To solve:
State tax is 5% - you need to first find how much of the $4,000 goes to state tax: $4,000 x 5% = $200
Next find the Federal tax of 25% - $4,000 x 25% = $1,000
Next add the two tax amounts that are being taken out of Annie's paycheck together: $1,000 + $200 = $1,200
Finally, subtract the tax amount of $1,200 from $4,000 = $2,800
The real value of Annie's profit is $2,800 due to the amount of taxes taken out of her paycheck.
As a result of the money she will lose to taxes, the real value of Annie’s profit is $2,800.
First step is to calculate the amount that Annie must pay in taxes to the state government on her investment.
State government tax=$4,000×5%
State government tax=$200
Second step is to calculate how much she must pay in taxes to the federal government
Federal government tax=$4,000×25%
Federal government tax=$1,000
Now let calculate the real value of Annie’s profit
Profit=$4,000-($200+$1,000)
Profit=$4,000-$1,200
Profit=$2,800
Inconclusion as a result of the money she will lose to taxes, the real value of Annie’s profit is $2,800.
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