Quick answer: add up your line items for the subtotal, apply any discount, then apply tax to the discounted amount. Use our free Invoice Calculator to compute this instantly.
The Correct Order of Operations
1) Sum all line items for the subtotal. 2) Subtract any discount. 3) Apply tax to the discounted amount, not the original subtotal — this is a common mistake that overcharges tax.
Why Order Matters
Applying tax before the discount results in charging tax on money the customer never actually paid, which is both mathematically wrong and can create compliance issues in some jurisdictions.
Frequently Asked Questions
Should tax apply before or after a discount?
After — tax should be calculated on the discounted amount, not the original subtotal.
Is this different from the Invoice Generator?
Yes, this tool calculates totals from numbers you provide; the Invoice Generator creates a full downloadable invoice document.
Can I use this for multiple line items with different tax rates?
This version applies one overall tax rate to the discounted subtotal.
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Open the Tool →Work through the total in a clear order
Start by multiplying each item’s quantity by its unit price, then add the line amounts to get the subtotal. Apply any discount according to the invoice terms. If tax is calculated after the discount in your jurisdiction, the formula is (subtotal − discount) × tax rate. Add the resulting tax and any other separately listed charge to get the amount due.
Example: 3 items at $20 each create a $60 subtotal. With a $5 discount and a 10% tax rate applied to the discounted amount, taxable value is $55 and tax is $5.50. The total is $60.50. If the discount is a percentage, calculate it from the amount specified in the agreement before applying the relevant tax rule.
Keep the invoice auditable
Show quantities, unit prices, discounts, tax rates, and the final amount as separate lines. Round only where required by local rules or accounting practice; repeated rounding at each line can create small differences. Tax treatment, discount order, and required invoice fields vary by country and by type of sale. This example illustrates arithmetic only and is not tax advice. Check the applicable tax authority’s guidance or ask an accountant if you are unsure which amount is taxable.
Quick review before sending
Check that each quantity and unit price matches the order, that the discount is applied to the intended items, and that the tax rate is appropriate for the transaction. Verify the arithmetic independently for the subtotal and tax, then compare the total due with the payment terms. Keep the tax amount visible instead of combining it into an unexplained final figure. Since tax rules and invoice requirements vary, use this calculation as a worksheet and confirm compliance with the relevant authority or accountant.