have in a year. This is your net annual income.
   • If you are not salaried, or you do not receive the same amount in each pay check, you can gather all your pay stubs for a year and add them together to get your net income.
4. 4
   Take into account any further income from sales, investments and other sources.
   • Subtract the inventory cost and tax that will be levied at the end of the year to get the net income provided by these sources.
   • Add the net income from other sources to your net income from your wages, to get a more accurate net income figure, which takes into account multiple income sources.

Method Two: Business Net Income

1. 1
   Gather all records of what you were paid in the past year. Add up your gross receipts from all sales and business during the year. This is called "Revenue."
   • Self-employed people should follow this method, because they are unlikely to have tax withheld when they were paid, so they will need to deduct taxes and expenses from their payments.
2. 2
   Subtract the cost of goods sold. The figure you have after subtracting this is called your "Gross Profit."
   • This may or may not be applicable, depending upon if you were selling goods or services. If you have an inventory-based business, you will need to deduct an accurate cost of goods sold from the original purchase receipts.
3. 3
   Add up your expenses for operating the business. This can include rent, transportation, employees, utilities, depreciation on equipment, supplies and more.
   • If you are unsure what your expenses are, you should read about common business expenses on the Small Business Administration website, sba.gov, or speak with your tax preparer.
4. 4
   Calculate the credits you will receive from state and federal governments. You may get credits for energy efficient building, providing employee health care or interest on loans, to name a few items.
5. 5
   Deduct your total expenses and credits from your gross profit. This is your taxable income.
6. 6
   Calculate the taxes you owe according to your tax bracket. You may want to consult an online calculator, tax preparation software or a tax preparer if you are calculating for a larger company. Self-employed people should not forget to factor in self-employment tax, or their deduction for half of self-employment tax.
7. 7
   Subtract the tax amount from your taxable income. This is your business' net income.