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.
