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CHAPTER 20 Taxes

CHAPTER 20 Taxes. Learning Outcomes. 20-1. Use the percent method to find the sales and excise tax. Find the marked price and the sales tax from the total price. Sales and excise taxes. 20-1-1. Section 20-1. Sales Tax and Excise Tax.

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CHAPTER 20 Taxes

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  1. CHAPTER 20 Taxes

  2. Learning Outcomes 20-1 • Use the percent method to find the sales and excise tax. • Find the marked price and the sales tax from the total price.

  3. Sales and excise taxes 20-1-1 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 ifan article or item is tax-exempt.

  4. 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… Section 20-1 Sales Tax and Excise Tax

  5. Use the percent method to findthe 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 apercent 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 $128.72at 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… Section 20-1 Sales Tax and Excise Tax

  7. 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… Section 20-1 Sales Tax and Excise Tax

  8. 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… Section 20-1 Sales Tax and Excise Tax

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

  10. Find the marked price andthe 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 salestax rate from step 1a. • Divide the total price by the sum from step 1b.

  11. Find the marked price andthe 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 ticket to the movie you saw last night cost $8.50and 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… Section 20-1 Sales Tax and Excise Tax Marked price = Total price ($8.50) divided by 1+ decimal equivalent of the sales tax (1 + 0.07)

  13. Sales tax = $8.50 – $7.94 = $0.56 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 themarked price is $7.94 and the total price is $8.50. Sales tax = total price – marked price

  14. 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… Section 20-1 Sales Tax and Excise Tax

  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) = $58.2417 = $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 $219.83 if the purchase is before excise tax is added? 22%($219.83) = 0.22($219.83) = $48.3626 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 = 26.14285714 = $26.14 $87.26; 3.5% 87.26  1.035 = 84.30917874 = $84.31 4.

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

  18. Market value The expected selling price of a property. Assessed value A specific percent of the estimated marketvalue 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…

  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 $100of assessed value. • As an amount of tax per $1,000 of assessedvalue, or inmills (1/1000 of a dollar).

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

  21. Find the assessed value of a farm with a marketvalue of $175,000 if the assessed valuationis 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… Section 20-2 Property Tax

  22. Try these examples Find the assessed value of one-family homewith a market value of $125,000 and an assessment rate of 30%. $37,500 Find the assessed value of a condo with amarket value of $80,000 and an assessmentrate of 25%. $20,000 An Example… Section 20-2 Property Tax

  23. Calculate property tax 20-2-2 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 dollarof 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. (a) 11.08% of the assessed value An Example… Section 20-2 Property Tax Find the property tax on a home with an assessedvalue of $90,000 if the property tax rate is : 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 0.1108 = $9,972

  25. An Example… Section 20-2 Property Tax Find the property tax on a home with an assessedvalue 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

  26. Determine the property tax 20-2-3 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 becollected for each dollar of assessed value.

  27. Determine the property tax 20-2-3 Section 20-2 Property Tax STEP 1 Determine the property tax rate according to thedesired 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. 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 propertyassessed 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… Section 20-2 Property Tax The tax rate is $2.48 per $100 of assessed value

  29. 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. 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 = $2,799.68 (nearest cent) 7.

  33. 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) = $1,280.125 = $1,280.13 (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 = 0.0497233021($1) = $0.05 $100 tax rate: 0.0497233021($100) = $4.97233021 = $4.98 $1,000 tax rate: 0.0497233021($1,000) = $49.7233021 = $49.73

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

  38. 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… Section 20-3 Income Taxes

  39. 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… Section 20-3 Income Taxes

  40. Exemption An amount that a taxpayer is allowed to subtractfrom AGI. one exemption is allowed per person—one forspouse and one for each dependent. Taxable income Adjusted gross income minus exemptions andeither the standard or itemized deductions. Key Terms… Section 20-3 Income Taxes

  41. April 15 is the deadline for filing income taxesfor 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. Do you owe taxes or will you get a refund? Section 20-3 Income Taxes

  42. Find taxable income 20-3-1 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 deductionand total the exemptions. STEP 3 Find the taxable income: = adjusted gross income– itemized or standard deductions – exemptions

  43. 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. An Example… Section 20-3 Income Taxes Taxable income = adjusted gross income – itemized or standard deductions – exemptions

  44. Use the tax tables to calculate income tax 20-3-2 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. An Example… Section 20-3 Income Taxes Find the tax owed by a married taxpayer filingseparately 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. Find the tax owed by a married taxpayer filingjointly on a taxable income of $39,478. An Example… Section 20-3 Income Taxes 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. Use the tax computationworksheet 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 computationworksheet 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 amountin Column b and enter the result in Column c.

  49. Use the tax computationworksheet 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. Column a Column b Column c Column d $112,418 x 0.25 = $28,104.50 – $7,750 = An Example… Section 20-3 Income Taxes Find the tax on: A taxable income of $112,418 for a marriedtaxpayer, 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.” $20,354.5.50

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