- 1). Calculate your total amount of gross receipts or income for your calculation period. This is the money that you earned through sales or providing services through your business. Gross receipts and income are regularly calculated on a monthly, quarterly and annual basis for the purposes of record keeping, quarterly tax filings, and annual tax or income reports.
- 2). Multiply your gross income by the percentage of federal tax liability that you owe for the current year. Your tax percentage -- or bracket -- is determined by the amount of your income. The federal tax brackets for the current year can be found on the IRS website. The resulting product is your federal tax liability for the period.
- 3). Multiply your gross income by the self employment tax rate for Social Security and Medicare. As of January 2011, the Social Security rate was 12.4 percent and the Medicare rate was 2.9 percent for a total rate of 15.3 percent. The resulting product is your government entitlement liability. These rates are twice the rate that is imposed upon individuals working for an employer since the employer is generally responsible for paying half of this tax liability.
- 4). Multiply your gross income by your state and local income tax rates. These rates can be obtained by contacting your local taxing authority and your state's Department of Revenue. The resulting products are your state and local tax liability.
- 5). Subtract your federal withholding, government entitlement liability, and state and local taxes from your gross income or receipts amount for the period that you are calculating. The resulting difference is your net income or the amount that you are able to cash and spend.