7e
Contemporary Mathematics FOR BUSINESS AND CONSUMERS Brechner
Taxes
PowerPoint Presentation by Domenic Tavella, MBA
©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to
a publicly accessible website, in whole or in part.
1
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PERFORMANCE OBJECTIVES
Section I Sales and Excise Taxes
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
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a publicly accessible website, in whole or in part.
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PERFORMANCE OBJECTIVES
continued
Section III Income Tax
18-7: Calculating taxable income for individuals
18-8: Using the Tax Table to determine tax liability
18-9: Using the Tax Computation Worksheet to
calculate 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
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a publicly accessible website, in whole or in part.
3
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Sales and Excise Taxes
taxation
• The imposition of a mandatory levy or charge by a
government unit to provide financing for public
services.
sales tax
• A tax based on the retail selling or rental price of
tangible personal property, collected by the retailer at
the time of purchase, and paid to the state or local
government.
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a publicly accessible website, in whole or in part.
4
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Sales and Excise Taxes
continued
sales tax rate
• Sales tax expressed in its most common form, as a
percent of the retail price of an item.
excise tax
• A tax levied by federal, state, and local governments
on certain luxury or nonessential products and
services such as alcoholic beverages, furs, tobacco
products, telephone service, and airline and cruise
ship tickets.
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a publicly accessible website, in whole or in part.
5
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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.
Note: Exhibit 18-1 is only a partial listing. Complete
sales tax tables are available in most states from
the Department of Revenue
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a publicly accessible website, in whole or in part.
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EXHIBIT 18-1
6 ½ % Sales Tax Brackets
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Sales Tax Example
Use Exhibit 18-1 to determine the amount of sales tax
at 6½ percent with a retail price of $9.99.
From Exhibit 18-1, sales tax on $9.99 is found by locating the
row 9.85-10.09 on the chart.
The amount of the tax is listed as $.65
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a publicly accessible website, in whole or in part.
8
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STEPS
TO CALCULATE SALES TAX AND TOTAL PURCHASE
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.
Sales tax = Selling price × Sales tax rate
STEP 2 Compute the total purchase price by adding the
selling price, the sales tax, and any other
additional charges.
Total purchase price = Selling price + Sales tax + Other charges
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a publicly accessible website, in whole or in part.
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Sales Tax Example
Helena purchased a refrigerator for $899.90.
The delivery charge was $20 and the ice maker
hookup fee amounted to $55. The state sales
tax rate is 6½% and the city tax is 1.3%.
Calculate the total amount of sale tax and the
total purchase price.
Sales tax = Selling price × Sales tax rate
Sales tax = 899.90 × (.065 + .013) = $70.19
Total purchase price =
Selling price + Sales tax + Other charges
Total purchase price =
899.90 + 70.19 + 20.00 + 55.00 = $1,045.09
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STEPS
STEP 1
TO CALCULATE SELLING PRICE AND AMOUNT OF
SALES TAX
Calculate selling price of an item by dividing
the total purchase price by 100% plus the
sales tax rate.
Selling price = Total purchase price
100% + Sales tax rate
STEP 2
Determine the amount of sales tax by
subtracting the selling price from the total
purchase price.
Sales tax = Total purchase price – Selling price
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a publicly accessible website, in whole or in part.
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Sales Tax Example
At the end of a business day, the cash register at a gift
shop showed total sales, including sales tax, of
$3,520. If the state and local taxes amounted to 8½%,
what is the amount of actual sales? How much sales
tax was collected that day?
Selling price 
Selling price 
Total purchase price
100%  Sales tax rate
3,520

100%  8.5%
3,520
1.085
=$3,244.24
Sales tax = Total purchase price – Selling price
Sales tax = 3,520 - 3,244.24 = $275.76
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STEPS
TO CALCULATE THE AMOUNT OF EXCISE TAX
STEP 1 When expressed as a percent: Multiply the
selling price of an item by the excise tax rate.
Excise tax = Selling price × Excise tax rate
When expressed as a fixed amount per unit:
Multiply the number of units by the excise tax
per unit.
Excise tax = Number of units × Excise tax per unit
STEP 2 Calculate the total purchase price by adding the
selling price plus sales tax plus excise tax.
Total purchase price = Selling price + Sales tax + Excise tax
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a publicly accessible website, in whole or in part.
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Excise Tax Example
A hunting bow at a sporting goods store in Cincinnati,
Ohio, retails for $129.95. Ohio sales tax is 5% and the
federal excise tax on the item is 11%. What is the amount
of each tax, and what is the total purchase price?
Sales tax = Selling price x Sales tax rate
Sales tax = 129.95 x .05 = $6.50
Excise tax = Selling price x Excise tax rate
Excise tax = 129.95 x .11 = $14.29
Total purchase price = Selling price + Sales tax + Excise tax
Total purchase price = 129.95 + 6.50 + 14.29 = $150.74
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Property Tax
ad valorem or property tax
• A tax based on the assessed value of property,
generally collected at the city or county level as the
primary source of revenue for counties,
municipalities, school districts, and special taxing
districts.
real estate, or real property
• Land, buildings, and all other permanent
improvements situated thereon.
personal property
• For ad valorem tax purposes, divided into tangible
personal property and supplies and household
goods.
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Property Tax
continued
assessed value
• The value of property for tax purposes, generally a
percentage of the fair market value.
• Property tax = Assessed value of property × Tax rate
fair market value
• The value of property based on location, size, cost,
replacement value, condition, and income derived
from its use.
tax assessor, or property appraiser
• The city or county official designated to determine
assessed values of property.
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Property Tax
continued
Property tax rates may be expressed in the
following ways:
• Decimal or percent of assessed value:
• Example: .035 or 3.5%
• Per $100 of assessed value:
• Example: $3.50 per $100
• Per $1,000 of assessed value:
• Example: $35.00 per $1,000
• Mills (one one-thousandth of a dollar):
• Example: 35 mills
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a publicly accessible website, in whole or in part.
17
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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 two places to the
left.
STEP 2
Multiply the assessed value by the tax rate as
a decimal.
Property tax = Assessed value × Tax rate
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a publicly accessible website, in whole or in part.
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Property Tax as a Percent
Example
Mark’s home has a market value of $125,000. The
assessment rate in the county is 70% and the tax rate
is 1.944%. What is the assessed value of the home
and the amount of the property tax?
Assessed value = Purchase price x Assessment rate
Assessed value = 125,000 x .70 = $87,500
Property tax = Assessed value x Tax rate
Property tax = 87,500 x .01944 =
$1,701
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a publicly accessible website, in whole or in part.
19
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STEPS
STEP 1
TO CALCULATE PROPERTY TAX WHEN THE TAX
IS EXPRESSED PER $100 OF ASSESSED VALUE
Divide the assessed value by $100 to
determine the number of $100 the assessed
value contains.
Assessed value
Number of $100 =
100
STEP 2
Calculate the property tax by multiplying the
number of $100 by the tax per $100.
Property tax = Number of $100 × Tax per $100
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a publicly accessible website, in whole or in part.
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Property Tax Expressed per $100
of Assessed Value Example
Tracy Randall’s home has an assessed value
of $89,700. The tax rate is $1.944 per $100.
What is the amount of the property tax?
Number of $100 
Number of $100 
Assessed value
100
89,700
= 897
100
Property tax = Number of $100 × Tax per $100
Property tax = 897 × 1.944 = $1,743.77
©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to
a publicly accessible website, in whole or in part.
21
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STEPS
STEP 1
TO CALCULATE PROPERTY TAX WHEN THE TAX
IS EXPRESSED PER $1,000 OF ASSESSED VALUE
Divide the assessed value by $1,000 to
determine the number of $1,000 the assessed
value contains.
Assessed value
Number of $1,000 =
1,000
STEP 2
Calculate the property tax by multiplying the
number of $1,000 by the tax per $1,000.
Property tax = Number of $1,000 × Tax per $1,000
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a publicly accessible website, in whole or in part.
22
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Property Tax Expressed per $1,000
of Assessed Value Example
Tracy purchased a home with an assessed value
of $89,700. The tax rate is $19.44 per $1,000. What
is the amount of the property tax?
Assessed value
Number of $1,000 
1,000
Number of $1,000  89,700 = 89.7
1,000
Property tax = Number of $1,000 × Tax per $1,000
Property tax = 89.7 × 19.44 = $1,743.77
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a publicly accessible website, in whole or in part.
23
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STEPS
TO CALCULATE PROPERTY TAX WHEN THE TAX
IS EXPRESSED IN MILLS
STEP 1 Because mills means 1/1,000 (.001) of a dollar,
convert tax rate in mills to tax rate in decimal
form by multiplying mills times .001.
Tax rate in decimal form = Tax rate in mills × .001
STEP 2 Calculate the tax due by multiplying the
assessed value by the tax rate in decimal form.
Property tax = Assessed value × Tax rate in decimal form
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a publicly accessible website, in whole or in part.
24
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Property Tax When the Tax is
Expressed in Mills Example
Tracy Randall’s home has an assessed value
of $89,700. The tax rate is 19.44 mills. What is
the amount of the property tax?
Tax rate in decimal form = Tax rate in mills x .001
Tax rate in decimal form = 19.44 × .001 = .01944
Property tax = Assessed value × Tax rate in decimal form
Property tax = 89,700 × .01944 = $1,743.77
©2014 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to
a publicly accessible website, in whole or in part.
25
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STEPS
TO COMPUTE TAX RATE
STEP 1 Calculate tax rate per dollar of assessed property value
by dividing the total taxes required by the total assessed
property value.
Tax rate per dollar (decimal form) =
Total taxes required
Total assessed property value
Round your answer to ten-thousandths (four decimal
places). In most states, the rounding is always up, even
if the next digit is less than 5.
STEP 2 To convert tax rate per dollar to:
•
•
•
•
percent, move the decimal point two places to the
right and add a percent sign.
tax rate per $100, multiply by $100.
tax rate per $1,000, multiply by $1,000.
mills, divide by .001.
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a publicly accessible website, in whole or in part.
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Tax Rate Necessary to Meet
Budgetary Demands Example
The city budget planners have determined that
$3,435,000 will be needed to provide city services for
the next year. The total assessed property value in
the city is $71,800,000. Determine what tax rate must
be imposed to meet budgetary demands. Express
your answer in each of the four ways.
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27
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Tax Rate Necessary to Meet
Budgetary Demands Example
Tax rate per dollar 
Tax rate per dollar 
Percent,
continued
Total taxes required
Total assessed property value
3,435,000
 .0478412 = $.0479
71,800 ,000
.0479 =
4.79% of assessed value
Per $100, .0479 × 100 = $4.79 per $100
Per $1,000,
Mills,
.0479 × 1,000 = $47.90 per $1,000
.0479 ÷ .001 = 47.9 mills per $1.00
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a publicly accessible website, in whole or in part.
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Income Tax
income tax
• A pay-as-you-go tax based on the amount of income
of an individual or corporation.
tax return
• The official Internal Revenue Service forms used to
report and pay income tax for income earned during
the previous calendar year.
taxable income
• The amount of income that tax rates are applied to in
order to calculate the amount of tax owed for the
year.
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a publicly accessible website, in whole or in part.
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STEPS
TO CALCULATE INCOME TAX 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 deductions or the standard
deduction (whichever is larger) from the adjusted gross income.
2012 Standard Deductions
Single
$5,950
Married, filing jointly, or Qualifying widow(er) $11,900
Married, filing separately
$5,950
Head of household
$8,700
65 or older and/or blind
See IRS instructions to
find standard deduction.
STEP 4
Multiply $3,800 by the total number of exemptions claimed and
subtract from the amount in Step 3. The result is taxable income.
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EXHIBIT 18-2
Procedure to Calculate Taxable Income
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31
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Taxable Income Example
Nick is single, claiming two exemptions. He earns
$35,000 in wages per year. Last year, he also earned
$1,200 in cash dividends from his investment
portfolio.
Nick contributed $1,500 to his individual retirement
account and gained $5,000 from the sale of stock.
His itemized deductions amounted to medical
expenses of $1,000 in excess of IRS exclusions;
$1,945 in real estate taxes; $2,500 in mortgage
interest; and $300 in charitable contributions.
From this information, calculate his taxable
income.
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Taxable Income Example
continued
$35,000 Wages
+
1,200 Cash dividends
+
5,000 Sale of stock (gain)
$ $ 41,200 Total income
-
Compare standard deduction
of $5,950 with itemized
deduction of $5,745. Choose
the larger one: $5,950.
1,500 Retirement contributions
$ $39,700 Adjusted gross income
Itemized deductions:
$1,000 Medical expenses
1,945 Real estate taxes
2,500 Mortgage interest
300 Charitable contributions
+
$39,700 Adjusted gross income
-
5,745 Itemized deductions
-
7,600 (3,800 x 2) exemptions
$26,355 Taxable income
$5,745 Itemized deductions
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33
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Using the Tax Table to Determine
Liability
Tax Table
• The IRS chart used to find the amount of income tax due
for individuals with taxable income of under $100,000.
Tax Computation Worksheet
• The IRS chart used to calculate the amount of income tax
due for individuals with taxable income of $100,000 or
more.
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a publicly accessible website, in whole or in part.
34
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STEPS
TO DETERMINE TAX LIABILITY USING THE TAX
TABLE, TAXABLE INCOME UNDER $100,000
STEP 1 Using Exhibit 18-3, read down the “If line 43
(taxable income) is—” columns to find the line that
includes the amount of taxable income. Note: Line
43 refers to the line on the 1040 tax form where
taxable income is listed.
STEP 2 Find the tax liability by scanning across the “And
you are—” column containing the appropriate filing
status.
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a publicly accessible website, in whole or in part.
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EXHIBIT 18-3
Tax Table
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a publicly accessible website, in whole or in part.
36
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Individual Tax Liability Example
Joshua and his wife, Katie, had taxable
income last year amounting to $65,780.
Their filing status is married, filing jointly.
Using the Tax Table, determine their tax
liability.
Using Exhibit 18-3, the federal tax liability for Joshua
and Katie is $8,996.
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a publicly accessible website, in whole or in part.
37
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STEPS
TO CALCULATE TAX LIABILITY USING THE TAX
COMPUTATION WORKSHEET—TAXABLE INCOME OF
$100,000 OR ABOVE
STEP 1 Locate the section corresponding to the appropriate
filing status:
Section A – Single
Section B – Married filing jointly or qualifying
widow(er)
Section C – Married filing separately
Section D – Head of household
STEP 2 Read down the first column, “Taxable income. If line 43
is—,” to find the range containing the taxable column.
STEP 3 Multiply the taxable income by the “multiplication
amount” listed in column (b) for that range.
STEP 4 Calculate the tax liability by subtracting the “subtraction
amount” listed in column (d) for that range from the
result in Step 3.
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a publicly accessible website, in whole or in part.
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EXHIBIT 18-4
2012 Computation Worksheet—Line 44
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a publicly accessible website, in whole or in part.
39
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Tax Liability for Taxable Income of
$100,000 or Above
Felix had taxable income of $123,545 last year.
If he files as head of household, what is his
tax liability?
Using Exhibit 18-4, Section D:
$123,545.00
×
.28
–
34,592.60
9,024.00
$ 25,568.60
Taxable income
Tax rate
Computed tax
Subtraction amount
Tax liability
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a publicly accessible website, in whole or in part.
40
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STEPS
TO CALCULATE AN INDIVIDUAL’S TAX REFUND
OR AMOUNT OF TAX OWED
STEP 1 Subtract total credits from the tax liability.
STEP 2 Add total of other taxes to the tax liability to
get total tax.
STEP 3 If total payments are greater than total tax, a
refund of the difference is due. If total
payments are less than total tax, the difference
is the tax owed.
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An Individual’s Tax Refund or
Amount of Tax Owed Example
Krista had a tax liability of $14,600 last year. In addition, she
owed other taxes of $2,336. She was entitled to a child care credit
of $668 and a foreign tax credit of $1,719. If her employer
withheld $270 per week for 52 weeks, does Krista qualify for a
refund or owe more taxes? How much?
$ $ 14,600
2,336
+
668
1,719
$ 14,549
Tax liability
Other taxes owed
Child care credit
Foreign tax credit
Total tax
Employer withheld = 270 × 52 = $14,040
Tax owed = Total tax – Payments
Tax owed = 14,549 – 14,040 = $509
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a publicly accessible website, in whole or in part.
42
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STEPS
TO CALCULATE CORPORATE INCOME TAX AND
NET INCOME AFTER TAXES
STEP 1 Using the Corporate Tax Rate Schedule, read down
the “Over—” and “But not over—” columns to find
the range containing the taxable income of the
corporation.
STEP 2 Subtract the lower number of the range from the
taxable income.
STEP 3 Multiply the result from Step 2 by the tax rate listed
for that range.
STEP 4 Calculate the tax liability by adding the result from
Step 3 to the dollar amount of tax indicated for that
range.
STEP 5 Calculate income after taxes by subtracting the tax
liability from the net income before taxes.
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EXHIBIT 18-6
Corporate Tax Rate Schedule
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44
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Calculating Corporate Income Tax
and Net Income after Taxes Example
A firm had taxable income of $311,200 last year. Use
the Corporate Tax Rate Schedule to calculate the
amount of income tax due and the company’s net
income after taxes.
Using Corporate Tax Rate
Schedule, Exhibit 18-6:
$ 311,200 Income before taxes
- 100,000 Lower number on range
$ 211,200
.39 Tax rate
×
82,368 Computed tax
22,250 Amount of tax
+
$ $104,618 Tax liability
$
$
311,200 Income before taxes
104,618 Tax liability
206,582 Net income after tax
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a publicly accessible website, in whole or in part.
45
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CHAPTER REVIEW PROBLEM 1
Dimitri purchased an oven for $779.99. The
delivery charge was $69. The state sales tax
rate is 6½% and the city tax is 1.4%. Calculate
the total amount of sale tax and the total
purchase price.
Sales tax = Selling price × Sales tax rate
Sales tax = 779.99 × (.065 + .014) = $61.62
Total purchase price =
Selling price + Sales tax + Other charges
Total purchase price =
779.99 + 61.62 + 69.00 = $910.61
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a publicly accessible website, in whole or in part.
46
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CHAPTER REVIEW PROBLEM 2
Isabelle’s home has a market value of $238,000. The
assessment rate in the county is 65% and the tax rate
is 1.944%. What is the assessed value of the home
and the amount of the property tax?
Assessed value = Purchase price x Assessment rate
Assessed value = 238,000 x .65 = $154,700
Property tax = Assessed value x Tax rate
Property tax = 154,700 x .01944 = $3,007.37
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a publicly accessible website, in whole or in part.
47