What is a Gross profit ratio?

A gross profit ratio is the percentage figure used to calculate the taxable portion of each installment payment received from an installment sale, calculated by dividing total profit (sales price minus adjusted basis) by the total contract price. This ratio remains constant throughout the payment period. For example, a property sold for $500,000 with a $200,000 basis has a 60% gross profit ratio, meaning 60% of each payment is taxable. Strategic Tax loss harvesting can offset recognized gains in specific years.

Related Terms

What is an Installment sale?

What is Basis?

What is Capital Gain?

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Tax loss harvesting

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Child traditional IRA

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Employee achievement awards

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Health reimbursement

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Child & dependent tax credits

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Health savings account

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Sell your home

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Employee achievement

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Work opportunity tax credit

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Hiring kids

Reduce taxable income & self-employment tax by hiring your kids.

Home office

Deduct qualified expenses for using your home for business purposes.

Meal expenses

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Travel expenses

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Vehicle expenses

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Late S election

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Late C election

A Late C Election is a request to the IRS for C corporation status after the deadline.

Depreciation

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R&D tax credit

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Clean vehicle

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Residential clean energy

Taxpayers who invest in renewable energy improvements for their home or second home may qualify for a credit to lower their income tax.

Augusta rule

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Roth 401k

Roth 401(k) lets employees and individuals make after-tax retirement contributions, offering tax-free growth and withdrawals.

Traditional 401k

Traditional 401(k) plans offer pre-tax retirement savings for employees, with companies reducing taxable income via contributions.