# Net Income: Definition, Calculation, and Business Impact

## What Is Net Income (NI)?

Net income (NI), also known as net earnings, represents what remains from a company's total revenues after deducting all operating costs, taxes, interest, and other expenses. Serving as a critical metric, net income provides investors with a clearer picture of a company's profitability, making it a key performance indicator on a company's income statement.

For individuals, net income signifies earnings after taxes and deductions, offering insight into actual take-home pay.

### Key Takeaways

*   Net income (NI), also known as net earnings, is the profit a company or individual makes after all expenses, taxes, and deductions are subtracted from total revenue.
*   For businesses, net income appears on the income statement and is often referred to as the "bottom line," indicating overall profitability.
*   Investors should closely scrutinize the quality of financial statements as net income can sometimes be manipulated through questionable accounting practices.
*   For individuals, net income is the amount remaining post-deductions and taxes, often reflected on a paycheck stub as the take-home pay.
*   Although net income and adjusted gross income (AGI) are related, they differ; NI is the residual income after deductions and taxes, while AGI is calculated before these are deducted.

![Net Income](https://www.investopedia.com/thmb/Y78b33L8Zfja9d-3e51GBvbWvR4=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/netincome-ad82b5ea402c4da3afcb362685f2710b.jpg)

*— Laura Porter / Investopedia*

## The Significance of Net Income in Business and Investments

Businesses calculate [earnings per share (EPS)](https://www.investopedia.com/terms/e/eps.asp) using net income. It is often called the [bottom line](https://www.investopedia.com/terms/b/bottomline.asp) because it appears last on the income statement. In the UK, it's known as profit attributable to shareholders.

> **Important**
>
> Net income (NI) is known as the bottom line, as it appears as the last line on the income statement once all expenses, interest, and taxes have been subtracted from revenues.

## How to Compute Net Income for Business Clarity

To find a business's net income, start with total [revenue](https://www.investopedia.com/terms/r/revenue.asp). Subtract expenses and operating costs to get earnings before tax, then remove taxes to calculate net income.

Net income, like other accounting measures, is susceptible to manipulation through such things as aggressive revenue recognition or hiding expenses. When basing an investment decision on NI, [investors](https://www.investopedia.com/terms/i/investor.asp) should review the quality of the numbers used to arrive at the taxable income and NI to ensure that they are accurate and not misleading.

## Understanding Gross Income and Net Income Differences

[Gross income](https://www.investopedia.com/terms/g/grossincome.asp) is an individual's total earnings before taxes. Net income is what's left after subtracting deductions and taxes. Taxable income is calculated by subtracting deductions from gross income and then subtracting taxes to find net income.

For example, if someone earns $60,000 and qualifies for $10,000 in deductions, their taxable income is $50,000. With a 13.88% tax rate, they pay $6,939.50 in taxes and have a net income of $43,060.50.

## Reporting Net Income on Your Tax Returns

In the U.S., taxpayers use [Form 1040](https://www.investopedia.com/terms/1/1040.asp) to report annual earnings. This form records gross income, [adjusted gross income (AGI)](https://www.investopedia.com/terms/a/agi.asp), and [taxable income](https://www.investopedia.com/terms/t/taxableincome.asp), but not net income.

After noting their gross income, taxpayers subtract certain income sources such as Social Security benefits and qualifying deductions such as student loan interest. The difference is their AGI.

Although the terms are sometimes used interchangeably, net income and AGI are [two different things](https://www.investopedia.com/ask/answers/070715/what-difference-between-agi-adjusted-gross-income-and-net-income.asp). Taxpayers then subtract [standard](https://www.investopedia.com/terms/s/standarddeduction.asp) or [itemized deductions](https://www.investopedia.com/terms/i/itemizeddeduction.asp) from their AGI to determine their taxable income. As stated above, the difference between taxable income and income tax is the individual’s NI, but this number is not noted on individual tax forms.

> **Fast Fact**
>
> Most paycheck stubs have a line devoted to NI. This is the amount that appears on an employee’s check. The number is the employee’s gross income, minus taxes and any contributions to accounts such as a 401(k) or Health Savings Account (HSA).

## What Is the Difference Between Net Income and Gross Income?

Gross income is the total amount earned. Net income is gross income minus expenses, interest, and taxes. Net income reflects the actual profit of a business or individual.

## Is Net Income Before Taxes or After?

Net income is what a business or individual makes after taxes, deductions, and other expenses are taken out. In business, net income is what a company has left after all expenses are subtracted, including taxes, wages, and the cost of goods.

## What Is a Company’s Income Statement?

An [income statement](https://www.investopedia.com/terms/i/incomestatement.asp) is one of the three key documents used for reporting a company’s yearly financial performance. The income statement includes the gains, losses, revenue, and expenses that a company reports in that period. Net income is the bottom line on an income statement.

## The Bottom Line

Net income, or net earnings, is the bottom line on a company’s income statement. It’s calculated by subtracting expenses, interest, and taxes from total revenues. Net income can also refer to an individual’s pretax earnings after subtracting deductions and taxes from gross income.

Earnings per share (EPS) are calculated using a business’s net income. These numbers should always be reviewed by investors to ensure that they are accurate and not inflated or misleading.

> **Article Sources**
>
> 1.  Internal Revenue Service. “[What Is Taxable and Nontaxable Income?](https://www.irs.gov/businesses/small-businesses-self-employed/what-is-taxable-and-nontaxable-income)”
>     
> 2.  Internal Revenue Service. “[Form 1040: U.S. Individual Income Tax Return](https://www.irs.gov/pub/irs-pdf/f1040.pdf).”