More and more Americans are filing their own tax returns each year, foregoing the option to have a professional prepare them. This isn’t surprising, especially when you consider how easy it is to file a free tax return online from the comfort of your own home.
Ultimately, this means learning the ins and outs of an intricate financial system that is always changing. For instance, the difference between Before Tax and After Tax is a topic that comes up quite often in personal finances. In fact, it’s the one question most people ask when they review their financial situation. It is important to know the difference between the two if you want to have a profitable financial state.
|Before Tax||After Tax|
|Before subjected to tax||After subjected to tax|
|The result is a taxable income||The result is a post-tax income|
|Applicable to any income||Applicable to personal and business income only|
Before tax is a term used when talking about income tax. It refers to the initial tax calculation in which all deductions are taken into account before taxes are calculated. The result of this calculation is referred to as pre-tax income or taxable income.
After tax is a term used when talking about net income or the amount of money left after all taxes are paid. It refers to the final calculation in which all deductions are taken into account after taxes are calculated. The result of this calculation is referred to as post-tax income.
Before Tax vs After Tax
Before tax is the gross amount received minus any deductions that are taken. After-tax income refers to the amount of income that an individual or organization receives after all tax deductions have been made.
Before tax means the amount before being subjected to taxes. This amount is usually called as taxable income. In other words, it is the salary before applying of personal and corporate income taxes. The deductions which are allowed in your salary are also considered as before tax money.
After tax means the amount after being subjected to taxes. This amount is usually called as post-tax income. In other words, it is the salary after applying of personal and corporate income taxes. The deductions which are allowed in your salary are also considered as post-tax money.
The concept of before tax is applicable to any kind of income and that also includes interest, rent and dividends. On the other hand, after tax applies to personal income or business income only.
Here’s a quick example of how they works. Suppose you make $1,000 a month and you have $400 in after tax dollars left to spend on food and entertainment. If you want to go out to dinner one night, would it be more convenient for you if your $400 was before tax or after tax?
Before tax. You can spend $1,200 in your monthly income of $1,000 and you’ll still have $400 to spend on food and entertainment.
After tax. If you want to go out to dinner that night with the money you have left over from your income of $1,000, you’ll have to subtract the tax rate. That reduces your after tax dollars by $100. So it would be cheaper for you to just go out to dinner that night before you do your taxes.