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.