# Chapter 18

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```					Chapter 18

Taxes
Sales and Excise Taxes
• Taxation = charge by a government to pay
for services
• Sales tax = tax on the retail value of
purchases
• Use tax = tax levied by state for bringing
purchase into state
• Sales tax rate = percentage of tax on
purchase
• Excise tax = tax on luxury items
Sales and use tax
• Purchase price x .085 = sales tax
• Selling price = total purchase price /100%
+ sales tax rate
• Sales price = total purchase price less
selling price
Excise tax
• Excise tax is calculated separatly from
sales tax
• Sales tax = selling price x sales tax rate
• Excise tax = selling price x excise tax rate

• Total purchase price = selling price +
excise tax
Property Tax
• Property tax (ad valorem) = tax based on
value of property
• Real Estate = land,buildings,
improvements
• Personal property = tangible personal
property (related to a busines)
• Household goods = furniture, appliances
related to a home
Definitions
• Assessed value = value for tax purposes
not exactly the same as market value
• Fair market value = Value if sold
• Tax assessor or property appraiser = city
official who determines assessed value
Property tax rate
Example
Example
Example
Example
Computing Tax Rate
•   Tax rate = total required/assessed value
•   Town needs \$5,700,000
•   Assessed value of all homes 68,000,000
•   5,700,000/68,000,000 = \$.0839
•   Or 8.39%
Income Tax
• Income tax is a pay-as-you-go tax based
on earning of either an individual or a
corporation. That means it is not all paid
once a year, but each pay check deducts
the taxes.
• Tax Return = form used to report and pay
taxes for income from previous year
• Taxable income = amount of income that
tax rate is applied to
Taxable Income
• Basic calculation:
– Total income
– = AGI

– Less standard deduction (5,150 & 10,300)
– Less personal exemptions x \$3300
– = Taxable income
Income tax steps
income
Income tax steps
Deductions
Sample taxes
•Doug and Beth Nelson 43,500 + 24,660
•Interest 540
•2500 IRA
•Alimony \$4,700

•Deductions 2350 property tax
»4,590 mortgage interest
»325 charity
»120 employee expenses
•3 exemptions
Sample taxes
•   43,500
•   24,660
•      540
•   68,700 total income
•   Less retirement 5,000
•   Less alimoney 4,700
•   Adjusted gross income = 59,000
Deductions
• 2,340 property tax
• 4,590 Mortgage interest
• 325 Charity
• 120 employee expenses
• Total 7,375
• However the standard deduction is
\$10,300 for a married couple
• Use \$10,300
Sample Taxes
•   59,000 agi
•   -10,300 standard deducton
•   -9,900 exemptions (3 * 3300)
•   38,800 taxable income

• Use tax table to determine tax
Tax computation worksheet
• Tax credits = dollar for dollar reduction of
taxes
• Tax deduction = reduce the taxable
income not the tax
• To determine taxes owed or refund
• Total taxes per the tables
• Less withholdings from paycheck
• = refund or taxes due
Corporate Income tax
• Net income of 7,550,000 – 335,000
• = 7,215,000
Times .34
= 2,453,1000
2,453,100 + 113,900 =\$2,567,000

Net income after tax = 7,550,000 –
2,567,000 = \$4,983,000

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