What is the formula to calculate target profit before taxes?

The formula to calculate target profit before taxes is derived from the relationship between profit after taxes and profit before taxes. When you want to find out how much profit you need to generate before taxes in order to achieve a specific target profit after taxes, you must account for the effect of taxes on that profit.

To calculate the target profit before taxes, you use the target profit after taxes and divide it by (1 - tax rate). This is because the target profit after taxes represents what remains after the tax has been deducted. By dividing by (1 - tax rate), you are essentially reversing the impact of the tax, thereby allowing you to find out the amount you need to generate before taxes in order to achieve the desired after-tax profit.

For example, if you want to achieve a target profit after taxes of $70,000 and the tax rate is 30% (0.30), you would calculate your target profit before taxes as $70,000 / (1 - 0.30) = $70,000 / 0.70 = $100,000. This means you would need to earn $100,000 before taxes to have $70,000 remaining after taxes.

This formula is essential for businesses and individuals who need to plan