Things You'll Need:
- The records of all income and where it came from
- The records of all expenses and to whom it was paid
- A calculator
- A ledger or computer program that calculates money problems for business
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Step 1
Figuring pretax income is relatively simple, but it helps if you are organized. You will first need to gather your information on all income. Income can come from many places depending on the business. It could be sales, rental income and/or commissions. Service income, interest income on CD's or bank accounts and overrides or bonuses are also sources of income. Each should be inputed into a ledger or computer software such as Quickbooks or Microsoft Money. If you are doing it by hand with a ledger, use a calculator and add it to get a total of income. This should be done monthly.
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Step 2
The next figure you will need is your operating expenses. Operating expenses can also come in many form depending on the business. The most common are rent or debt service, utilities and cost of goods sold. Maintenance, driving expense,and depreciation are also common operating expenses. You will also want to include interest expense, employee payments (this includes but may not be limited to, wages, benefits and commissions) and tools or machines needed to run the business. Include all operating expenses with the exclusion of income tax, such as your quarterly returns. Input all of these figures into your program or ledger and calculate.
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Step 3
Lastly, subtract your expenses from you income and you have your pretax income. This can be used from the multi-billion dollar industry to the independent contract who works from home.
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Step 4
Because businesses use many techniques to minimize their tax liability. This figure is usually a more accurate way to measure profit. The pretax income can be used to apply for loans or invite investors into the business. This figure is also an important step in your income statement. It gives you a picture of what you have and where you're going. Analyzed, you may be able to find ways to cut expenses or increase production to maximize profit.
