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What is after-tax income?

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What is After-Tax Income? In laymen's terms, after-tax income is simply your income after you've paid all of your taxes. Click through to see an example.

Define: After-Tax Income

After-tax income, also referred to as income after taxes, is the amount of disposable income that a person or company has left over after all federal, state and withholding taxes have been deducted from the taxable income. You can spend your after-tax income on future investments or on present consumption.

After-tax income isn’t as scary as it sounds. So, what is after-tax income really? It’s simply your wages after you have paid all of your taxes.

After-Tax Income Scenario

Jenna is a photographer; she runs Jenna’s Photography Studio; therefore, according to the IRS Jenna is self-employed. Because she is self-employed, Jenna should set aside 30% of her profits for taxes. The 70% left over after paying taxes is the after-tax income.

Jenna has a lot of options on how she can use her after-tax income.

If she wanted to invest her after-tax income into her business, she could buy new lighting equipment, or she could use the money to buy advertising for her business. The great thing about investing the money back into your business is that you’re able to write off most of those expenses as tax deductions.

Jenna may choose to use her after-tax income for personal reasons. Because she’s self-employed her after-tax income is her salary. It can go towards paying rent, bills or for a vacation.

There are no restrictions or laws on what you can do with after-tax income. It’s your money to spend.

What is After-Tax Income? In laymen's terms, after-tax income is simply your income after you've paid all of your taxes. Click through to see an example.
Ben Sutton

Ben Sutton

Ben Sutton is the founder of Mazuma USA, an accounting firm providing tax, bookkeeping and payroll services to small businesses. Since founding Mazuma, Ben has established himself as an expert in the small business world. He’s still driven by that same desire to provide accounting help to all small businesses – from photographers, bloggers and creatives to lawyers, doctors, and dentists, everyone needs affordable accounting help. Ben is a Certified Public Accountant, and a member of the American Institute of Certified Public Accountants. But Ben considers his greatest achievement and credential to be his happy wife and four children.

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