CHAPTER 20 – Taxes Instructor: Dr.Gehan Shanmuganathan

CHAPTER 20 – Taxes

Instructor:

Dr.Gehan Shanmuganathan

Business Math, Ninth EditionCheryl Cleaves, Margie Hobbs & Jeffrey Nobel

© 2012 Pearson Education, Inc.Upper Saddle River, NJ 07458 All Rights Reserved

Learning Outcomes

Use the percent method tofind the sales and excise tax.

Find the marked price andthe sales tax from the totalprice.

20-1



These taxes are extra amounts that a business collects and later pays to the state.

– Local taxes may apply in addition to state taxes.

– Some states charge no tax on food or medicine.

Laws vary, but some purchases made in one state and delivered in another don’t include taxes.

– It is the responsibility of the seller to determine ifan article or item is tax-exempt.

Sales Tax and Excise Tax

20-1-1Section 20-1

Sales and excise taxes



Tax

– Money collected by a government for its support and for providing services to the populace.

Sales tax

– A tax that is based on the price of a purchase. The tax is collected at the time of the purchase and the business periodically sends the collected tax to the governmental agency.

Excise tax

– A tax on the sale of particular goods such as fuel, alcohol, and tobacco.

Key Terms…Sales Tax and Excise TaxSection 20-1




20-1-1Section 20-1

Use the percent method to findthe sales tax and excise tax

STEP 2Find the sales tax or excise tax:

Write the given percent as a decimal.STEP 1

Tax = purchase price x sales tax rate

The tax rate is equal to the tax per$1.00 of the purchase price or apercent of the purchase price.



Find the sales tax on $128.72at six cents per $1.00 or 6%.

$128.72 x 0.06 = $7.72

The sales tax is $7.72.

The total purchase would be: $128.72 + 7.72 = $136.44

An Example…Sales Tax and Excise TaxSection 20-1



Try these examples Find the sales tax on an dress that costs $49.99. The tax rate is 7%.– $3.50

Find the sales tax on 3 CDs totaling $36.94.The tax rate is 6.5%.– $2.40

Find the sales tax on suntan lotion that costs $10.99. The tax rate is 5%.– $0.55

Examples…Sales Tax and Excise TaxSection 20-1



Find the excise tax on a $45.93 purchase of gasoline, where the excise tax rate is 27.1%.

$45.93 x 0.271 = $12.44703 (round up)

The excise tax is $12.45.

The total purchase would be: $45.93 + $12.45 = $58.38




Marked price

– The purchase price before sales tax is added.

Total price

– The marked price plus the sales tax.

Key Terms…Sales Tax and Excise TaxSection 20-1




20-1-2Section 20-1

Find the marked price andthe sales tax from the total price

Find the marked price:STEP 1

(a) Write the sales tax rate as a decimal.

(b) Add 1 to the decimal equivalent of the salestax rate from step 1a.

(c) Divide the total price by the sum from step 1b.

total priceMarked price =

1 + sales tax rateMORE




20-1-2Section 20-1

Find the marked price andthe sales tax from the total price

STEP 2Find the sales tax

= total price – marked price



The ticket to the movie you saw last night cost $8.50and included the tax. If the local sales tax is 7%,

what was the marked price of your ticket?

Marked price = $8.50 ÷ 1.07 = $7.94

The marked price of the movie ticket is $7.94.


Marked price= Total price ($8.50) divided by 1+ decimal equivalent of the sales tax (1 + 0.07)



Sales tax = $8.50 – $7.94 = $0.56

The sales tax on the movie ticket is $0.56.


Find the sales tax for the movie ticket if themarked price is $7.94 and the total price is $8.50.

Sales tax = total price – marked price



Try these examples Find the marked price and sales tax on a box of

popcorn which has a total price of $3.50. The local tax rate is 6%.

– Marked price is $3.30; tax is $0.20.

Find the marked price and sales tax on a soft drink which has a total price of $2.50. The local tax rate is 6.5%.

– Marked price is $2.35; tax is $0.15.

Examples…Sales Tax and Excise TaxSection 20-1





Learning Outcomes

Find the assessed value.

Calculate property tax.

Determine the propertytax rate.

20-2



Market value

– The expected selling price of a property.

Assessed value

– A specific percent of the estimated marketvalue of the property.

Property tax

– Tax collected by local governments from property owners—based on the type of property and the value of the property.

Key Terms…



Property taxProperty TaxSection 20-2

Property tax is imposed by the city or county government and the rate may be stated:

– As a percent of the assessed value.

– As an amount of tax per $1.00, or per $100of assessed value.

– As an amount of tax per $1,000 of assessedvalue, or in mills (1/1000 of a dollar).



Find the assessed valueProperty Tax

20-2-1Section 20-2

STEP 1Write the assessment rate as the decimal equivalentof the percent.

= market value x assessment rate

STEP 2Find the assessed value.



Find the assessed value of a farm with a marketvalue of $175,000 if the assessed valuation

is 25% of the market value.

Assessed value = market value x assessment rate

Assessed value = $175,000 x 0.25 = $43,750

The assessed value is $43,750.

An Example…Property TaxSection 20-2



Try these examples Find the assessed value of one-family home

with a market value of $125,000 and an assessment rate of 30%.

– $37,500

Find the assessed value of a condo with amarket value of $80,000 and an assessmentrate of 25%.

– $20,000




Calculate property taxProperty Tax

20-2-2Section 20-2

STEP 1Express the given property tax as tax per $1.00 of assessed value, depending on how the tax rate is stated.

= assessed value x property tax rate per $1.00

STEP 2Find the property tax.

Example: If the given rate is a number of mills per dollarof assessed value, divide the number of mills by 1000.

mills per $1.00Tax per $1.00 =

$1,000



(a) 11.08% of the assessed value


Find the property tax on a home with an assessed

value of $90,000 if the property tax rate is :

$90,000 x 11.08% = $9,972Multiply the assessed value x tax rate:

(b) $11.08 per $100 of assessed value

Property tax = $90,000 x $11.08 ÷ $100 = $90,000 x 0.1108 = $9,972

Property value = assessed value x tax on $100 ÷ $100

MORE




Find the property tax on a home with an assessed

value of $90,000 if the property tax rate is :(c) $110.80 per $1,000 of assessed value

Property tax = $90,000 x $110.80 ÷ $1000= $90,000 x 0.1108 = $9,972

(d) 110.8 mills per $1.00 of assessed valueProperty tax = $90,000 x $110.80 ÷ $1000= $90,000 x 0.1108 = $9,972



Determine the property taxProperty Tax

20-2-3Section 20-2

A city or county government determines how much money it will need in the year ahead.– The amount is then divided by the total assessed

value of all property in its area.

– The calculation tells how much tax must becollected for each dollar of assessed value.



Determine the property taxProperty Tax

20-2-3Section 20-2

STEP 1Determine the property tax rate according to thedesired tax rate type.

STEP 2Tax per $1.00* of assessed value

total estimated budget

total assessed property value

* (or tax per $100 x $100; tax per $1,000 x $1000,or tax in mills, per $1.00 of assessed value)



Look at this exampleFind the tax rate expressed as tax per $100 of

assessed value for Harbortown that anticipates expenses of $95,590,000 and has property

assessed at $3,868,758,500.

Tax per $100 of assessed value =$95,590,000 ÷ $3,868,758,500 x $100

= $0.024708184 x $100 = $2.48 (rounded up).


The tax rate is $2.48 per $100 of assessed value





Learning Outcomes

Find taxable income.

Use the tax tables tocalculate income tax.

Use the tax rate scheduleto calculate income tax.

20-3



Filing status

– Category of taxpayer, such as single, married filing jointly, married filing separately, or head of household.

W-2 form

– Form employer must provide each employee that shows earned income, income tax withheld, social security and Medicare taxes withheld.

Income tax tables

– Tax tables found in the IRS 1040 instructions publication for finding the amount of tax liability.

Key Terms…

MORE

Income TaxesSection 20-3



Gross income

– Money, goods and property received during the year.

Adjusted gross income

– (AGI) total or gross income minus certain employee expenses and allowable expenses such as IRA’s, student loan interest, tuition, fees, alimony paid,

Key Terms…

MORE




Exemption

– An amount that a taxpayer is allowed to subtractfrom AGI.

– one exemption is allowed per person—one forspouse and one for each dependent.

Taxable income

– Adjusted gross income minus exemptions andeither the standard or itemized deductions.

Key Terms…Income TaxesSection 20-3



April 15 is the deadline for filing income taxesfor the previous year.

– If more taxes were withheld than you had to pay,you get a refund.

– If less was withheld in taxes than you had to pay,you will owe the IRS.


Do you owe taxes or will you get a refund?



Find taxable incomeIncome Taxes

20-3-1Section 20-3

= total income – allowable expenses and deductions

STEP 1Find the adjusted gross income.

STEP 2Total the deductions or choose the standard deductionand total the exemptions.

= adjusted gross income– itemized or standard deductions – exemptions

STEP 3Find the adjusted gross income.



Find the taxable income for a family of four (husband, wife and two children) if their adjusted gross income is $67,754 and itemized deductions are $11,345.

Use an exemption of $3,650 for each.

= $67,754 – $11,345 – ($3,650)(4)

= $41,809, the taxable income for this family.

An Example…Income TaxesSection 20-3

Taxable income =adjusted gross income– itemized or standard deductions – exemptions



Use the tax tables to calculate income taxIncome Taxes

20-3-2Section 20-3

STEP 1Locate the taxable income under the column headed, “If line 43 (taxable income) is ____.”

See page706 - 707



Use the tax tables to calculate income taxIncome Taxes

20-3-2Section 20-3

STEP 2Move across to the column headed, “And you are _______,” which has the four filing status categories.

The tax owed appears under the appropriate category.See page706 - 707




Find the appropriate table heading of“at least $39,450 but less than $39,500.”

Move across the row to the column under “married, filing separately.”

The amount is $6,056.

Find the tax owed by a married taxpayer filingseparately on a taxable income of $39,478.

See pages706 - 707



Find the tax owed by a married taxpayer filingjointly on a taxable income of $39,478.


See pages706 - 707

Find the appropriate table heading of“at least $39,450 but less than $39,500.”

Move across the row to the column under “married, filing jointly.”

The amount is $5,086.



Income Taxes

20-3-3Section 20-3

STEP 1Locate the correct section according to the filing status.

Use the tax computationworksheet to calculate income tax

See page708



STEP 3Enter the taxable income (line 43 of Form 1040) on the appropriate line of Column a.

STEP 4Multiply the amount in Column a by the amountin Column b and enter the result in Column c.

Locate the range where the taxable income falls.STEP 2

See page708

Income Taxes

20-3-3Section 20-3




Income Taxes

20-3-3Section 20-3


STEP 5Subtract the amount in Column d from the amount in Column c and enter the result in the Tax column. This is the amount that will be entered on Line 44 on Form 1040.




Find the tax on:

A taxable income of $112,418 for a marriedtaxpayer, filing jointly, using Table 20-2.

See page708

Use Section B.

The taxable income falls in the range of“At least $100,000 but not over $137,050.”

$112,418 x 0.25 = $28,104.50 – $7,625 =

Column a Column b Column c Column d

$20,479.50




Find the tax on:

A taxable income of $148,382 for a marriedtaxpayer, filing separately, using Table 20-2.

See page708

Use Section C.

The taxable income falls in the range of“At least $104,425 but not over $186,475.”

$148,382 x 0.33 = $ 48,966.06 – $ 11,089.50 =

Column a Column b Column c Column d

$37,876.56





EXERCISE SET A



EXERCISE SET A



EXERCISE SET A



EXERCISE SET A



EXERCISE SET A



EXERCISE SET A



EXERCISE SET A



EXERCISE SET A



EXERCISE SET A



EXERCISE SET A



EXERCISE SET A





PRACTICE TEST



PRACTICE TEST



PRACTICE TEST



PRACTICE TEST



PRACTICE TEST



PRACTICE TEST



Documents

CHAPTER 20 – Taxes Instructor: Dr.Gehan Shanmuganathan