1. CHAPTER 20
Taxes

2. Use the percent method to find the sales and excise tax.
20-1
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.

3. 20-1-1
Sales and excise taxes
Section 20-1
Sales Tax and Excise Tax
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.

4. Tax Sales tax Excise tax Key Terms…
Section 20-1
Sales Tax and Excise Tax
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.

5. Use the percent method to find the sales tax and excise tax
20-1-1
Section 20-1
Sales Tax and Excise Tax
The tax rate is equal to the tax per $1.00 of the purchase price or a percent of the purchase price.
STEP 1
Write the given percent as a decimal.
STEP 2
Find the sales tax or excise tax:
Tax = purchase price x sales tax rate

6. Find the sales tax on $128.72 at six cents per $1.00 or 6%.
An Example…
Section 20-1
Sales Tax and Excise Tax
Find the sales tax on $ at six cents per $1.00 or 6%.
$ x 0.06 = $7.72
The sales tax is $7.72.
The total purchase would be: $ = $136.44

7. Examples… Try these examples
Section 20-1
Sales Tax and Excise Tax
Find the sales tax on an dress that costs $ The tax rate is 7%.
$3.50
Find the sales tax on 3 CDs totaling $ The tax rate is 6.5%.
$2.40
Find the sales tax on suntan lotion that costs $ The tax rate is 5%.
$0.55

8. The total purchase would be: $45.93 + $12.45 = $58.38
An Example…
Section 20-1
Sales Tax and Excise Tax
Find the excise tax on a $45.93 purchase of gasoline, where the excise tax rate is 27.1%.
$45.93 x = $ (round up)
The excise tax is $12.45.
The total purchase would be: $ $12.45 = $58.38

9. Marked price Total price Key Terms…
Section 20-1
Sales Tax and Excise Tax
Marked price
The purchase price before sales tax is added.
Total price
The marked price plus the sales tax.

10. STEP 1 Find the marked price and the sales tax from the total price
20-1-2
Section 20-1
Sales Tax and Excise Tax
STEP 1
Find the marked price:
Write the sales tax rate as a decimal.
Add 1 to the decimal equivalent of the sales tax rate from step 1a.
Divide the total price by the sum from step 1b.

11. STEP 2 Find the marked price and the sales tax from the total price
20-1-2
Section 20-1
Sales Tax and Excise Tax
STEP 2
Find the sales tax
= total price – marked price

12. The marked price of the movie ticket is $7.94.
An Example…
Section 20-1
Sales Tax and Excise Tax
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.
Marked price
= Total price ($8.50) divided by 1 + decimal equivalent of the sales tax ( )

13. The sales tax on the movie ticket is $0.56.
An Example…
Section 20-1
Sales Tax and Excise Tax
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
Sales tax = $8.50 – $7.94 = $0.56
The sales tax on the movie ticket is $0.56.

14. Examples…
Try these examples
Section 20-1
Sales Tax and Excise Tax
Find the marked price and sales tax on a box of popcorn which has a total price of $ 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 $ The local tax rate is 6.5%.
Marked price is $2.35; tax is $0.15.

15. EXERCISE SET A 1.
Calculate the sales tax on the given purchase using the given sales tax rate. (Round to the nearest cent.)
$1,294.26; 4.5%
1,294.26(0.045) = $ = $58.24
Delaware has a diesel fuel excise tax rate of 22.0%. How much excise tax is paid on a diesel fuel purchase of $ if the purchase is before excise tax is added?
22%($219.83) = 0.22($219.83) = $ or $48.36 2.

16. EXERCISE SET A 3.
Find the marked price if the given total bill includes sales tax at the given rate. (Round to the nearest cent.)
$27.45; 5%
27.45  1.05 = = $26.14
$87.26; 3.5%
87.26  = = $84.31 4.

17. Find the assessed value. Calculate property tax.
20-2
Learning Outcomes
Find the assessed value.
Calculate property tax.
Determine the property tax rate.

18. Market value Assessed value Property tax Key Terms…
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.

19. Property tax
Section 20-2
Property Tax
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).

20. Find the assessed value
20-2-1
Find the assessed value
Section 20-2
Property Tax
STEP 1
Write the assessment rate as the decimal equivalent of the percent.
STEP 2
Find the assessed value.
= market value x assessment rate

21. Assessed value = market value x assessment rate
An Example…
Section 20-2
Property Tax
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.

22. An Example…
Try these examples
Section 20-2
Property Tax
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

23. Calculate property tax
20-2-2
Calculate property tax
Section 20-2
Property Tax
STEP 1
Express the given property tax as tax per $1.00 of assessed value, depending on how the tax rate is stated.
Example: If the given rate is a number of mills per dollar of assessed value, divide the number of mills by 1000.
STEP 2
Find the property tax.
= assessed value x property tax rate per $1.00

24. An Example…
Section 20-2
Property Tax
Find the property tax on a home with an assessed value of $90,000 if the property tax rate is :
(a) 11.08% of the assessed value
Multiply the assessed value x tax rate:
$90,000 x 11.08% = $9,972
(b) $11.08 per $100 of assessed value
Property value = assessed value x tax on $100 ÷ $100
Property tax = $90,000 x $11.08 ÷ $100 = $90,000 x = $9,972

25. An Example…
Section 20-2
Property Tax
Find the property tax on a home with an assessed value of $90,000 if the property tax rate is :
(c) $ per $1,000 of assessed value
Property tax = $90,000 x $ ÷ $1000 = $90,000 x = $9,972
(d) mills per $1.00 of assessed value
Property tax = $90,000 x $ ÷ $1000 = $90,000 x = $9,972

26. Determine the property tax
20-2-3
Determine the property tax
Section 20-2
Property Tax
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.

27. Determine the property tax
20-2-3
Determine the property tax
Section 20-2
Property Tax
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)

28. The tax rate is $2.48 per $100 of assessed value
An Example…
Look at this example
Section 20-2
Property Tax
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 = $ x $100 = $2.48 (rounded up).
The tax rate is $2.48 per $100 of assessed value

29. Farm property or single-family dwellings: 25% of market value
EXERCISE SET A 1.
Find the assessed value of the following property, using the following rates.
Farm property or single-family dwellings: 25% of market value
Commercial property or multifamily dwellings: 40% of market value
Utilities: 50% of market value
Grocery store with market value of $115,000
Grocery store assessed at 40%
115,000(0.4) = $46,000

30. EXERCISE SET A 2.
Find the property tax on the given assessed value using the given rate.
$37,000; 1.5% of assessed value
37,000(0.015) = $555
If the county tax rate is $3.74 per $100 of assessed value, find the tax on a property that is assessed at $35,000.
35,000($3.74)  100 = $1,309 3.

31. EXERCISE SET A 5.
Find the property tax on the given assessed value using the given rate.
A home has a market value of $50,000 ( assessed value = 25% of market value). Find the amount of county taxes to be paid on the home if the county tax rate is $4.00 per $100 of assessed value.
50,000(0.25) = 12,500 assessed value
12,500(4.00)  100 = $500 county tax

32. $172,500; $16.23 per $1,000 of assessed value
EXERCISE SET A 6.
Find the property tax on the given assessed value using the given rate.
A home has a market value of $50,000 ( assessed value = 25% of market value). Find the amount of county taxes to be paid on the home if the county tax rate is $4.00 per $100 of assessed value.
50,000(0.25) = 12,500 assessed value
12,500(4.00)  100 = $500 county tax
$172,500; $16.23 per $1,000 of assessed value
72,500(+6.23)  1,000 = $2, (nearest cent) 7.

33. Express the mills as dollars to the nearest thousandth. 63 mills
EXERCISE SET A 8.
Express the mills as dollars to the nearest thousandth.
63 mills
63  1,000 = $0.063
Find the tax on the property at the given assessed valuation using the given tax rate.
$23,275; 55 mills per $1.00 of assessed value
55 mills = $0.055; $23,275(0.055) = $1, = $1, (nearest cent) 9.

34. EXERCISE SET A
10.
Complete the following table. (Express the tax on the given assessed valuation in cents or dollars and cents. Round up any remainder.)
$1 tax rate: $4,348,800  87,460,000 = ($1) = $0.05
$100 tax rate: ($100) = $ = $4.98
$1,000 tax rate: ($1,000) = $
= $49.73
Total assessed value
Total expenses
Tax on
$1.00
Tax on $100
Tax on $1,000
$87,460,000
$4,348,000

35. EXERCISE SET A
11.
Acworth expects an increase in expenses of $215,000 over the currently budgeted $1,996,801. The town must increase the tax rate or reassess property values. A reassessment would cost the town $27,500 and would increase the assessed value of property in the town to $28,500,000. The town council must make a choice based on whether the reassessed property will increase the revenue from taxes enough to cover the increase in expenses. Which should they choose if the town property currently has an assessed evaluation of $23,678,300 and the current town property tax rate is $6.83 per $100?

36. Total property tax revenue with projected reassessed property values =
EXERCISE SET A
Total property tax revenue with projected reassessed property values =
$28,500,000($6.83  $100) = $1,946,550
Total expected expenses = $1,996,801 + $215,000 + $27,500 = $2,239,301
Since the total expenses with the reassessment plan exceeds the projected tax revenue, the town should increase the tax rate to raise the needed revenue.

37. Use the tax tables to calculate income tax.
20-3
Learning Outcomes
Find taxable income.
Use the tax tables to calculate income tax.
Use the tax rate schedule to calculate income tax.

38. Filing status W-2 form Income tax tables Key Terms…
Section 20-3
Income Taxes
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.

39. Gross income Adjusted gross income Key Terms…
Section 20-3
Income Taxes
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,

40. Exemption Taxable income Key Terms…
Section 20-3
Income Taxes
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.

41. Do you owe taxes or will you get a refund?
Section 20-3
Income Taxes
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.

42. STEP 1 STEP 2 STEP 3 20-3-1 Find taxable income
Section 20-3
Income Taxes
STEP 1
Find the adjusted gross income.
= total income – allowable expenses and deductions
STEP 2
Total the deductions or choose the standard deduction and total the exemptions.
STEP 3
Find the taxable income:
= adjusted gross income – itemized or standard deductions – exemptions

43. = $41,609, the taxable income for this family.
An Example…
Section 20-3
Income Taxes
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 $3,700 for each.
= $67,754 – $11,345 – ($3,700)(4)
= $41,609, the taxable income for this family.
Taxable income = adjusted gross income – itemized or standard deductions – exemptions

44. Use the tax tables to calculate income tax
20-3-2
Use the tax tables to calculate income tax
Section 20-3
Income Taxes
STEP 1
Locate the taxable income under the column headed, “If line 43 (taxable income) is ____.”
Step 2
Move across to the column headed, “And you are _______,” which has the four filing status categories.

45. Move across the row to the column under “married, filing separately.”
An Example…
Section 20-3
Income Taxes
Find the tax owed by a married taxpayer filing separately on a taxable income of $39,478.
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 $5,994.

46. Move across the row to the column under “married, filing jointly.”
An Example…
Section 20-3
Income Taxes
Find the tax owed by a married taxpayer filing jointly on a taxable income of $39,478.
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 $5,071.

47. STEP 1 Use the tax computation worksheet to calculate income tax
20-3-3
Section 20-3
Income Taxes
STEP 1
Locate the correct section according to the filing status.

48. Use the tax computation worksheet to calculate income tax
20-3-3
Section 20-3
Income Taxes
STEP 2
Locate the range where the taxable income falls.
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.

49. STEP 5 Use the tax computation worksheet to calculate income tax
20-3-3
Section 20-3
Income Taxes
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.

50. Find the tax on: An Example…
Section 20-3
Income Taxes
Find the tax on:
A taxable income of $112,418 for a married taxpayer, filing jointly, using Table 20-2.
Use Section B.
The taxable income falls in the range of “At least $100,000 but not over $139,350.”
$112, x 0.25 = $28, – $7,750 =
Column a Column b Column c Column d
$20,

51. Find the tax on: An Example…
Section 20-3
Income Taxes
Find the tax on:
A taxable income of $148,382 for a married taxpayer, filing separately, using Table 20-2.
Use Section C.
The taxable income falls in the range of “At least $106,150 but not over $188,575.”
$148,382 x 0.33 = $ 48, – $ 11, =
Column a Column b Column c Column d
$37,693.31

52. Use $3,700 for each allowed personal exemption in the Exercise.
EXERCISE SET A 1.
Use $3,700 for each allowed personal exemption in the Exercise.
Find the taxable income for the Zuckmans, a family of four (husband, wife, two children), if the adjusted gross income is $34,728, and the itemized deductions are $10,246.
Exemptions = $3,700(4) = $14,800
Taxable income = $34,728  $10,246  $14,800
= $9,682

53. Use $3,700 for each allowed personal exemption in the Exercise.
EXERCISE SET A 2.
Use $3,700 for each allowed personal exemption in the Exercise.
Find the taxable income for Lorenda and James Atlas, a husband and wife with no children who have an adjusted gross income of $56,000 and are filing jointly. Their total itemized deductions are $13,589.
Exemptions = $3,700(2) = $7,400
Taxable income = $56,000  $13,589  $7,400
= $35,011

54. Tax for a single person is $6,344.
EXERCISE SET A
Use Table 20-1 to find the tax owed by taxpayers with the following taxable incomes:
$40,876 (single)
Range, $40,850–$40,900
Tax for a single person is $6,344.
$40,987 (married, filing separately)
Range, $40,950–$41,000
Tax for a married couple filing separately is $6,369. 3. 4.

55. Use Table 20-2 to find the tax on the following taxable income:
EXERCISE SET A
Use Table 20-2 to find the tax on the following taxable income:
$188,342 (single)
Use Section A.
Range is over $174,400 but not over $379,150.
Column a Column b Column c Column d
$188,342  33% (.33) 62, ,103.00
Tax: $47,049.86 5.

56. Practice Test

57. PRACTICE TEST
Find the sales tax on the given marked price using the given sales tax rate.
$18.26; 6.25%
$18.26(0.0625) = $ = $1.14 (rounded)
$2.98; 6.5%
$2.98(0.065) = $ = $0.19 (rounded) 2. 4.

58. PRACTICE TEST
Find the sales tax on the given marked price using the given sales tax rate.
The diesel fuel excise tax rate in Kentucky is 23.4%. How much excise tax is paid on diesel fuel that costs $87.89 before the excise tax is added?
23.4%($87.89) = 0.234($87.89) = $ or $20.57 6.

59. 4.25(0.0525) = 0.223125 = 0.22 (rounded) sales tax
PRACTICE TEST
What is the total price if the given sales tax rate is applied to the given marked price?
$4.25; 5.25%
4.25(0.0525) = = 0.22 (rounded) sales tax
= $4.47 total price 8.

60. 84.15(0.06) = 5.049 = 5.05 (rounded) sales tax 10.
PRACTICE TEST
Find the marked price if the given total price includes sales tax at the given rate.
$7.87; 6.5%
7.87  = $ = $7.39 (rounded)
A telephone bill of $84.15 is assessed state sales tax at a rate of 6%. Find the tax on the telephone bill.
84.15(0.06) = = 5.05 (rounded) sales tax
10.
12.

61. PRACTICE TEST
14.
Find the assessed value of an apartment building (assessed at 40% of the market value) if the market value is $485,298.
485,298(0.4) = $194,119.20
Find the tax on a home if the assessed value is $24,375 and the tax rate is $43.97 per $1,000.
24,375(43.97)  1,000 = 1, = $1, (rounded)
16.

62. Range is over $174,400 but not over $379,150.
PRACTICE TEST
20.
Use Table 20-2 to calculate the amount of tax owed by Erma Thornton Braddy if her taxable income is $182,817 and her filing status is single.
Use Section A.
Range is over $174,400 but not over $379,150.
Column a Column b Column c Column d
$182, × 33% (.33) $60, $15,103.00
Tax: $ 45,226.61

63. itemized deductions of $14,521, what is their taxable income?
PRACTICE TEST
22.
Juanita and Robert Gray have a gross income of $68,521, all of which is subject to income tax. They have two children and plan to file a joint income tax return. If each exemption is $3,700 and they have
itemized deductions of $14,521, what is their taxable income?
Exemptions = $3,700(4) = $14,800
Taxable income = 68,521  14,800  14,521
= 39,200