1. Contemporary Mathematics for Business and Consumers Third Edition By: Robert A. Brechner COPYRIGHT © 2003 by South-Western, a division of Thomson Learning. Thomson Learning TM is a trademark used herein under license. ALL RIGHTS RESERVED. No part of this work covered by the copyright hereon may be reproduced or used in any form or by any means–graphic, electronic, or mechanical, including photocopying, recording, taping, Web distribution or information storage and retrieval systems–without the written permission of the publisher. For permission to use material from this text or product, contact us by Tel (800) 730-2214 Fax (800) 730-2215 http://www.thomsonrights.com

2. Chapter 18 Taxes Copyright © 2003 by South-Western

3. Chapter 18, Taxes Section I Sales Tax and Excise Tax 18-1 Determining sales tax by using sales tax tables. 18-2 Calculating sales tax by using the percent method. 18-3 Calculating selling price and amount of sales tax when total purchase price is known. 18-4 Calculating excise tax. Section II Property Tax 18-5 Calculating the amount of property tax 18-6 Calculating tax rate necessary in a community to meet budgetary demands.

4. Section III, Income Tax (Cont.) 18-7 Calculating taxable income for individuals. 18-8 Using the Tax Table to determine tax liability. 18-9 Using the Tax Rate Schedule to determine tax liability. 18-10 Calculating an individual’s tax refund or amount of tax owed. 18-11 Calculating corporate income tax and net income after taxes.

5. Section I, Sales Tax and Excise Taxes 18-1 Determining Sales Tax by Using Sales Tax Tables Steps to Determine Sales Tax Due on an Item by Using Sales Tax Tables: Step 1. Locate the taxable retail price in the Amount of Sale column. Step 2. Scan to the right to locate the amount of tax due in the Tax Column.

6. Everybody’s Business Currently, 45 states have sales tax, with rates that range from 3% to 8%. In many areas, city and county rates add an additional.5% to 6%. States with the highest sales tax rates are Tennessee, Alabama, Mississippi, and Missouri. Among the lowest are Vermont, Massachusetts, Maryland, Indiana, and Iowa.

7. 18-2 Calculating Sales Tax by Using the percentage Method Steps to Determine Sales Tax and Total Price by Using the Percent Method Step 1. Calculate the sales tax by multiplying the selling price of the good or service by the sales tax rate: Step 2. Compute the total purchase price by adding the selling price, the sales tax, and any other additional charges. Sales tax = Selling price x Sales tax rate Total purchase price = Selling price + sales tax + Other charges

8. 18-3 Calculating Selling Price and Amount of Sales Tax When total Purchase Price is Known Steps to Calculate Selling price and Amount of Sales Tax Step 1. Calculate the selling price of an item by dividing the total purchase price by 100% plus the sales rate:: Step 2. Compute the total purchase price by adding the selling price, the sales tax, and any other additional charges. Selling price = Total purchase price 100% +Sales tax rate Sales tax = Total purchase price - Selling price

9. Everybody’s Business The government “takes its cut” is a good description of the excise or tax charged on various goods considered luxury items. The word excise is from excidere, Latin for “to cut out.” In essence, the government cuts out its share! In 2000, the federal government collected $54.8 billion in excise tax.

10. Everybody’s Business Don’t tax the tax! The excise tax is not included in the selling price when computing the sales tax. Each tax should be calculated separately on the actual selling price.

11. Section II, Property Tax 18-5 Calculating the Amount of Property Tax Steps to Calculate Property Tax When the Tax is Expressed as a Percent: Step 1. Convert the tax rate percent to a decimal by moving the decimal point 2 places to the left. Step 2. Multiply the assessed value by the tax rate as a decimal. Property tax = Assessed value x Tax rate

12. Everybody’s Business Property taxes vary greatly from area to area. Among the highest are Lansing Michigan; Buffalo, New York; Jersey City, New Jersey; Providence, Rhode Island; and Milwaukee, Wisconsin. Among the lowest are Honolulu and Hilo, Hawaii; Mobile, Alabama; Baton Rouge. Louisiana; and Colorado Springs, Colorado.

13. Section III, Income Tax 18-7 Calculating Taxable Income for Individuals Steps to Calculate Taxable Income for Individuals: Step 1. Determine total income by adding all sources of taxable income. Step 2. Calculate adjusted gross income by subtracting the sum of all adjustments to income from total income. Step 3. Subtract the sum of the itemized deduction or the standard deduction (which ever is larger) from the adjusted gross income. Step 4. If adjusted gross income is $99,725 or less: Multiply $2,900 by the total number of exemptions claimed and subtract from the amount in Step 3. The result is taxable income. If adjusted gross income is over $99,725: See IRS instructions to find the exemption amounts.

14. Everybody’s Business There are three basic rules to folow when doing taxes to avoid arousing the IRS suspicion. 1.Don’t Be Greedy 2.Don’t be Sloppy 3.Don’t “Forget” Income

15. Everybody’s Business A qualifying domestic corporation with 35 or fewer shareholders may elect to be treated as an S-corporation, for federal income taxes. Instead, any taxable income or loss will be allocated proportionately among the shareholders, who will be responsible for reporting the amounts on their personal income tax returns.

16. Chapter 18, Taxes TaxationSales tax Sales tax rate Excise tax Property tax Real estate Personal propertyAssessed value Fair market valueTax assessor Property appraiserIncome tax Tax returnTaxable income Tax TableTax Rate Schedules Tax credit Useful life Corporate Tax Rate Schedule

17. Chapter 18 Sales and Excise Taxes Sales tax = Selling price x Sales tax rate Total purchase = Selling price + Sales tax + Other charges Price Total purchase price 100% + Sales tax rate Sales tax = Total purchase price - Selling price Copyright © 2003 by South-Western Selling price =

18. Chapter 18 Sales and Excise Taxes continued Excise tax = Selling price x Excise tax rate Excise tax = Number of units x Excise tax rate Total purchase price = Selling price + Sales tax + Excise tax Copyright © 2003 by South-Western

19. Chapter 18 Property Tax a. Expressed as a Percent Property tax = Assessed value of property x Tax rate b. Expressed per $100 of Assessed Value Property tax = # of $100 of assessed value x Tax per $100 c. Expressed per $1,000 of Assessed Value Property tax = # of $1,000 of assessed value x Tax per $1,000 d. Expressed in Mills Tax rate in decimal form = Tax rate in mills x.001 Property tax = Assessed value x Tax rate in decimal form Copyright © 2003 by South-Western

20. Chapter 18 Community Tax Rate Tax rate per = Total taxes required dollar (decimal form) Total assessed property value Income Tax Refund (-) or amount owed (+) = Tax liability - Credits + Other taxes - Payments Copyright © 2003 by South-Western