Legal Definitions - net income

Net income refers to the final amount of money an individual or entity has earned after all allowable expenses, deductions, and taxes have been subtracted from their total revenue or gross income. It is a crucial indicator of profitability or financial health, showing the actual "take-home" amount or the bottom line after all financial obligations are met.

• Example 1: An Individual's Freelance Earnings

  Imagine a freelance graphic designer who bills clients $7,000 in a month (their gross income). During that same month, they pay $400 for professional software subscriptions, $150 for office supplies, and set aside $1,200 for estimated self-employment taxes. To find their net income, all these expenses and taxes are subtracted from their gross earnings.

  In this scenario, the designer's net income would be $7,000 (gross income) - $400 (software) - $150 (supplies) - $1,200 (taxes) = $5,250. This $5,250 represents the actual amount of money the designer has earned and can keep after covering all their business costs and tax obligations, clearly illustrating their "bottom line" income.

• Example 2: A Small Business's Profitability

  Consider a local coffee shop that generates $30,000 in sales revenue during a particular quarter. Over the same period, the shop incurs various expenses: $8,000 for coffee beans and other ingredients, $10,000 for employee wages, $3,000 for rent, $1,000 for utilities, and $2,000 in corporate taxes. To determine the coffee shop's financial success, its net income is calculated.

  The coffee shop's net income is $30,000 (sales revenue) - $8,000 (ingredients) - $10,000 (wages) - $3,000 (rent) - $1,000 (utilities) - $2,000 (taxes) = $6,000. This $6,000 is the shop's net income, indicating its profit after all operational costs and tax liabilities have been paid, providing a clear picture of its financial health.

• Example 3: Income from an Investment Property

  An individual owns a duplex and collects $3,000 in rent each month from both units. Their monthly expenses related to the property include a $1,500 mortgage payment, $200 for property insurance, $250 for property taxes, and an average of $150 for routine maintenance and repairs. To understand the true financial benefit of this investment, the owner calculates the net income.

  The net income from the rental property is $3,000 (gross rent) - $1,500 (mortgage) - $200 (insurance) - $250 (property taxes) - $150 (maintenance) = $900. This $900 is the actual profit the owner realizes from the property each month after all associated costs are covered, demonstrating the net financial gain from their investment.