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Tax Structure

Tax Structure. Unit 4: Agribusiness Management Lesson : AM7. Objectives. Lesson Objective: After completing the lesson on tax structure, students will demonstrate their ability to apply the concept in real-world situations by obtaining a minimum score of 80% on a Tax Survey.

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Tax Structure

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  1. Tax Structure Unit 4: Agribusiness Management Lesson: AM7

  2. Objectives Lesson Objective: • After completing the lesson on tax structure, students will demonstrate their ability to apply the concept in real-world situations by obtaining a minimum score of 80% on a Tax Survey. Enabling Objectives: • Recall the definition of opportunity cost and net opportunity cost. • Identify two ways business decisions are affected by opportunity costs. • Describe the effect of a manager not considering opportunity costs. • Identify and calculate one measure used to represent opportunity costs.

  3. Key Terms • Progressive Tax • Flat Tax • Individual Income Tax • Estate Tax • Sales Tax • Excise Tax • Property Tax

  4. Tax structure through the years

  5. Federal Taxes • Individual Income Tax • Corporate Income Tax • Estate Tax • Employment Tax • Excise Tax

  6. Individual Income Tax • Adjusted Gross Income (AGI) • Wages & Salaries • Interest Income • Capital Gains • Rents • Trade or Business Income • Adjusted by certain “above the line” deductions • Trade or Business Expenses • Capital Losses • Retirement Plan Contributions, etc.

  7. Individual Income Tax • Taxable Income = • AGI minus personal exemption deductions, standard deductions, or itemized deductions. • Taxable is applied to the rate tables (progressive) to determine tax owed. • Tax is reduced by certain credits, e.g. • Education Credits • Child Tax Credits • Child and/or Dependent Care Credits • Earned Income Tax Credits

  8. Federal Income Tax Equation

  9. Corporate Income Tax • Taxable Income = Gross Income – Allowable deductions, e.g. • Business expenses • Salaries, wages, benefits of employees • Costs of sales • Allowable charitable contributions, etc. • Taxable Income is applied to the corporate tax table (progressive)

  10. Estate & Gift Tax • Taxes based on transfers of property by gift or inheritance • Estate tax is also called “Death Tax” • Currently, an individual can transfer up to $5,000,000 tax free • Recent estate tax law has been extremely volatile.

  11. Employment Taxes • Social Security and Medicare benefits covered by payroll taxes on covered wages. • Two parts • OASDI (old age, survivors and disability insurance) = 6.2% (employee share) • Medicare = 1.45% (employee share) • Employer pays equal share as above • Self-Employed pay the total 15.3%

  12. Excise Tax • Excise taxes on specific goods and services • Generally imposed per unit or ad valorem (percentage of price) • Examples • Motor fuels • Alcohol and tobacco • Firearms • Telephone communications • Fuel inefficient vehicles

  13. State Taxes • Missouri Individual Income Tax • Missouri Sales Tax/Use Tax • Missouri Excise Tax

  14. Missouri Individual Income Tax • Correlated with federal income tax guidelines and forms • Missouri Income Tax splits spousal incomes apart • Computes to taxable income similar to federal and applied to Missouri tax tables (progressive) • Maximum rate is 6% (over $9,000 taxable income) • Missouri gives significant tax reductions for pension income of various types (e.g., social security, public pensions, military pensions) • http://dor.mo.gov/

  15. Missouri Sales Tax/Use Tax • Missouri Sales Tax on certain purchases = total of 4.225% • Parks & Soils .1% • General Revenue 3.0% • Conservation .125% • Education 1.0% • Certain items are exempt or taxed at lower rates – e.g., food and certain farm supplies. • Missouri Use Tax is same as sales tax on out-of-state purchases

  16. Missouri Excise Taxes • Same idea as federal excise taxes – Missouri taxes tobacco, liquor, fuel, etc. • State fuel tax = $.17/gallon • State cigarette tax = $.17/pack • Beer = $.06/gallon

  17. Local Taxes • County Property Tax • County and City Sales Tax

  18. Property Taxes • Paid by persons owning real and personal property • e.g. homes, land, commercial, machinery, livestock, buildings, grain, cars, boats, etc. • Assessed property value/100 x property tax levy = tax on each piece of property • Assessed value may not exceed 33.3% of “true value” • Residential assessed at 19% of true value • Agricultural Real Estate assessed at 12% of “productive market value” • Other real property is assessed at 32% of true value • Most personal property (vehicles, machinery, etc.) is assessed at 33.3% of its real value

  19. Property Tax Example • How much is property tax on a $250,000 home? • $250,000 x 19% of true value = $47,500 assessed value • $47,500 assessed val. / 100 = 475 hundreds • 475 hundreds x total levy of $5.50/hundred $ assessed valuation = $2,612.50 property tax on the home

  20. Property Taxes Pay For… • Schools • Roads & Bridges • Fire Districts • Ambulance Districts • County General Revenue • Libraries • Senior Services • State Revenue • Sheltered Workshops/Disability Services • A & M Societies/County Fairs • County Health Departments • County Mental Health Services • Community Colleges • Nursing Homes • Hospitals • Cemeteries • Lots of other properties – whatever the voters

  21. County and City Sales Tax • Added to Missouri sales taxes and collected by Missouri Department of Revenue • Commonly adds 3-5% to 4.225% state tax • Common examples of what they pay for • General municipal revenue • Storm water control • Parks • Ambulances • Streets • Capital Improvements • Fire Protection • Entertainment Venues/Hotel/Motels, etc. • Collected based on address of the business

  22. What Taxes Do Most People Pay? • Directly • Income Taxes (about half) • Employment Taxes (if you have a job) • Sales Taxes • Excise Taxes • Property Taxes (if they own property) • Indirectly • Corporate Taxes • Property Taxes (if they don’t own, but rent, etc.)

  23. Which Taxes Are Generally Progressive or Flat? • Progressive • Income • Corporate Income • Estate • Flat • Employment • Sales • Excise

  24. Conclusion • The tax structure of the United States has been modified over time with taxes at the federal, state, and local level. These taxes are used to fund various services at each level of government that benefit all citizens.

  25. The W-2 and W-4 W-2 W-4 Employers give completed to employees Must be provided by January 31st Wages earned, taxes withheld, and social security information • Evaluate employee’s personal tax situation • Calculate federal income tax to withhold from paycheck • Family situation • Employment status • Home ownership • Dependents • College/retirement • http://www.irs.gov/individuals/article/0,,id=96196,00.html • Completed when a new job is started • Not required for those who earn less than $800 per year

  26. Exit Card • What did you learn today about the tax structure? • What questions do you still have about the tax structure?

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