Question

Veronica is self employed. In one year, Veronica generates a gross income of $65,500. When calculating her taxes, Veronica is allowed to deduct up to $2,500 in expenses from her gross income (to give the 'operating income'), but if her expenses exceed $2,500 then any surplus must be deducted against her income after tax. In this calendar year, Veronica's total expenses were $5,500. The tax system is such that she must pay 15% tax on any operating income up to $25,000 and then 30% on any operating income over $25,000. Calculate Veronica's net profit, that is, the amount she earns after all taxes and expenses.

Answer 1

Answer: 44,850

Explanation:

Veronica's operating income is

Operating Income=$65,500−$2,500=$63,000.

So Veronica will be taxed 15% on $25,000 and 30% on $(63,000−25,000)=$38,000, hence

Total Tax=15%×$25,000+30%×$(63,000−25,000)=$15,150.

So Veronica's net profit is

Net Profit=$63,000−$15,150−$(5,500−2,500)=$44,850.

Answer 2

$44,850

Explanation:

Gross income is $65,500

Allowable deductions are $2,500

Operating income is $65,500-$2,500=$63,000

From the given tax structure, Veronia will pay 15% for the first $25,000 then 30% for $63,000-$25,000=$38,000

Tax will be (0.15*$25,000)+(0.3*$38,000)=$15,150

Remaining expenses will be $5,500-$2,500=$3,000

Income after tax will be $63,000-$15,150=$47,850

Net income=$47,850-$3,000=$44,850

Ans=$44,850