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Unit 9 Seminar: Taxes Please have the tables handy.

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Sales Tax Property Tax Income Tax 2

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Use the percent method to find the amount of sales tax Use the total price to find the marked price and the sales tax 3

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The sales tax formula is: Sales tax = Purchase price * Sales tax rate Where sales tax rate = tax per $1.00 of the purchase price or a percent of the purchase price. An appliance that costs $288.63 with a 5.5% sales tax means the sales tax amount is $288.63*0.055 = $15.87 The marked price is the price before the sales tax is added. The total price is the marked price plus the sales tax. Total price = Marked price + Sales tax Marked price = total price ÷ (1 + sales tax rate) Then another way to find the sales tax would be: Sales tax = Total price - Marked price 4

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At a sporting center, the items are priced to include tax. The price of shirts are $30 and hats are $20. The sales tax is 8.2%. Find the marked price and the sales tax. Change the sales tax percent to the decimal value. 8.2% = 0.082 Marked price = total price ÷ (1 + sales tax rate) Shirts Marked price = $30 ÷ ( 1 + 0.08) = $30 ÷ 1.08 = $27.73 Hats Marked price = $20 ÷ ( 1 + 0.08) = = $20 ÷ 1.08 = $18.52 Sales tax = Total price - Marked price Shirt sales tax = $30 – $27.73 = $2.22 The sales tax for one shirt is $2.46. Hat sales tax = $20 - $18.52 = $1.48 The sales tax for one soft drink is $1.48. 5

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Find the Assessed Value Calculate Property Tax Determine the Property Tax Rate 6

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Property tax is usually assessed using the assessed value of the property rather than using the market value. The assessed value of a property is a certain percentage of the estimated market value of the property. This percent is determined by the city or county that charges the tax and is called assessment rate. To find the assessed value: Assessed value = Market value * Assessment rate A farm with a market value of $200,000 and an assessed valuation (or assessment rate) of 40% of the market value has an Assessment value = $200,000 * 0.40 = $80,000 7

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The city or county might impose a property tax rate that must be paid on a piece of property. This can be done in several ways. This property tax rate can be a percent of the assessed value, as an amount of tax per $1.00 of assessed value, as an amount of tax per $100 of assessed value, as an amount of tax per $1000 of assessed value, or in mills. A mill is one- thousandth (1/1000 or 0.001) of a dollar. 8

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Find the property tax on a home with an assessment of $150,000 if property tax rate is: a.) 12% of the assessed value b.) $12 per $100 of assessed valu e c.) $120 per $1000 of assessed value d.) 120 mills per $1.00 of assessed value. 9

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a.) If a given tax rate is a percent of assessed value, then tax per $1.00 = percent of assessed value in decimal form. To find the tax per $1.00 we first convert the property tax rate to decimal so, 12% = 0.12. $150,000 * 0.12 = $18,000 b.) If given tax rate is tax per $100 of assessed value then divide this amount by $100 To find the tax per $1.00 we first we divide $12 by $100. $12/$100 = 0.12. $150,000 * 0.12 = $18,000 10

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c.) If given tax rate is tax per $1000 of assessed value then divide this amount by $1000 To find the tax per $1.00 we first we divide $120 by $1000. $120/$1000 = 0.12. $150,000 * 0.12 = $18,000 d.) If the given rate is a number of mills per $1.00 of assessed value then divide the number of mills by $1000 To find the tax per $1.00 we first we divide 120 mills by $1000. 120 mills/$1000 = 0.12. $150,000 * 0.12 = $18,000 11

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The government uses its estimated budget to determine how much money it will need in the year ahead. That amount is then divided by the total assessed value of all the property in the area. This calculation tells the government how much tax must be collected for each dollar of assessed property value. The tax rate can be written as a tax per $100 or $1000 of assessed value by multiplying the tax on $1.00 by 100 or 1,000. If the division does not come out even, round the digit in the hundredths position up to the next digit. If we don’t round the value up the total budget will be short. 12

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Tax per $1.00 of assessed value = total estimated budget ÷ total assessed property value Tax per $100 of assessed value = (total estimated budget ÷ total assessed property value) * $100 Tax per $1000 of assessed value = (total estimated budget ÷ total assessed property value) * $1000 Tax, in mills, per $1.00 of assessed value = (total estimated budget ÷ total assessed property value) * $1000 13

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Find the tax rate expressed as tax per $1000 of assessed value for Smalltown, which estimates expenses of $145,337,000 and has property assessed at $4,652,855,250. Tax per $1000 of assessed value = (total estimated budget / total assessed property value) * $1000 Tax per $1000 of assessed value = ($145,337,000 / $4,652,855,250) * $1000 Tax per $1000 of assessed value = ($0.031236) * $1000 = 31.236 If we round the answer to the nearest hundredth the answer is $31.24. Tax per $1000 of assessed value is $31.24. 14

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Happytown previously estimated expenses of $95,590,000 and property was assessed at $3,868,758,500. Current tax rate is $2.48. The town now expects an increase in expenses of $5,000,000. To cover these expenses, the town has to increase the tax rate or reassess property values. The town assessor’s office predicts that the reassessment would cost $100,000 and increase the town’s assessment value of $4,300,000,000. The town leaders prefer the reassessment choice but do not want to reassess property value and increase the tax rate in the same year. Can the town leaders cover their expenses with just the change in assessments? Is a tax increase also needed? 15

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Last year expenses = $95,590,000 This year’s increase = $5,000,000 Total expenses this year = $100,590,000 16

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Start by calculating the total property tax receipts using the new assessment value with the current tax rate Total property taxes from reassessed property values = expected reassessed values * ($2.48 ÷ $100) = $4,300,000,000 * ($2.48 ÷ $100) Total property taxes from reassessed property values = $106,640,000 The costs of this plan were estimated at $100,000. So true gains are = $106,640,000 - $100,000 = $106,540,000 Remember, total expenses this year = $100,590,000 which is less than the gain in assessment value. Therefore, this is a real option for the city. No tax increases needed. 17

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Find taxable income Use the tax tables to calculate income tax Use the tax rate schedules to calculate income tax 18

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To calculate the income tax owed, one must begin with the gross income which is the money, goods, and property received during the year (before taxes or other money is taken out). From this amount subtract any adjustments allowed, such as a credit for employee expenses that are not reimbursed by the employer. This gives you your adjusted gross income. Adjusted gross income = total income - allowable expenses and deductions Then find the taxable income which is the adjusted gross income minus exemptions and deductions. Taxable income = adjusted gross income – itemized or standard deduction – exemptions. The taxable income is the amount that is used to calculate the taxes owed. 19

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Find the taxable income for a family of four (husband, wife, two children) if their adjusted gross income is $67,754 and their itemized deductions are $11,345. Use $3,300 as the amount of each personal exemption. Taxable income = adjusted gross income – deductions – exemptions = $67,754 - $11,345 – ($3,300) (4) = $67,754 - $11,345 – $13,200 Taxable income = $43,209 20

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To calculate income tax using a tax rate schedule we do the following. 1. Locate the correct schedule according to filing status. 2. Find the range in which the taxable income falls. 3. Subtract the low end of the range from the taxable income. 4. Multiply the difference from step 3 by the given percent for the range. 5. Add the tax from step 4 to the given tax for the range. 21

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Find the tax on a taxable income of $128,382 for a single taxpayer using the Sample Tax Rate Schedule 22

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Given: $128,382 for single filing status The income range is: $74,200 - $154,800. Subtract the low end of the range from the taxable income $128,382 - $74,200 = $54,182 Multiply the difference above by the given tax percent for that income range, 28%. $54,182 * 0.28 = $15,170.96 Add in the given tax for that range of $15,107.50 $15,170.96 + $15,107.50 = $30,278.46 Total income tax is $30,278.46 23

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Reminder of what to complete for Unit 9: Discussion = initial response to one question + 2 reply posts MML assignment MML Final Exam Seminar quiz if you did not attend, came late, or left early 24

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