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Net income from self-employment is calculated by subtracting business expenses from total business income. This method accurately represents the profit that a self-employed individual earns after covering the costs associated with running their business.

To elaborate, total business income includes all revenue generated from self-employment activities, while business expenses encompass any ordinary and necessary costs incurred to maintain and operate the business. These could include costs for supplies, utilities, advertising, and other operational expenses. The resulting figure from subtracting expenses from income gives a clearer picture of financial performance, reflecting the actual earnings that can influence tax liability and overall financial health.

This method not only aligns with accounting principles but is also important for proper tax reporting, ensuring that self-employed individuals only pay taxes on their net earnings, not on their gross revenue.