Net profit is the amount of money that a business earns after deducting all of its expenses.
Freelancers should pay attention to their net profit because it is a key indicator of the financial health of their business. If a freelancer has a high net profit, it means they are generating a good amount of income relative to their expenses, which can be a sign of a successful business. On the other hand, if a freelancer has a low net profit, it may indicate that they need to adjust their rates or expenses to increase profitability.
Net profit is also important for tax purposes. As a freelancer, your net profit is reported on your personal income tax return and is subject to self-employment taxes. Self-employment taxes are separate from income taxes and are used to fund Social Security and Medicare. By paying attention to their net profit, freelancers can ensure that they are setting aside enough money to cover their tax liability.
See also: Profit, Schedule C Form