When you have a business, it is critical to keep track of its profitability. In tracking your gross to net income, you are able to determine how much money is coming into the business and how much is being spent. As an employee, you are paid a gross amount for the work you perform; however, your net (take-home) pay is generally less than your gross pay. Understanding how to arrive at your net helps you to manage your finances better.
Figure the business’s total revenue (how much money it has made).
Subtract what it costs you to do business including depreciation of assets, cost of sales, administrative costs, taxes and all other expenditures. The result is your net income, also known as your “bottom line.”
Indicate your net earnings at the top of your cash flow statement–the financial statement that shows the cash inflow and cash outflow of your business.
Determine your gross wages–your before-tax pay.
Subtract all statutory deductions such as federal, state (if applicable), Medicare and Social Security taxes, plus garnishments.
Deduct voluntary deductions such as retirement contributions and health benefits; the result is your net income.