View Full Version : Tip Of The Day - 9/16/05 - Gross/Net

Sean Adams
09-16-2005, 02:03 PM
There seems to be a bit of confusion from another thread in regard to the definition of net....

"Gross" is the total sales before deductions, reductions and TAXES have been subtracted. Net is what is left over.

09-17-2005, 08:58 AM
what is the technical term for "taxable" income. in other words, joghny buys apples for $5 a bushel. he sells them door to door, by foot, for $10 a bushel. johny has no overhead, no insurence, no car, he walks barefoot door to door selling apples. i know that johny will GROSS $10 a bushel. this makes his taxable income $5, correct? now johny has deductions...children, etc, etc. THESE deductions come off that $5. what is the technical term for that $5?

Sean Adams
09-17-2005, 10:16 AM
there is gross, adjusted gross and net

bottom line is, when all is removed, deducted, subtracted or whatever word one wants to use, what is left over is ...net

09-17-2005, 12:48 PM
Let's play business and do it like is done at the end of the year for income taxes.

Johnny first does his schedule C which will show his gross income of $10.00. Next come the business deductions which in his case are none.

Johnny must figure his cost of goods sold because he is in a selling type business.

Beginning inventory ----- $ .00
Goods purchased in 2005 + 5.00

Total Goods Available For Sale =5.00

Less Ending Inventory - .00

Cost of Goods Sold = 5.00

Business Income =10.00
Less Cost of Goods Sold - 5.00
Net Business Income = 5.00

Johnny now needs to complete the Self Employed SS form.
There will be no self employment tax because he is below the minimum amount.

Johnny still needs to do a 1040 to report his business income and the net business income is carried from the schedule C to the 1040 on the proper line.

Johnny has no other income either from working for an employer or interest .

So adding the net business income to the other items which are zero gives us the total income. Next Johnny is allowed to deduct certain expenses such as student loans, IRA deductions etc.

Johnny's total income $5.00 less these expenses of $.00 arrives at a figure of $5.00 for Johnny's Adjusted Gross Income.


09-17-2005, 01:55 PM
nosmo, THAT'S WHAT i been tryin to tell him, he don't listen!

09-17-2005, 02:02 PM
$5 for a yearly income ????? SAD should have been an lco and he could have doubled it to at least $10 :D

Sean Adams
09-17-2005, 02:44 PM
bobby - nosmo's example is correct... there is $5 remaining as the adjustable GROSS income...you are a sole proprietor bobby - you are the business and since you do not pay yourself a salary in the case of being incorporated, your NET (meaning the bottom line) is what you have in hand after ALL DEDUCTIONS AND EXPENSES ARE PAID - including taxes of all kind

it's like Soupy said in the other thread...someone employed by someone else may say "I make $50,000 a year"....that is their GROSS income...their NET income is what they actually take home after uncle sam gets his cut

business is no different - you are speaking as if taxes don't count....go ahead and try to skip paying taxes one year and you will then see how much they "count"

09-17-2005, 04:09 PM
yo, yo, easy big guy. the active phrase, that i couldn't think of, was "business gross" as opposed to "personel gross". when i used the phrase "taxable income" , i guess what i really meant was "personal gross". i have enough dependants to keep it good (goldfish count, don't they?)anyhow, that is all, i have to say about that. i hope you learned something

09-17-2005, 04:23 PM
Johnny did real well -- $10.00 in sales for the year. I didn't even sell 2 cents worth of apples or oranges all year long.

Bobby is gonna be doing well with his home grown produce. But hey, don't knock it , look at how a lot of the big names started out. One billionare who ran for president began by selling electronics out of the back of his car. eg Ross Perot

09-17-2005, 04:27 PM
Johnny did real well -- $10.00 in sales for the year. I didn't even sell 2 cents worth of apples or oranges all year long.

Bobby is gonna be doing well with his home grown produce. But hey, don't knock it , look at how a lot of the big names started out. One billionare who ran for president began by selling electronics out of the back of his car. eg Ross Peron

Yeah he's gonna be doing real well with his home grown :D
One more bilionares name comes to mind also Manual Noreaga :cry:

Sean Adams
09-17-2005, 04:54 PM
bobby - the only thing I learned is that you need to brush up on your understanding of basic business tax laws, you do not even come close to 75% net, and you have an extremely difficult time admitting when you are wrong... if you need any more help let me know... here is a good place to start - www.irs.gov

09-17-2005, 06:20 PM
look, i won't make you look bad, on your own forum, as my friend big bob says....." always the best, to you and your family"

git er done landscaping
09-17-2005, 09:19 PM
sean. you know you will never get the last word in on this loser. but it's sad when you have to lock a thread just to stop the BS. (bob$h!t) but i do thank you and the others for the tips from succesfull buisness owners.

09-17-2005, 11:16 PM
I used to do income taxes back in the early 80's and 90's but if someone is a glutton for punishment he should try doing taxes and he will find out how most everyone trys to claim they are dirt poor. :rolleyes:

A partnership business pays no taxes. It only takes into account the income of the business less the allowed expenses. The percentage of income (if any) or losses are
determined on form 1065 and reported to the IRS. A
copy is also given to each partner . In this instance the loss or gain would be NET loss or NET gain. Each partner is responsible for reporting this income or loss on the proper line of form 1040 . Now we are back to the other items of income which can be many things eg. interest etc.
All of these items are added up and we have TOTAL income.
In a more complicated 1040 return one of the partners might have another business or two. He would do a schedule C and report this income on the same 1040.

After deducting any allowed amounts for IRA's etc we arrive at the ADJUSTED gross income. Of course we flip the 1040 over and start down the back side to figure standard deductions etc. , self employment taxes and income tax.

A sole proprietorship (is personal) he is the business and anything that pertains to this one business is handled just like the example of Johnny. The person may have more than one business and also work for an employer to earn additional income. Each separate business is reported on
a separate schedule C and arrives at either NET loss or NET gain. The amounts of each schedule C are carried to the proper line of the 1040. If this person worked for someone
as an employee during the year he should receive a W-2 and of course this amount is reported on the same 1040.
The rest is the same example as Johnny.

Total income would be all amounts of income --- less any
allowed deductions IRA's eg. and we arrive at ADJUSTED gross income. Flip the 1040 over and start down the back side -- standard deductions, self employment taxes and income taxes.

Sorry to make this so long but there is a difference in these two types of businesses and the way income is reported to the IRS . Let's not even get into the folks who are incorporated.


09-17-2005, 11:24 PM
One return I used to do back in the 1980's would be an example of varied types of income. This person was my boss , a public accountant and the District Court Clerk.

First of all I did a partnership return because my boss was a partner in a farm.

I had to do a schedule C because my boss was a proprietor of a second hand store . Paid a salary to a full time employee to run that business.

In addition to the above incomes my boss made at that time about $40,000 per year as Court Clerk.

Every person is a different story when it comes to doing his or her taxes. I never remember any two situations being the same.


09-18-2005, 07:18 AM
ok, if i'm not even close to 75%, then YOU TELL ME, what is REALISTIC NUMBER, what should someone in this business EXPECT to gross? 10%? 20%? we are talking here, not arguing. i got down (on paper) how incredibly simple it is to net 50%, working approx 36 weeks, without breaking a sweat. wanna hear it? btw sean, i never said taxes didn't count, but, after all expenses, if you have enough dependents, you should probably pay about 15% in income tax.

09-18-2005, 08:07 AM
Let's try and take that question step by step. Let's it a step at a time and assume only one type of income which is from servicing lawns.

On the Schedule C :
Total Income From Services 100,000.00
Less All Business Expenses - 25,000.00
Net Income From Services 75,000.00

Looking at the figures at this point your net income would be 75% ------- but we go on to the 1040 and also the Self Employment Form (Social Security). Let's just say we don't have any other income (interest etc.) or deductions
(IRA's etc.).

So at this point your Adjusted Gross Income is $75,000.00
and we flip the 1040 and start down the back side.

Let's say you have and wife and 2-kids. Your deductions
are (this is just a guess as I don't have the current figures). Adjusted Gross Income $75,000.00
Less Standard Deduction - 7,000.00
Less Exemptions (4) -12,000.00
Taxable Income $56,000.00

Self Employment Form - you would show $75,000.00 as your business income and pay whatever the current rate on whatever the maximum amount is at this time. Let's just estimate your Social Security amount due is $4,000.00. And let's assume your income tax on the $56,000.00 is $9,000.00.

Total due the IRS is $13,000.00 . Let's just assume you did not make any estimated tax payments during the year and there will be no penalties in this example.

Gonna start another reply box.

09-18-2005, 08:20 AM
As far as the business we already have arrived at 75% as the net business income.

Let's assume you spent exactly what was allowed for your
personal expenses for the family and now you only have $56,000.00 as your disposable income. Now the percentage has dropped to 56%.

Your total taxes are 13,000.00 . After paying your taxes you only have $43,000.00 as the final disposable income figure. The percentage has now dropped to 43% .

Here's how it really is :
Net Business Income ---------------- 75%
Net Personal Income Before Taxes ---56%
Net Personal Income After Taxes -----43%

09-18-2005, 08:33 AM
In short: It just depends on how hard and efficiently you work as to what the gross figure will be.

It also depends on how you handle your expenses and of course unexpected costs will occur. These expenses deducted from the gross figure will determine your percentage of Net Business Income.

More work = More Gross Income
Cutting down on expenses = More Net Business Income

09-18-2005, 05:24 PM
It your Net spendable income. That's what you make.

10-19-2005, 08:59 PM