Posts tagged "Cost of Goods."

What is Margin and Affect on Income Tax

What is meant by Margin on a business financial statement and how it affects income tax.

Margin is gross revenue less cost of goods sold. (COGS)

Gross revenue is revenue before any expenses and cost of goods deducted.

Cost of goods sold is the product purchased for the purpose of selling that product.

Now that we have an idea of what gross revenue and COGS is, let’s continue to figure out the margin.

EX:

Gross revenue                    $250,000.

Less: Discount                      $50,000.

Total Gross Revenue           $200,000.

Less: Cost of Goods Sold     $100,000.

Total Gross Revenue           $100,000. this is the margin (revenue less COGS)

Expenses:

Wages               $30,000.

Heat                     1500.

Rent                   15,000.

Total Expenses    $46,500.

Net Income         $53,500. This is your net income and taxable income.

You need to have a healthy margin so the business can pay for overhead expenses such as rent, heat, wages etc and pay you, the business owner as well.