what is net of tax 
the term net of tax refers to the amount left after adjusting for the effects of taxes net of tax can be a consideration in any situation where taxation is involved individuals and businesses often analyze before and after tax values to make investment and purchasing decisions net of tax is also an important part of expense analysis when reviewing annual tax filings and the net income of businesses understanding net of taxin the financial industry gross and net are two key terms that refer to before and after paying certain expenses in general net of refers to a value found after expenses have been accounted for therefore the net of tax is simply the amount left after taxes have been subtracted 1there can be several scenarios where net of tax is important three of the most common are large asset purchases with sales tax before and after tax contributions and an entity s total profit after tax taxes can be a part of asset sales and purchases most large assets like cars trucks and motorcycles require a sales tax at the time of purchase sellers of these items may also be required to pay taxes on capital gains property has its own tax rules and is often not subject to sales tax 23 many real estate owners can often qualify for tax breaks that help them reduce any capital gains taxes they might have to pay on real estate property sold 4the total taxes on a transaction are subtracted from the income or gains to calculate net of tax calculating net of taxfor purchases you ll need to consider the taxes and subtract them from the total amount you paid for income you subtract the amount you paid in taxes for the period from the amount you earned for example if you earn 60 000 per year but paid 7 200 in taxes you made 52 800 net of tax for the year another example might be a company that sells one of its assets it is usually not responsible for sales tax but may have to pay capital gains taxes if a company bought a factory for 600 000 and sold it 10 years later for 1 million it would have realized 400 000 in capital gains at a capital gains tax rate of 15 it would owe 60 000 in taxes on the sale it would have profited 340 000 net of tax 400 000 60 000 without considering other expenses for the transaction 52net of tax strategiesnet of tax strategies can be important in the investment and financial planning world since investors must pay taxes on their capital gains there are many strategies they can deploy to reduce or avoid the impact of taxes there are several investments and investment vehicles labeled as tax advantaged municipal bonds are one of the most common tax advantaged investments with most of the asset class offering no federal tax on gains 6investors can also choose to hold assets for more than one year to pay a reduced long term capital gains tax versus the short term capital gains rate which adds the gains to the investor s income if they meet the income requirements 2 moreover some investors may invest to avoid alternative minimum taxes amt which can apply to any investor but usually are a factor for taxpayers who itemize or those with higher net worth 7before and after tax investing or contributions can also be important for many investors any before tax contribution lowers the value of taxable income any after tax contribution is considered to be net of tax with taxes already subtracted investing in a 401 k plan or individual retirement account ira is often done with before or after tax contributions many investors pay into 401 k s and traditional iras with pre tax dollars which helps to lower their taxable income effectively the investor will be taxed at the time of withdrawal instead alternatively roth iras are funded with after tax dollars thus roth iras are not taxed at the time of withdrawal because the tax was paid before the roth ira was funded 8roth ira accounts can also provide unique opportunities to invest without taxation for instance if you had a roth ira account with 100 000 in stocks and 100 000 in bonds it s possible to sell stocks and bonds within the account without ever paying taxes on gains when you make a withdrawal as long as you meet the criteria for a qualified distribution 9some companies may also offer tax advantaged benefits like pre tax deductions for purchasing transportation cards as part of their employee benefit plans any pre tax deductions for regular expenses can be helpful because they lower the taxable amount and increase net of tax values net of tax and incomeanalyzing gross versus net income for an annual tax year is often an important scenario involving net of tax consideration overall individuals and businesses can take expense deductions that reduce their taxable income entities may also take credits that reduce any tax they owe both individuals and businesses make regular tax payments throughout the year which should also be monitored to ensure optimal net of tax earnings the irs taxes individuals at the following annual income tax rates for the 2023 tax year the return that is filed in 2024 10the irs taxes individuals at the following annual income tax rates for the 2024 tax year the return that will be filed in 2025 11the annual tax rate generally assessed on corporations is 21 12at the end of the tax year when entities file their tax returns certain deductions or credits can help to reduce the taxes they owe arriving at the total net of tax figure requires subtracting all the income taxes paid throughout the year from the gross income received if you receive a refund at tax time this can be a type of reimbursement for taxes already withheld your refund then offsets your net of tax income in general individuals and businesses usually seek to take advantage of as many tax deductions and credits as possible to reduce the total taxes paid and increase their annual net of tax value 