Net income is the single number that tells you whether a business actually made money during a period. It is what survives at the bottom of the income statement after every cost — returns, the product itself, overhead, interest, and finally taxes — has been subtracted. This calculator walks you down a standard US-GAAP multi-step income statement line by line, so you can see not just the bottom number but exactly where each dollar went.
Type in your gross revenue, returns, cost of goods sold, operating expenses, interest, and your effective tax rate, and the result card updates instantly. You will see net sales, gross profit, operating income (EBIT), pretax earnings (EBT), the tax bill, the final net income, and the net profit margin.
How to Use
- Enter Gross Revenue — every dollar invoiced or rung up before any deductions. If you run a marketplace or subscription business, this is your top-line GMV booked as revenue.
- Add Returns & Allowances — refunds, product recalls, and discounts you issued. This is the first deduction and produces net sales.
- Fill in Cost of Goods Sold (COGS) — the direct cost of the product: raw materials, factory labor, packaging, and wholesale purchases. Software and service businesses often leave COGS near zero.
- Enter Operating Expenses (SG&A) — everything indirect: salaries outside production, rent, marketing, software subscriptions, travel, and utilities.
- Add Interest Expense — interest on term loans, lines of credit, and bonds. Leave it at zero if the business is debt-free.
- Set the Effective Tax Rate. US C-corporations pay a flat 21% federal rate; if you also pay state tax (for example 5–8% in California or New York), add it on top. Pass-through businesses (LLCs, S-corps) are taxed at the owner's personal rate, not here.
- Read the result card. The highlighted Net Income (After Tax) is the cash the business actually keeps; Net Profit Margin expresses it as a percentage of net sales.
The Income Statement Walk-Down
The calculation follows the standard multi-step income statement used by every public company:
Net Income = (Gross Revenue − Returns − COGS − OpEx − Interest) × (1 − Tax Rate)
Or, step by step:
- Net Sales = Gross Revenue − Returns & Allowances. This is the real top line.
- Gross Profit = Net Sales − COGS. It measures how much you mark up the product itself, before overhead.
- Operating Income (EBIT) = Gross Profit − Operating Expenses. This is the profit from core operations, ignoring how the business is financed and taxed.
- Pretax Income (EBT) = EBIT − Interest Expense. Interest is subtracted next because it is tax-deductible in the US.
- Income Tax = EBT × Tax Rate. The engine only applies tax to a positive pretax number; a loss carries forward and produces no immediate tax bill.
- Net Income = EBT − Income Tax. This is the bottom line.
Worked example on the default figures: $800,000 gross revenue minus $20,000 returns gives $780,000 net sales. Subtract $300,000 COGS to reach $480,000 gross profit. Subtract $200,000 operating expenses to reach $280,000 EBIT. Subtract $30,000 interest to reach $250,000 pretax income. At a 21% tax rate the tax bill is $52,500, leaving net income of $197,500 — a net profit margin of about 25.3%.
Gross Profit vs Operating Income vs Net Income
These three profit lines are often confused, but each answers a different question:
- Gross profit asks: "Is the product itself profitable?" A software company with near-zero COGS has a gross margin above 70%; a grocery chain lives on 20–25%.
- Operating income asks: "Is the business model viable after running the company?" It strips out interest and taxes so you can compare two firms with different debt loads or tax jurisdictions on equal footing.
- Net income asks: "What did the owners actually keep?" It is the number that feeds retained earnings on the balance sheet and drives dividends.
A company can have a healthy gross profit but negative net income if overhead or interest is too high. Walking the statement with this calculator exposes exactly which line is leaking cash.
Examples
Example 1 — A healthy small manufacturer. Gross revenue $800,000, returns $20,000, COGS $300,000, operating expenses $200,000, interest $30,000, tax 21%. Net sales are $780,000; gross profit $480,000; operating income $280,000; pretax income $250,000; tax $52,500; net income $197,500 on a 25.3% margin. That is a strong, profitable operation.
Example 2 — A startup burning cash. Gross revenue $150,000, returns $5,000, COGS $60,000, operating expenses $220,000 (heavy engineering and marketing), interest $0, tax 21%. Net sales are $145,000; gross profit $85,000; operating income is −$135,000; pretax income is also −$135,000. Because there is no profit, no tax is due, and net income is −$135,000 — a loss that founders can carry forward to offset future taxable income.
Example 3 — A scale-up at $5M revenue. Gross revenue $5,000,000, returns $100,000, COGS $2,000,000, operating expenses $1,000,000, interest $200,000, tax 21%. Net sales are $4,900,000; gross profit $2,900,000; operating income $1,900,000; pretax income $1,700,000; tax $357,000; net income $1,343,000 on a 27.4% margin. Larger firms with scale typically show expanding margins as operating expenses grow more slowly than revenue.
FAQ
How do I calculate net income?
Start with gross revenue, subtract returns and allowances to get net sales, then subtract cost of goods sold to get gross profit. Subtract operating expenses to reach operating income (EBIT), subtract interest to reach pretax income (EBT), and finally subtract income tax at your effective rate. The result is net income. The formula is: Net Income = (Revenue − Returns − COGS − OpEx − Interest) × (1 − Tax Rate).
Is net income the same as profit?
"Profit" is a loose word that can mean gross profit, operating profit, pretax profit, or net profit. Net income is the most specific definition: it is the profit left after every single expense, including interest and taxes, has been deducted. On Wall Street, "the bottom line" and "net earnings" are synonyms for net income.
What is a good net profit margin?
Margins vary widely by industry. Software businesses often post 20–30% net margins, restaurants live on 3–5%, grocery stores on 2–3%, and mature manufacturing companies on 7–12%. Compare your margin to direct competitors in the same sector rather than to a generic benchmark. A margin above 10% is generally solid; above 20% is excellent outside of software.
Does net income include owner's salary?
For a C-corporation, yes — the salary you pay yourself as an employee is an operating expense (SG&A) and is already subtracted before net income. For a sole proprietorship or single-member LLC, owner draws are not a business expense; the entire net income of the business flows to the owner and is taxed on the personal return.
How is net income different from cash flow?
Net income is an accrual-accounting number: it counts revenue when earned and expenses when incurred, regardless of when cash actually moves. A business can show strong net income but run out of cash if customers pay late or inventory piles up. Always pair net income with a cash flow statement before judging financial health.
What happens to net income at the end of the year?
Net income flows into retained earnings on the balance sheet. The board then decides how much to distribute as dividends and how much to keep reinvested. Undistributed net income is the engine that grows book value and, over time, the value of the company.
Disclaimer
This net income calculator is provided for informational purposes only and does not constitute accounting, tax, legal, or investment advice. Figures are estimates based on the inputs you enter and the standard multi-step income-statement walk-down; real tax treatment depends on your entity type (C-corp, S-corp, LLC, sole proprietorship), jurisdiction, deductions, credits, and loss carry-forwards. Always confirm your final numbers with a licensed accountant or tax professional before filing or making business decisions.