Re: Calculating Gross and Net Income

[David Orr <whitears -at- ORRNET -dot- COM>]

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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M. David Orr
Orr & Associates/Usability Management
7366 N. Lincoln Avenue Suite 101
Lincolnwood, IL 60646 USA
Phone: 847-677-1920
mailto: whitears -at- orrnet -dot- com
http://www.orrnet.com