1. CHAPTER 20 – Taxes Instructor: Dr.Gehan Shanmuganathan

2. Business Math, Ninth Edition Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel © 2012 Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved Learning Outcomes Use the percent method to find the sales and excise tax. Find the marked price and the sales tax from the total price. 20-1

3. Business Math, Ninth Edition Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel © 2012 Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved 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 if an article or item is tax-exempt. Sales Tax and Excise Tax 20-1-1 Section 20-1 Sales and excise taxes

4. Business Math, Ninth Edition Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel © 2012 Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved 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

5. Business Math, Ninth Edition Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel © 2012 Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved Sales Tax and Excise Tax 20-1-1 Section 20-1 Use the percent method to find the sales tax and excise tax STEP 2 Find 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 a percent of the purchase price.

6. Business Math, Ninth Edition Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel © 2012 Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved Find the sales tax on $128.72 at 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

7. Business Math, Ninth Edition Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel © 2012 Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved 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

8. Business Math, Ninth Edition Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel © 2012 Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved 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 An Example… Sales Tax and Excise TaxSection 20-1

9. Business Math, Ninth Edition Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel © 2012 Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved 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

10. Business Math, Ninth Edition Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel © 2012 Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved Sales Tax and Excise Tax 20-1-2 Section 20-1 Find the marked price and the 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 sales tax rate from step 1a. (c)Divide the total price by the sum from step 1b. MORE

11. Business Math, Ninth Edition Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel © 2012 Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved Sales Tax and Excise Tax 20-1-2 Section 20-1 Find the marked price and the sales tax from the total price STEP 2 Find the sales tax = total price – marked price

12. Business Math, Ninth Edition Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel © 2012 Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved The ticket to the movie you saw last night cost $8.50 and 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. An Example… Sales Tax and Excise TaxSection 20-1 Marked price = Total price ($8.50) divided by 1 + decimal equivalent of the sales tax (1 + 0.07)

13. Business Math, Ninth Edition Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel © 2012 Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved Sales tax = $8.50 – $7.94 = $0.56 The sales tax on the movie ticket is $0.56. An Example… Sales Tax and Excise TaxSection 20-1 Find the sales tax for the movie ticket if the marked price is $7.94 and the total price is $8.50. Sales tax = total price – marked price

14. Business Math, Ninth Edition Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel © 2012 Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved 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

15. Business Math, Ninth Edition Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel © 2012 Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved

16. Business Math, Ninth Edition Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel © 2012 Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved Learning Outcomes Find the assessed value. Calculate property tax. Determine the property tax rate. 20-2

17. Business Math, Ninth Edition Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel © 2012 Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved Market value –The expected selling price of a property. Assessed value –A specific percent of the estimated market value 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…

18. Business Math, Ninth Edition Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel © 2012 Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved Property tax Property 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 $100 of assessed value. –As an amount of tax per $1,000 of assessed value, or in mills (1/1000 of a dollar).

19. Business Math, Ninth Edition Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel © 2012 Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved Find the assessed value Property Tax 20-2-1 Section 20-2 STEP 1 Write the assessment rate as the decimal equivalent of the percent. = market value x assessment rate STEP 2 Find the assessed value.

20. Business Math, Ninth Edition Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel © 2012 Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved Find the assessed value of a farm with a market value 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

21. Business Math, Ninth Edition Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel © 2012 Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved 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 a market value of $80,000 and an assessment rate of 25%. –$20,000 An Example… Property TaxSection 20-2

22. Business Math, Ninth Edition Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel © 2012 Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved Calculate property tax Property Tax 20-2-2 Section 20-2 STEP 1 Express 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 2 Find the property tax. Example: If the given rate is a number of mills per dollar of assessed value, divide the number of mills by 1000.

23. Business Math, Ninth Edition Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel © 2012 Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved (a) 11.08% of the assessed value An Example… Property TaxSection 20-2 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% = $9,972 Multiply 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

24. Business Math, Ninth Edition Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel © 2012 Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved An Example… Property TaxSection 20-2 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 value Property tax = $90,000 x $110.80 ÷ $1000 = $90,000 x 0.1108 = $9,972

25. Business Math, Ninth Edition Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel © 2012 Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved Determine the property tax Property Tax 20-2-3 Section 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 be collected for each dollar of assessed value.

26. Business Math, Ninth Edition Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel © 2012 Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved Determine the property tax Property Tax 20-2-3 Section 20-2 STEP 1 Determine the property tax rate according to the desired tax rate type. STEP 2 Tax per $1.00* of assessed value * (or tax per $100 x $100; tax per $1,000 x $1000, or tax in mills, per $1.00 of assessed value)

27. Business Math, Ninth Edition Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel © 2012 Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved Look at this example Find 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). An Example… Property TaxSection 20-2 The tax rate is $2.48 per $100 of assessed value

28. Business Math, Ninth Edition Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel © 2012 Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved

29. Business Math, Ninth Edition Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel © 2012 Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved Learning Outcomes Find taxable income. Use the tax tables to calculate income tax. Use the tax rate schedule to calculate income tax. 20-3

30. Business Math, Ninth Edition Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel © 2012 Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved 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

31. Business Math, Ninth Edition Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel © 2012 Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved 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 Income TaxesSection 20-3

32. Business Math, Ninth Edition Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel © 2012 Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved Exemption –An amount that a taxpayer is allowed to subtract from AGI. –one exemption is allowed per person—one for spouse and one for each dependent. Taxable income –Adjusted gross income minus exemptions and either the standard or itemized deductions. Key Terms… Income TaxesSection 20-3

33. Business Math, Ninth Edition Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel © 2012 Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved April 15 is the deadline for filing income taxes for 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. Income TaxesSection 20-3 Do you owe taxes or will you get a refund?

34. Business Math, Ninth Edition Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel © 2012 Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved Find taxable income Income Taxes 20-3-1 Section 20-3 = total income – allowable expenses and deductions STEP 1 Find the adjusted gross income. STEP 2 Total the deductions or choose the standard deduction and total the exemptions. = adjusted gross income – itemized or standard deductions – exemptions STEP 3 Find the adjusted gross income.

35. Business Math, Ninth Edition Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel © 2012 Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved 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

36. Business Math, Ninth Edition Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel © 2012 Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved Use the tax tables to calculate income tax Income Taxes 20-3-2 Section 20-3 STEP 1 Locate the taxable income under the column headed, “If line 43 (taxable income) is ____.” See page 706 - 707

37. Business Math, Ninth Edition Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel © 2012 Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved Use the tax tables to calculate income tax Income Taxes 20-3-2 Section 20-3 STEP 2 Move across to the column headed, “And you are _______,” which has the four filing status categories. The tax owed appears under the appropriate category. See page 706 - 707

38. Business Math, Ninth Edition Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel © 2012 Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved An Example… Income TaxesSection 20-3 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 filing separately on a taxable income of $39,478. See pages 706 - 707

39. Business Math, Ninth Edition Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel © 2012 Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved Find the tax owed by a married taxpayer filing jointly on a taxable income of $39,478. An Example… Income TaxesSection 20-3 See pages 706 - 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.

40. Business Math, Ninth Edition Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel © 2012 Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved Income Taxes 20-3-3 Section 20-3 STEP 1 Locate the correct section according to the filing status. Use the tax computation worksheet to calculate income tax See page 708

41. Business Math, Ninth Edition Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel © 2012 Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved STEP 3 Enter the taxable income (line 43 of Form 1040) on the appropriate line of Column a. STEP 4 Multiply the amount in Column a by the amount in Column b and enter the result in Column c. Locate the range where the taxable income falls. STEP 2 See page 708 Income Taxes 20-3-3 Section 20-3 Use the tax computation worksheet to calculate income tax

42. Business Math, Ninth Edition Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel © 2012 Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved Income Taxes 20-3-3 Section 20-3 Use the tax computation worksheet to calculate income tax STEP 5 Subtract 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.

43. Business Math, Ninth Edition Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel © 2012 Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved An Example… Income TaxesSection 20-3 Find the tax on: A taxable income of $112,418 for a married taxpayer, filing jointly, using Table 20-2. See page 708 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

44. Business Math, Ninth Edition Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel © 2012 Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved An Example… Income TaxesSection 20-3 Find the tax on: A taxable income of $148,382 for a married taxpayer, filing separately, using Table 20-2. See page 708 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

45. Business Math, Ninth Edition Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel © 2012 Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved

46. Business Math, Ninth Edition Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel © 2012 Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved EXERCISE SET A

47. Business Math, Ninth Edition Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel © 2012 Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved EXERCISE SET A

48. Business Math, Ninth Edition Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel © 2012 Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved EXERCISE SET A

49. Business Math, Ninth Edition Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel © 2012 Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved EXERCISE SET A

50. Business Math, Ninth Edition Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel © 2012 Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved EXERCISE SET A

51. Business Math, Ninth Edition Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel © 2012 Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved EXERCISE SET A

52. Business Math, Ninth Edition Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel © 2012 Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved EXERCISE SET A

53. Business Math, Ninth Edition Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel © 2012 Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved EXERCISE SET A

54. Business Math, Ninth Edition Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel © 2012 Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved EXERCISE SET A

55. Business Math, Ninth Edition Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel © 2012 Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved EXERCISE SET A

56. Business Math, Ninth Edition Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel © 2012 Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved EXERCISE SET A

57. Business Math, Ninth Edition Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel © 2012 Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved

58. Business Math, Ninth Edition Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel © 2012 Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved PRACTICE TEST

59. Business Math, Ninth Edition Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel © 2012 Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved PRACTICE TEST

60. Business Math, Ninth Edition Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel © 2012 Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved PRACTICE TEST

61. Business Math, Ninth Edition Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel © 2012 Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved PRACTICE TEST

62. Business Math, Ninth Edition Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel © 2012 Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved PRACTICE TEST

63. Business Math, Ninth Edition Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel © 2012 Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved PRACTICE TEST

64. Business Math, Ninth Edition Cheryl Cleaves, Margie Hobbs & Jeffrey Nobel © 2012 Pearson Education, Inc. Upper Saddle River, NJ 07458 All Rights Reserved