How to Calculate Net Income
Calculate your gross annual income., Subtract any deductions you have., Deduct your retirement contributions if applicable., Deduct your medical and dental expenses if applicable., Subtract what you owe in taxes from your annual pay.
Step-by-Step Guide
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Step 1: Calculate your gross annual income.
Your first step to calculating your net income is finding out your gross income.
Gross income is the total amount of money you make in a year before taking taxes or deductions into account.It serves as your starting point for calculating net income.
If you are on a salary or work stable hours, this should be fairly easy to calculate.
Take a pay stub from one of your pay periods.
If your employer takes out taxes, look at the total amount before the deductions.
This is your gross pay for the period.
Figure out how often you are paid, and multiply the gross pay accordingly.
If you're paid monthly, multiply the number from your pay stub by 12 to get your gross annual income.
If you're paid weekly, multiply it by
52.
If bi-weekly, multiply by
26.
If you work irregular hours, you'll have to add up all your pay stubs for the year to get an accurate measure of your annual income.
If you work multiple jobs, take all of them into account in this calculation.
In most cases, gifts and inheritance do not factor into gross income.
These are still taxable, however, so remember to account for them when filing your taxes. -
Step 2: Subtract any deductions you have.
Since net income refers only to your income after taxes, you have to subtract any deductions you have from your gross annual income.
After you subtract any deductions from your gross income, then you'll end up with your total taxable income.For example, if you had a gross income of $50,000 and $5,000 in deductions, then your taxable income is $45,000. , Under certain circumstances, your individual retirement arrangement (IRA) can be deducted from your taxable income.This will vary depending on your particular arrangement, so consulting the IRS webpage will help you discern if you can make any deductions based on your retirement savings.
Let's say, for example, that you're allowed to deduct $2,000 from your taxable income.
That means that your taxable income falls from $45,000 to $43,000. , As with retirement savings, you can sometimes deduct medical and dental expenses from your taxable income.This varies depending on your particular situation, so consult the IRS webpage for information on whether or not you can deduct your medical expenses. , After you've found out what your total taxable income is, then you have to subtract the amount you owe in taxes.Add up all taxes you owe, including federal, state, local, Medicare and social security.
If your employer takes out taxes, then the total deductions should be on your pay stubs.
Subtract the total taxes from your income to get your net annual income.
Sticking with the previous example: if your gross income was $50,000, you had $5,000 in deductions, and you deducted another $2,000 for retirement, your taxable income is $43,000.
Then if you owe $10,000 in taxes, that makes your net income $33,000.
If at any point you're confused about your taxes, consulting an accountant will help clear things up. -
Step 3: Deduct your retirement contributions if applicable.
-
Step 4: Deduct your medical and dental expenses if applicable.
-
Step 5: Subtract what you owe in taxes from your annual pay.
Detailed Guide
Your first step to calculating your net income is finding out your gross income.
Gross income is the total amount of money you make in a year before taking taxes or deductions into account.It serves as your starting point for calculating net income.
If you are on a salary or work stable hours, this should be fairly easy to calculate.
Take a pay stub from one of your pay periods.
If your employer takes out taxes, look at the total amount before the deductions.
This is your gross pay for the period.
Figure out how often you are paid, and multiply the gross pay accordingly.
If you're paid monthly, multiply the number from your pay stub by 12 to get your gross annual income.
If you're paid weekly, multiply it by
52.
If bi-weekly, multiply by
26.
If you work irregular hours, you'll have to add up all your pay stubs for the year to get an accurate measure of your annual income.
If you work multiple jobs, take all of them into account in this calculation.
In most cases, gifts and inheritance do not factor into gross income.
These are still taxable, however, so remember to account for them when filing your taxes.
Since net income refers only to your income after taxes, you have to subtract any deductions you have from your gross annual income.
After you subtract any deductions from your gross income, then you'll end up with your total taxable income.For example, if you had a gross income of $50,000 and $5,000 in deductions, then your taxable income is $45,000. , Under certain circumstances, your individual retirement arrangement (IRA) can be deducted from your taxable income.This will vary depending on your particular arrangement, so consulting the IRS webpage will help you discern if you can make any deductions based on your retirement savings.
Let's say, for example, that you're allowed to deduct $2,000 from your taxable income.
That means that your taxable income falls from $45,000 to $43,000. , As with retirement savings, you can sometimes deduct medical and dental expenses from your taxable income.This varies depending on your particular situation, so consult the IRS webpage for information on whether or not you can deduct your medical expenses. , After you've found out what your total taxable income is, then you have to subtract the amount you owe in taxes.Add up all taxes you owe, including federal, state, local, Medicare and social security.
If your employer takes out taxes, then the total deductions should be on your pay stubs.
Subtract the total taxes from your income to get your net annual income.
Sticking with the previous example: if your gross income was $50,000, you had $5,000 in deductions, and you deducted another $2,000 for retirement, your taxable income is $43,000.
Then if you owe $10,000 in taxes, that makes your net income $33,000.
If at any point you're confused about your taxes, consulting an accountant will help clear things up.
About the Author
Jacob Stewart
Enthusiastic about teaching cooking techniques through clear, step-by-step guides.
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