Question

Calculate Lara’s net reduction in cash flow, taking all taxes and related expenses into account. Assume a 7% state income tax rate. For background information, the couple does itemize but their property taxes alone are more than 10,000.

Lara is an eye surgeon who typically earns a salary of ~$600,000 per year from the surgical practice, in addition to significant investment income. Her spouse also earns a generous salary. Lara is thinking of cutting back her workload about 25%. She is wondering about the impact of the net loss in income on their lifestyle. She currently pays about $20,000 per year in childcare, and that would be reduced about 25% as well.

Answer 1

Given,

Salary = $ 600000

Property Tax = $10000

Income Tax Rate = 7%

Childcare Expenses = $20000

Requirements - Net Cash flow of Lara

Cash flow

Before thinking of cutting workloads.   

Receipt :(A)

Salary. $600000

Less Expense: (B)

Property Tax $10000

Childcare Expenses $20000

Income Tax $ 39900

Net Cash flow (A-B). 530100

After thinking of cutting Workloads

Receipt : (A)

Salary. $450000

less Expenses (B)

Property Tax $ 10000

Child Care $ 15000

Income Tax. $ 29750

Net Cash Flow.(A-B ). $ 395250

Net Reduction in cash flow = Cutting flow before cutting workload - cash flow after cutting workload

= $530100- $395250

= $134850

Note :- Tax is calculated after deducting all expenses.

There will be no cutting in property tax .

25% deduction of child care express