Re: Calculating Gross and Net Income
40 hour week X 4 = 160 hours a month (there are really 4.3 weeks in a month, but there are also sick days, unbillable days, etc.)
160 X Hourly Rate = Gross Revenues at full employment
Gross Income - %of time when you are in between jobs (say 10% to 30%, depending on how good a marketer the writer is.)= Adjusted Gross Revenues
Adjusted Gross Revenue - Expenses (say $5000-7000 for things like computer expense, travel, marketing expense, supplies) = Gross Income
Gross Income - Taxes = Net Income
To adequately compare Net Income to the income a writer might make as a salaried employee, one needs to account for the value of benefits, many of which may be tax-free. Also, a 1099 independent consultant will have tax deductions for home office, equipment, etc.
When a writer calculates Expenses, it's useful to differentiate between Operating and Capital Expenses. Operating expenses are for things like utilities, supplies, rent, and other things that are necessary to operate during the current year. Capital Expenses are for things like computers that continue to help the writer make money over several years. The value of Capital goods should be prorated or amortized over the expected useful life of the item (for example, 3 years for a computer or printer). This prorated value is applied to Expenses in each year, not all at once when purchased.
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