# Tip Of The Day - 9/16/05 - Gross/Net

Discussion in 'Industry Surveys & Polls' started by Sean Adams, Sep 16, 2005.

1. ### Sean AdamsLawnSite Gold Memberfrom PennsylvaniaPosts: 3,597

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.

2. ### bobbygeddLawnSite Fanaticfrom NJPosts: 10,178

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?

3. ### Sean AdamsLawnSite Gold Memberfrom PennsylvaniaPosts: 3,597

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

4. ### NosmoLawnSite Bronze Memberfrom Muskogee, OklahomaPosts: 1,216

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

Less Cost of Goods Sold - 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.

Nosmo

5. ### bobbygeddLawnSite Fanaticfrom NJPosts: 10,178

nosmo, THAT'S WHAT i been tryin to tell him, he don't listen!

6. ### olderthandirtLawnSite Platinum Memberfrom herePosts: 4,899

\$5 for a yearly income ????? SAD should have been an lco and he could have doubled it to at least \$10

7. ### Sean AdamsLawnSite Gold Memberfrom PennsylvaniaPosts: 3,597

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"

8. ### bobbygeddLawnSite Fanaticfrom NJPosts: 10,178

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

9. ### NosmoLawnSite Bronze Memberfrom Muskogee, OklahomaPosts: 1,216

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

10. ### olderthandirtLawnSite Platinum Memberfrom herePosts: 4,899

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