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

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

1 7e Contemporary Mathematics FOR BUSINESS AND CONSUMERS Brechner PowerPoint Presentation by Domenic Tavella, MBA Taxes ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 1

2 7e PERFORMANCE OBJECTIVES Section 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 ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

3 7e PERFORMANCE OBJECTIVES Section 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 3 ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. continued

4 7e Sales and Excise Taxes 4 ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 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.

5 7e Sales and Excise Taxes 5 ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 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.

6 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 ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

7 7e 7 EXHIBIT ½ % Sales Tax Brackets ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

8 7e Sales Tax Example 8 ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 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 on the chart. The amount of the tax is listed as $.65

9 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 ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

10 7e Sales Tax Example 10 ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Helena purchased a refrigerator for $ 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. Sales tax = Selling price × Sales tax rate Total purchase price = Selling price + Sales tax + Other charges Sales tax = × ( ) = $70.19 Total purchase price = = $1,045.09

11 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 ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Total purchase price 100% + Sales tax rate

12 7e Sales Tax Example 12 ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 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? Sales tax = Total purchase price – Selling price 3, =$3, , =$275.76Sales tax = 3,520

13 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 ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

14 7e Excise Tax Example 14 ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. A hunting bow at a sporting goods store in Cincinnati, Ohio, retails for $ 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 = x.05 = $6.50 Excise tax = x.11 = $14.29 Total purchase price = =$150.74

15 7e Property Tax 15 ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 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.

16 7e Property Tax 16 ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 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.

17 7e Property Tax 17 ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 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

18 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 ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

19 7e Property Tax as a Percent Example 19 ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 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 = $1,701

20 7e STEPS 20 TO CALCULATE PROPERTY TAX WHEN THE TAX IS EXPRESSED PER $100 OF ASSESSED VALUE ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Assessed value 100

21 7e Property Tax Expressed per $100 of Assessed Value Example 21 ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 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? Property tax = Number of $100 × Tax per $100 89, = 897 Property tax = 897 × = $1,743.77

22 7e STEPS 22 TO CALCULATE PROPERTY TAX WHEN THE TAX IS EXPRESSED PER $1,000 OF ASSESSED VALUE ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Assessed value 1,000

23 7e Property Tax Expressed per $1,000 of Assessed Value Example 23 ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 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? Property tax = Number of $1,000 × Tax per $1,000 89,700 1,000 = = Property tax = 89.7 × $1,743.77

24 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 ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

25 7e Property Tax When the Tax is Expressed in Mills Example 25 ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Tracy Randall’s home has an assessed value of $89,700. The tax rate is 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 = ×.001 = Property tax = 89,700 × =$1,743.77

26 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. 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 $100, multiply by $100. tax rate per $1,000, multiply by $1,000. tax rate per $1,000, multiply by $1,000. mills, divide by.001. mills, divide by.001. TO COMPUTE TAX RATE ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Total taxes required Total assessed property value

27 7e Tax Rate Necessary to Meet Budgetary Demands Example 27 ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 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.

28 7e Tax Rate Necessary to Meet Budgetary Demands Example 28 ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. continued Percent, = $ = 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

29 7e Income Tax 29 ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 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.

30 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 Standard Deductions Single$5,950 Married, filing jointly, or Qualifying widow(er)$11,900 Married, filing separately$5,950 Head of household$8, or older and/or blindSee 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 ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

31 7e 31 EXHIBIT 18-2 Procedure to Calculate Taxable Income ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

32 7e Taxable Income Example 32 ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 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.

33 7e Taxable Income Example 33 ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 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 $ 41,200 1,500 $39,700 $1,000 1,945 2, $5,745 $39,700 5,745 7,600 $26,355

34 7e Using the Tax Table to Determine Liability 34 ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 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.

35 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 ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

36 7e 36 EXHIBIT 18-3 Tax Table ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

37 7e Individual Tax Liability Example 37 ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 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.

38 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 ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

39 7e 39 EXHIBIT Computation Worksheet—Line 44 ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

40 7e Tax Liability for Taxable Income of $100,000 or Above 40 ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 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, , , $ 25,568.60

41 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 ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

42 7e An Individual’s Tax Refund or Amount of Tax Owed Example 42 ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 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 = $ 14,600 2, ,719 $ 14, × 52 =$14,040 Tax owed = Total tax – Payments Tax owed = 14,549 – 14,040 = $509

43 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 ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

44 7e 44 EXHIBIT 18-6 Corporate Tax Rate Schedule ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

45 7e Calculating Corporate Income Tax and Net Income after Taxes Example 45 ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 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, , , ,368 22,250 $104, , , ,582

46 7e CHAPTER REVIEW PROBLEM 1 46 ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. Dimitri purchased an oven for $ 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. Sales tax = Selling price × Sales tax rate Total purchase price = Selling price + Sales tax + Other charges Sales tax = ×( ) = $61.62 Total purchase price = = $910.61

47 7e CHAPTER REVIEW PROBLEM 2 47 ©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 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 = $3,007.37


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