How is net income before taxes calculated?

Net income before taxes is calculated by taking total revenue and subtracting normal operating expenses. This process allows a business to determine its profitability from core operations without considering the effects of taxes.

Normal expenses typically include costs directly associated with running the business, such as salaries, rent, utilities, and materials. By subtracting these expenses from revenue, a company can see its earnings based on its normal business activities. This figure is important because it reflects the economic performance of the organization before the impact of taxation, thus providing a clear view of operational efficiency.

The other options do not accurately represent the calculation of net income before taxes. For instance, adding capital items to revenue does not appropriately reflect income since capital expenditures are not considered revenue-generating but rather investments in the company's future. Similarly, deducting all expenses from revenue could include non-operating costs or extraordinary items that do not represent a typical business outcome, and accounting for taxes in the subtraction leads to a net income figure after taxation, rather than before.