What You Need to Know About Net Earnings

When you’re just starting out in the business world, all kinds of new terminology gets thrown at you. And, while this terminology can feel a bit overwhelming, a great deal of it is very important to know and understand, especially when it comes to financial and tax information.

One “tax term” you will definitely need to familiarize yourself with is “net earnings.” You may also hear this referred to as your business’ “net income” or “profit.” You can determine your net earnings by subtracting your business expenses from your gross business income.

Of course, as with most tax matters, it’s not always as simple as just that. If your business has product inventory, for example, you must include the cost of goods sold in your calculations.

Likewise, if your business is a corporation, you have to include compensation of corporate officers in your earnings calculation.

In general, how you calculate your net income and what factors figure in will depend largely on the type of business you have and the type of tax form you are filing.

Tax Reporting

When it comes to tax reporting, you will always need to know your net earnings since this figure will be used to determine your business income tax.

Most small businesses will use Schedule C to calculate their net income. However, the process will be different for those who are self-employed or in partnerships.

Obviously, tax reporting and calculating net earnings the right way can be a bit challenging. Thus, your best bet is to get professional help with figuring out these amounts. Professionals can also help you to take advantage of any deductions available to you to help you reduce your net income figure, thereby reducing your business taxes.

For expert help and advice with calculating net earnings and all the other tax issues businesses have to deal with, be sure to contact the friendly professionals at Lewis CPA.