1. What is Net Income for Contractors?

Net income represents the actual take-home pay for contractors after accounting for business expenses and taxes. It's the amount you truly earn from your contracting work after all deductions.

2. How Does the Calculator Work?

The calculator uses the simple formula:

Where:

• Gross Income — Total revenue from contracting work before any deductions
• Expenses — Business-related costs (equipment, travel, etc.)
• Taxes — Estimated tax liability (income tax, self-employment tax, etc.)

Explanation: This calculation helps contractors understand their true earnings after accounting for the costs of doing business and tax obligations.

3. Importance of Net Income Calculation

Details: Accurate net income calculation is crucial for financial planning, budgeting, and determining if contracting work is financially viable. It helps contractors price their services appropriately.

4. Using the Calculator

Tips: Enter your total contract income, all business expenses, and estimated taxes. Use actual numbers for accurate results. Remember to include all deductible expenses.

5. Frequently Asked Questions (FAQ)

Q1: What counts as a business expense?
A: Any cost directly related to your contracting work - equipment, software, home office, travel, training, insurance, etc.

Q2: How do I estimate my taxes?
A: As a contractor, you typically pay income tax plus self-employment tax (15.3%). A good rule is to set aside 25-30% of income for taxes.

Q3: Should I include benefits in expenses?
A: Yes, include health insurance, retirement contributions, and other benefits you pay for yourself as a contractor.

Q4: How often should I calculate my net income?
A: Monthly calculations help with cash flow management, with a comprehensive review quarterly and annually.

Q5: What's a good net income percentage?
A: Aim for at least 60-70% of gross income as net income after expenses and taxes, though this varies by industry.