What is ordinary income vs net income?

The difference between ordinary income and net income is as important as the differences between tax deductions and operating expenses. Ordinary income refers to income received from salaries, interest income, etc., while net income is a specific accounting term related to financial reporting of a business operations for a specific time period.

Think of ordinary income as that which is earned and reported by individual tax payers on their taxes, while net income is reported by a business. Generally speaking net income can be figured as follows:

Revenues (Total dollar figure from operations)

(-) Cost of goods sold

= Gross Profit

-- Selling, General and Administrative Costs (SG&A) (Operating expenses) = Earnings Before Interest,Taxes, and Amortization expenses (EBITA)

(-) Depreciation and Amortization= Earnings Before Interest and Taxes(-) Interest Expenses (cost of borrowing money)= Earnings Before Tax (EBT)(-) Tax Expense

= Net income