7e Contemporary Mathematics FOR BUSINESS AND CONSUMERS Brechner PowerPoint Presentation by Domenic Tavella, MBA Taxes ©2014 Cengage Learning. All Rights

7e Contemporary Mathematics FOR BUSINESS AND CONSUMERS Brechner

PowerPoint Presentation by Domenic Tavella, MBA

Taxes

© 2 0 1 4 C e n g a g e L e a r n i n g . A l l R i g h t s R e s e r v e d . M a y n o t b e s c a n n e d , c o p i e d o r d u p l i c a t e d , o r p o s t e d t o a p u b l i c l y a c c e s s i b l e w e b s i t e , i n w h o l e o r i n p a r t . 1

7e

PERFORMANCE OBJECTIVESSection I Sales and Excise Taxes

18-1: Determining sales tax by using sales tax tables

18-2: Calculating sales tax by using the percent method

18-3: Calculating selling price and amount of sales tax when total purchase price is known

18-4: Calculating excise tax

Section II Property Tax

18-5: Calculating the amount of property tax

18-6: Calculating tax rate necessary in a community to meet budgetary demands

2© 2 0 1 4 C e n g a g e L e a r n i n g . A l l R i g h t s R e s e r v e d . M a y n o t b e s c a n n e d , c o p i e d o r d u p l i c a t e d , o r p o s t e d t o a p u b l i c l y a c c e s s i b l e w e b s i t e , i n w h o l e o r i n p a r t .

7e

PERFORMANCE OBJECTIVESSection III Income Tax

18-7:Calculating taxable income for individuals

18-8:Using the Tax Table to determine tax liability

18-9:Using the Tax Computation Worksheet to calculate tax liability

18-10: Calculating an individual’s tax refund or amount of tax owed

18-11: Calculating corporate income tax and net income after taxes


continued

7e

Sales and Excise Taxes


taxation• The imposition of a mandatory levy or charge by a

government unit to provide financing for public services.

sales tax• A tax based on the retail selling or rental price of

tangible personal property, collected by the retailer at the time of purchase, and paid to the state or local government.

7e

Sales and Excise Taxes


continued

sales tax rate• Sales tax expressed in its most common form, as a

percent of the retail price of an item.

excise tax• A tax levied by federal, state, and local governments

on certain luxury or nonessential products and services such as alcoholic beverages, furs, tobacco products, telephone service, and airline and cruise ship tickets.

7e

STEPS

6

STEP 1 Locate the taxable retail price in the Amount of Sale column.

STEP 2 Scan to the right to locate the amount of tax due in the Tax column.

Note: Exhibit 18-1 is only a partial listing. Complete sales tax tables are available in most states from the Department of Revenue

TO DETERMINE SALES TAX DUE ON AN ITEM BY USING SALES TAX TABLES

© 2 0 1 4 C e n g a g e L e a r n i n g . A l l R i g h t s R e s e r v e d . M a y n o t b e s c a n n e d , c o p i e d o r d u p l i c a t e d , o r p o s t e d t o a p u b l i c l y a c c e s s i b l e w e b s i t e , i n w h o l e o r i n p a r t .

7e

7

EXHIBIT 18-1

6 ½ % Sales Tax Brackets


7e

Sales Tax Example


Use Exhibit 18-1 to determine the amount of sales tax at 6½ percent with a retail price of $9.99.

From Exhibit 18-1, sales tax on $9.99 is found by locating the row 9.85-10.09 on the chart.

The amount of the tax is listed as $.65

7e

STEPS

9

STEP 1 Calculate the sales tax by multiplying the selling price of the good or service by the sales tax rate.

Sales tax = Selling price × Sales tax rate

STEP 2 Compute the total purchase price by adding the selling price, the sales tax, and any other additional charges.

Total purchase price = Selling price + Sales tax + Other charges

TO CALCULATE SALES TAX AND TOTAL PURCHASE PRICE BY USING THE PERCENT METHOD


7e

Sales Tax Example


Helena purchased a refrigerator for $899.90. The delivery charge was $20 and the ice maker hookup fee amounted to $55. The state sales tax rate is 6½% and the city tax is 1.3%. Calculate the total amount of sale tax and the total purchase price.


Total purchase price =Selling price + Sales tax + Other charges

Sales tax = 899.90 × (.065 + .013) = $70.19

Total purchase price = 899.90 + 70.19 + 20.00 + 55.00 =$1,045.09

7e

STEPS

11

STEP 1 Calculate selling price of an item by dividing the total purchase price by 100% plus the sales tax rate.

Selling price =

STEP 2 Determine the amount of sales tax by subtracting the selling price from the

total purchase price.

Sales tax = Total purchase price – Selling price

TO CALCULATE SELLING PRICE AND AMOUNT OF SALES TAX


Total purchase price100% + Sales tax rate

7e

Sales Tax Example


At the end of a business day, the cash register at a gift shop showed total sales, including sales tax, of $3,520. If the state and local taxes amounted to 8½%, what is the amount of actual sales? How much sales tax was collected that day?

rate tax Sales100%

price purchase Totalprice Selling

%.%

,

58100

5203price Selling

Sales tax = Total purchase price – Selling price

3,5201.085

=$3,244.24

- 3,244.24 = $275.76Sales tax = 3,520

7e

STEPS

13

STEP 1 When expressed as a percent: Multiply the selling price of an item by the excise tax rate.

Excise tax = Selling price × Excise tax rate

When expressed as a fixed amount per unit: Multiply the number of units by the excise tax per unit.

Excise tax = Number of units × Excise tax per unit

STEP 2 Calculate the total purchase price by adding the selling price plus sales tax plus excise tax.

Total purchase price = Selling price + Sales tax + Excise tax

TO CALCULATE THE AMOUNT OF EXCISE TAX


7e

Excise Tax Example


A hunting bow at a sporting goods store in Cincinnati, Ohio, retails for $129.95. Ohio sales tax is 5% and the federal excise tax on the item is 11%. What is the amount of each tax, and what is the total purchase price?

Sales tax = Selling price x Sales tax rate

Excise tax = Selling price x Excise tax rate

Total purchase price = Selling price + Sales tax + Excise tax

Sales tax = 129.95 x .05 = $6.50

Excise tax = 129.95 x .11 = $14.29

Total purchase price = 129.95 + 6.50 + 14.29 = $150.74

7e

Property Tax


ad valorem or property tax• A tax based on the assessed value of property,

generally collected at the city or county level as the primary source of revenue for counties, municipalities, school districts, and special taxing districts.

real estate, or real property• Land, buildings, and all other permanent improvements

situated thereon.

personal property• For ad valorem tax purposes, divided into tangible

personal property and supplies and household goods.

7e

Property Tax


continued

assessed value• The value of property for tax purposes, generally a

percentage of the fair market value.

• Property tax = Assessed value of property × Tax rate

fair market value• The value of property based on location, size, cost,

replacement value, condition, and income derived from its use.

tax assessor, or property appraiser• The city or county official designated to determine

assessed values of property.

7e

Property Tax


continued

Property tax rates may be expressed in the following ways:

• Decimal or percent of assessed value:• Example: .035 or 3.5%

• Per $100 of assessed value:• Example: $3.50 per $100

• Per $1,000 of assessed value:• Example: $35.00 per $1,000

• Mills (one one-thousandth of a dollar):• Example: 35 mills

7e

STEPS

18

STEP 1 Convert the tax rate percent to a decimal by moving the decimal point two places to the left.

STEP 2 Multiply the assessed value by the tax rate as a decimal.

Property tax = Assessed value × Tax rate

TO CALCULATE PROPERTY TAX WHEN THE TAX IS EXPRESSED AS A PERCENT


7e

Property Tax as a Percent Example


Mark’s home has a market value of $125,000. The assessment rate in the county is 70% and the tax rate is 1.944%. What is the assessed value of the home and the amount of the property tax?

Assessed value = Purchase price x Assessment rate

Property tax = Assessed value x Tax rate

Assessed value = 125,000 x

.70 = $87,500

Property tax = 87,500 x .01944 = $1,701

7e

STEPS

20

STEP 1 Divide the assessed value by $100 to determine the number of $100 the

assessed value contains.

Number of $100 =

STEP 2 Calculate the property tax by multiplying the number of $100 by the tax per $100.

Property tax = Number of $100 Tax per $100

TO CALCULATE PROPERTY TAX WHEN THE TAX IS EXPRESSED PER $100 OF ASSESSED VALUE


Assessed value100

7e

Property Tax Expressed per $100 of Assessed Value Example


Tracy Randall’s home has an assessed value of $89,700. The tax rate is $1.944 per $100. What is the amount of the property tax?

100

valueAssessed$100 ofNumber

$100 ofNumber

Property tax = Number of $100 × Tax per $100

89,700 100

= 897

Property tax = 897 × 1.944 = $1,743.77

Heather Townsend

7e

STEPS

22

STEP 1 Divide the assessed value by $1,000 to determine the number of $1,000 the

assessed value contains.

Number of $1,000 =

STEP 2 Calculate the property tax by multiplying the number of $1,000 by the tax per $1,000.

Property tax = Number of $1,000 Tax per $1,000

TO CALCULATE PROPERTY TAX WHEN THE TAX IS EXPRESSED PER $1,000 OF ASSESSED VALUE


Assessed value1,000

7e

Property Tax Expressed per $1,000 of Assessed Value Example


Tracy purchased a home with an assessed value of $89,700. The tax rate is $19.44 per $1,000. What is the amount of the property tax?

1,000

valueAssessed$1,000 ofNumber

$1,000 ofNumber

Property tax = Number of $1,000 × Tax per $1,000

89,700 1,000

= 89.7

19.44 =Property tax = 89.7 × $1,743.77

7e

STEPS

24

STEP 1 Because mills means 1/1,000 (.001) of a dollar, convert tax rate in mills to tax rate in decimal form by multiplying mills times .001.

Tax rate in decimal form = Tax rate in mills × .001

STEP 2 Calculate the tax due by multiplying the assessed value by the tax rate in decimal form.

Property tax = Assessed value × Tax rate in decimal form

TO CALCULATE PROPERTY TAX WHEN THE TAX IS EXPRESSED IN MILLS


7e

Property Tax When the Tax is Expressed in Mills Example


Tracy Randall’s home has an assessed value of $89,700. The tax rate is 19.44 mills. What is the amount of the property tax?

Tax rate in decimal form = Tax rate in mills x .001

Property tax = Assessed value × Tax rate in decimal form

Tax rate in decimal form = 19.44 × .001 = .01944

Property tax = 89,700 × .01944 = $1,743.77

7e

STEPS

26

STEP 1 Calculate tax rate per dollar of assessed property value by dividing the total taxes required by the total assessed property value.

Tax rate per dollar (decimal form) =

Round your answer to ten-thousandths (four decimal places). In most states, the rounding is always up, even if the next digit is less than 5.

STEP 2 To convert tax rate per dollar to:

• percent, move the decimal point two places to the right and add a percent sign.

• tax rate per $100, multiply by $100.• tax rate per $1,000, multiply by $1,000.• mills, divide by .001.

TO COMPUTE TAX RATE


Total taxes requiredTotal assessed property value

7e

Tax Rate Necessary to Meet Budgetary Demands Example


The city budget planners have determined that $3,435,000 will be needed to provide city services for the next year. The total assessed property value in the city is $71,800,000. Determine what tax rate must be imposed to meet budgetary demands. Express your answer in each of the four ways.

7e

Tax Rate Necessary to Meet Budgetary Demands Example


continued

value propertyassessed Totalrequired taxes Total

dollar per rate Tax

00080071

0004353dollarper rateTax

,,

,,

Percent,

.0478412 = $.0479

.0479 = 4.79% of assessed value

Per $100, .0479 × 100 = $4.79 per $100

Per $1,000, .0479 × 1,000 = $47.90 per $1,000

Mills, .0479 ÷ .001 = 47.9 mills per $1.00

7e

Income Tax


income tax• A pay-as-you-go tax based on the amount of income

of an individual or corporation.

tax return• The official Internal Revenue Service forms used to

report and pay income tax for income earned during the previous calendar year.

taxable income• The amount of income that tax rates are applied to in

order to calculate the amount of tax owed for the year.

7e

STEPS

30

STEP 1 Determine total income by adding all sources of taxable income.

STEP 2 Calculate adjusted gross income by subtracting the sum of all adjustments to income from total income.

STEP 3 Subtract the sum of the itemized deductions or the standard deduction (whichever is larger) from the adjusted gross income.

2012 Standard DeductionsSingle $5,950Married, filing jointly, or Qualifying widow(er) $11,900Married, filing separately $5,950Head of household $8,70065 or older and/or blind See IRS

instructions to find standard deduction.

STEP 4 Multiply $3,800 by the total number of exemptions claimed and subtract from the amount in Step 3. The result is taxable income.

TO CALCULATE INCOME TAX FOR INDIVIDUALS


7e

31

EXHIBIT 18-2Procedure to Calculate Taxable Income


7e

Taxable Income Example


Nick is single, claiming two exemptions. He earns $35,000 in wages per year. Last year, he also earned $1,200 in cash dividends from his investment portfolio.

Nick contributed $1,500 to his individual retirement account and gained $5,000 from the sale of stock.

His itemized deductions amounted to medical expenses of $1,000 in excess of IRS exclusions; $1,945 in real estate taxes; $2,500 in mortgage interest; and $300 in charitable contributions.

From this information, calculate his taxable income.

7e

Taxable Income Example


continued $35,000 Wages

+ Cash dividends

+ Sale of stock (gain)

$ Total income

- Retirement contributions

$ Adjusted gross income

Compare standard deduction of $5,950 with itemized deduction of $5,745. Choose the larger one: $5,950.

Itemized deductions:

Medical expenses

Real estate taxes

Mortgage interest

+ Charitable contributions

Itemized deductions

Adjusted gross income

- Itemized deductions

- (3,800 x 2) exemptions

Taxable income

1,200

5,000

$ 41,2001,500

$39,700

$1,000

1,945

2,500300

$5,745

$39,700

5,7457,600

$26,355

7e

Using the Tax Table to Determine Liability


Tax Table

• The IRS chart used to find the amount of income tax due for individuals with taxable income of under $100,000.

Tax Computation Worksheet

• The IRS chart used to calculate the amount of income tax due for individuals with taxable income of $100,000 or more.

7e

STEPS

35

STEP 1 Using Exhibit 18-3, read down the “If line 43 (taxable income) is—” columns to find the line that includes the amount of taxable income. Note: Line 43 refers to the line on the 1040 tax form where taxable income is listed.

STEP 2 Find the tax liability by scanning across the “And you are—” column containing the appropriate filing status.

TO DETERMINE TAX LIABILITY USING THE TAX TABLE, TAXABLE INCOME UNDER $100,000


7e

36

EXHIBIT 18-3Tax Table


7e

Individual Tax Liability Example


Joshua and his wife, Katie, had taxable income last year amounting to $65,780.

Their filing status is married, filing jointly.

Using the Tax Table, determine their tax liability.

Using Exhibit 18-3, the federal tax liability for Joshua and Katie is $8,996.

7e

STEPS

38

STEP 1 Locate the section corresponding to the appropriate filing status:

Section A – Single

Section B – Married filing jointly or qualifying widow(er)

Section C – Married filing separately

Section D – Head of household

STEP 2 Read down the first column, “Taxable income. If line 43 is—,” to find the range containing the taxable column.

STEP 3 Multiply the taxable income by the “multiplication amount” listed in column (b) for that range.

STEP 4 Calculate the tax liability by subtracting the “subtraction amount” listed in column (d) for that range from the result in Step 3.

TO CALCULATE TAX LIABILITY USING THE TAX COMPUTATION WORKSHEET—TAXABLE INCOME OF $100,000 OR ABOVE


7e

39

EXHIBIT 18-42012 Computation Worksheet—Line 44


7e

Tax Liability for Taxable Income of $100,000 or Above


Felix had taxable income of $123,545 last year. If he files as head of household, what is his tax liability?

Using Exhibit 18-4, Section D:

Taxable income

× Tax rate Computed tax– Subtraction amount Tax liability

$123,545.00

.28

34,592.609,024.00

$ 25,568.60

7e

STEPS

41

STEP 1 Subtract total credits from the tax liability.

STEP 2 Add total of other taxes to the tax liability to get total tax.

STEP 3 If total payments are greater than total tax, a refund of the difference is due. If total payments are less than total tax, the difference is the tax owed.

TO CALCULATE AN INDIVIDUAL’S TAX REFUND OR AMOUNT OF TAX OWED


7e

An Individual’s Tax Refund or Amount of Tax Owed Example


Krista had a tax liability of $14,600 last year. In addition, she owed other taxes of $2,336. She was entitled to a child care credit of $668 and a foreign tax credit of $1,719. If her employer withheld $270 per week for 52 weeks, does Krista qualify for a refund or owe more taxes? How much?

$ Tax liability + Other taxes owed- Child care credit- Foreign tax credit Total tax

Employer withheld =

$ 14,6002,336

6681,719

$ 14,549

270 × 52 = $14,040

Tax owed = Total tax – Payments

Tax owed = 14,549 – 14,040 = $509

7e

STEPS

43

STEP 1 Using the Corporate Tax Rate Schedule, read down the “Over—” and “But not over—” columns to find the range containing the taxable income of the corporation.

STEP 2 Subtract the lower number of the range from the taxable income.

STEP 3 Multiply the result from Step 2 by the tax rate listed for that range.

STEP 4 Calculate the tax liability by adding the result from Step 3 to the dollar amount of tax indicated for that range.

STEP 5 Calculate income after taxes by subtracting the tax liability from the net income before taxes.

TO CALCULATE CORPORATE INCOME TAX AND NET INCOME AFTER TAXES


7e

44

EXHIBIT 18-6Corporate Tax Rate Schedule


7e

Calculating Corporate Income Tax and Net Income after Taxes Example


A firm had taxable income of $311,200 last year. Use the Corporate Tax Rate Schedule to calculate the amount of income tax due and the company’s net income after taxes.

Using Corporate Tax Rate Schedule, Exhibit 18-6: Income before taxes- Lower number on range$ × Tax rate Computed tax+ Amount of tax$ Tax liability

$ Income before taxes- Tax liability$ Net income after tax

$ 311,200100,000211,200

.3982,36822,250

$104,618

311,200104,618206,582

7e CHAPTER REVIEW PROBLEM 1


Dimitri purchased an oven for $779.99. The delivery charge was $69. The state sales tax rate is 6½% and the city tax is 1.4%. Calculate the total amount of sale tax and the total purchase price.


Total purchase price =Selling price + Sales tax + Other charges

Sales tax = 779.99 × (.065 + .014) = $61.62

Total purchase price =

779.99 + 61.62 + 69.00 = $910.61

7e CHAPTER REVIEW PROBLEM 2


Isabelle’s home has a market value of $238,000. The assessment rate in the county is 65% and the tax rate is 1.944%. What is the assessed value of the home and the amount of the property tax?

Assessed value = Purchase price x Assessment rate

Property tax = Assessed value x Tax rate

Assessed value = 238,000 x .65 = $154,700

Property tax = 154,700 x .01944 = $3,007.37

Documents

7e Contemporary Mathematics FOR BUSINESS AND CONSUMERS Brechner PowerPoint Presentation by Domenic Tavella, MBA Taxes ©2014 Cengage Learning. All Rights