What is net income

Income and net income are terms that are usually treated fairly freely. It is hardly surprising – most citizens do not have to worry about distinguishing these concepts on a daily basis. However, it is worth being aware of the differences between them. This is knowledge that is useful not only in official and business situations. Let’s take a look at both of these concepts.

What is net income

Suppose we run a street survey, asking passers-by about the differences between net income and income. What will we learn then? For many people, the boundary between these two terms will be blurry, while others will say that they can be used interchangeably. It is hardly surprising such statements if they come from people working full time. Knowing the difference between income and net income becomes more important when it comes to running or co-managing a company’s finances. This does not mean, of course, that distinguishing between these two concepts is completely irrelevant to the rest of the world. Nothing could be more wrong!

Net income – what to know

Revenue is the amount of money received, it does not reflect the actual financial situation. This is all financial benefits whose actual receipt results in the obligation to pay income tax.

net income difference
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Revenue can be obtained, for example, as part of the business, employment relationship, outwork, work performed on the basis of a service relationship or real estate. The exact catalog of boosts, which are considered income from non-agricultural economic activity, is included in art. 14 paragraph 1 of the Personal Income Tax Act. According to it, revenues include amounts due (including those not actually received), excluding the value of returned goods, discounts and discounts granted. In addition, in the case of active VAT payers, revenue is the amount due for the sale of goods or services less VAT due (otherwise known as net worth).

Revenue and income

Revenue is the total value of net sales of goods, goods and services (i.e. without tax due, if applicable) in a given accounting period. It is the sum of money obtained, any type of property contribution that does not reflect the actual financial situation, but causes the obligation to pay income tax. Revenue can be obtained from:

  • Employment relationship
  • Doing business
  • Outwork
  • Work performed under a service relationship
  • Real estate owned.

Revenues are amounts due, including those not yet received, excluding discounts, rebates and returned goods. Is the income gross amount? For active VAT payers, the revenue is the amount due for the sale of goods and services less VAT – therefore the net value of the goods and services sold.

Tax deductible costs – what should be understood by them

As mentioned above, reducing income by tax deductible costs creates income. Tax deductible costs include expenses that:

  • were incurred in order to achieve revenues, preserve or secure a source of income,
  • are to be related to the business
  • are properly documented
  • do not have the characteristics of expenditure of a personal nature for the entrepreneur.

 

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What is net income