After-Tax Income

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DEFINITION of 'After-Tax Income'

The amount of money that an individual or company has left over after all federal, state and withholding taxes have been deducted from taxable income. After-tax income represents the amount of disposable income that a consumer or firm has to spend on future investments or on present consumption.

Also known as "income after taxes".

BREAKING DOWN 'After-Tax Income'

When analyzing or forecasting personal or corporate cash flows, it is important to use an estimated after-tax net cash flow. This is a more appropriate measure because after-tax cash flows are what the entity has available for consumption.

This is not to say that all investments are purchased with after tax income; some companies offer salary deferral retirement plans that deduct money on a pretax basis. The money will be taxed once the employee decides to withdraw the amount (such as for retirement). However, because most people have less income during their retirement years compared to their prime earning years, the amount of tax paid will be less.

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