How to Calculate Your Pretax Income

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Pretax income is your earnings before you lose them to taxes.
Pretax income is your earnings before you lose them to taxes. (Image: tax forms image by Chad McDermott from Fotolia.com)

Pretax income is the income you earn before you pay taxes. You should learn the different categories of income and the different categories of operating expenses. You should also investigate how to use these figures to determine your pretax income. Learning this important step can help you to make many important decisions regarding your finances. When finished, you will have a picture of how your business or personal finances are operating.

Gather your information on all income. Income can come from many places, including sales, rental income or commissions. Service income, interest on CDs or bank accounts, and bonuses are also sources of income.

Determine your deductible expenses. If you are a business, the most common expenses are rent or debt service, utilities, and cost of goods sold. Individuals will keep track of their medical expenses, unreimbursed costs from their employment and any charitable contributions.

Subtract your deductible expenses from you income and you have your pretax income.

Tips & Warnings

  • Because businesses and individuals use many techniques to minimize their tax liability, pretax income is usually a more accurate way to measure profit. The pretax income can be used to apply for loans or invite investors into a business.

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