Problem 5 You own an inandOut Burger franchise The restaura

Problem #5 You own an in-and-Out Burger franchise. The restaura nt earns before-tax profits of $750,000. You have agreed to contribute 3% of after-tax profits to a refugee relief fund. You must pay state tax of 8% of your profits, after the charitable donation, and a federal tax of 21% of profits, after the donation and state taxes are paid. How much do you owe to the relief fund, to the state government, and to the federal government? Note that in your state, federal taxes are deducted from state taxes

Solution

Since federal taxes is deducted from state taxes, federal taxes comes to 13%.

let contribution to a refugee relief fund be X

Profit after tax= 0.21 (750000-X)

Contribution to relief fund = 0.03 (157500-0.21X)

X=4725-0.0063X

X=4695

Contribution to refugee relief fund = $4695

State tax= (750000-4695)0.08 = $59624

Federal Tax = (750000-4695)0.13= $96890.