How is net income calculated?

If Income Before Taxes is 'net loss' on Income Statement, is actual tax rate still calculated and added?

• the tax rate is $40% of taxable income , but I have Net loss $600,000

• Answer:

  Yes. If you're doing "GAAP" accounting, you have to calculate something called a "book/tax difference". Since you have a net loss on your books, you have to check and see if you have a net loss for taxes, too. If you do, you're going to calculate (the loss amount) x (the tax rate), and the result will be a "net operating loss" tax asset. (The reason you do this is because you can use a net operating loss against past taxes and future taxes and get a benefit from that. Since you have a "benefit", you have an asset, and GAAP requires that you put that asset on your books. It will be either a tax refund receivable or a future tax benefit, depending on how you use it.)