How to calculate net income
Learn how to calculate net income using the simple formula, with clear worked examples.
December 2023 | Published by Xero
Published Thursday 23 July 2026
Table of contents
Net income (and its equation) is the same as net profit.
Key takeaways
- Net income is what your business keeps after you subtract all expenses and taxes from revenue, and it's the same thing as net profit.
- The formula is simple: net income = revenue − expenses − taxes.
- Net income, gross income, and gross profit are different figures, so it helps to keep them straight when you read your numbers.
- For a Canadian business the accounting figure differs from taxable income, which individuals report to the Canada Revenue Agency.
What is net income?
Net income is what your business keeps after you subtract all expenses and taxes from revenue. It's the same as net profit and is often called the bottom line.
This page covers business net income, the figure that tells you whether your business made money over a given period.
The net income formula
You can work out the figure with one straightforward calculation. In words, the net income formula is: net income = revenue − expenses − taxes.
Revenue is the money your business earned, expenses cover the costs of running it, and taxes are what you owe on the result.
Example of a net income calculation
Here's how the formula works with real numbers for a small business over a year.
Say your business sells $35,000 of products, has $17,000 in expenses, and pays $6,000 in taxes. Your net income is $35,000 − $17,000 − $6,000 = $12,000.
Calculating net income from gross profit
You can also reach net income by starting from gross profit, which is revenue minus the cost of goods sold. From there, subtract your operating expenses and tax: gross profit − operating expenses − tax = net income.
Example of net income from gross profit
This example shows the same business, this time starting from gross profit.
Your business sells $35,000 of products, and it costs $14,000 to make them, so your gross profit is $21,000. Subtract $3,000 in operating expenses and $6,000 in tax, and your net income is $21,000 − $3,000 − $6,000 = $12,000.
Net income vs gross income vs net profit
These terms are easy to mix up, so it helps to know exactly what each one means before you read your income statement. Here's how they differ:
- Gross profit is revenue minus the cost of goods sold
- Net profit is the same as net income, meaning revenue minus all expenses and taxes
- Gross income is money earned before deductions, and it's distinct from net income
Why net income matters
Net income shows your real profitability, so it's the number to watch when you want to know how your business is doing. It also guides some of your most important decisions.
You can use it to decide whether to reinvest in the business or take money out as distributions. If you're a sole proprietor, net income is what you pay yourself from, and tracking it helps you measure profitability over time.
Net income vs taxable income in Canada
The accounting figure and the tax figure aren't always the same, which matters when you file in Canada. For a business, net income is revenue minus expenses and taxes.
For individuals, the Canada Revenue Agency calculates net income on line 23600 as total income minus allowable deductions.
Track your net income with Xero
Keeping an eye on your bottom line is easier when your numbers stay in one place. Xero brings your revenue, expenses, and reports together so you can see your net profit at a glance and make confident decisions. Try it and get one month free.
FAQs on net income
Here are answers to some frequently asked questions about net income.
What is the net income formula?
The net income formula is revenue − expenses − taxes. It gives you the amount your business keeps after everything is paid.
Is net income before or after tax?
Net income is after tax. It's the figure left once you've subtracted all expenses and taxes from revenue.
Is net income the same as net profit?
Yes, net income and net profit are the same figure. Both describe the bottom line after all expenses and taxes.
What is the difference between net income and gross income?
Gross income is money earned before deductions, while net income is what's left after all expenses and taxes. They're distinct figures.
Can net income be negative?
Yes, net income is negative when your expenses and taxes are greater than your revenue. That result is called a net loss.
Related terms
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Disclaimer
This glossary is for small business owners. The definitions are written with their requirements in mind. More detailed definitions can be found in accounting textbooks or from an accounting professional. Xero does not provide accounting, tax, business or legal advice.