The Tax Questions Blog

Archive for December, 2009

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Question: how is the Tax on Total Income calculated from Taxable Income?

See if i'm right? Taxable income is 2 lks then 2,00,000 minus(-) 1,80,000 (tax slab for women) = 20,000
so 10% of the 20,000 is my tax on total income?
if 3 lakhs is my gross and i've already shown 1 lk in insurance and PF and with the remainig 2 lk i minus my slab amt. is it rite?

Answer: If you are a salaried employee, there are certain components of the salary which are tax exempt. You have to take these exemptions into account before calculating Taxable Income.

Deduc. u/s - 10
Vehicle Allowance - Rs. 800 per month.
Education Subsidy - Rs.100/- per month per child. 10(14)(ii) (Vide Rule 2BB(2))
Leave Travel Assistance.
Medical reimbursement upto Rs. 15000/-
Rental accommodation - HRA - 10(13A)
H.R.A. - Least of the following is deductible :
•Residence in metro - 50% of salary , elsewhere - 40%
•Actual H.R.A. received.
•Excess of rent paid over 10% of salary.

Deduc. u/s 16: Tax on Employment

If Taxable Income is Rs 2 lakhs

10% of the 20,000 = Rs 2000/- is your tax on Taxable Income and not total income.

You have to add 3% cess = Rs 60/-

HMT

What is urban land for wealth tax purposes?

In the Tax Forum dated July 27, 2009, it has been stated as regards the effect of extension of municipal limits on capital gains as: “Unless a fresh notification taking into consideration the extended limit of ...

Corporate Advisory Insight: REIT

The 401k early withdrawal penalty
If you withdraw money from your 401k retirement plan before your reach the age of 59 and 1/2 years, you will have to pay a penalty on the taxable amount, which is known as 401k early withdrawal penalty. You will also have to pay income tax on the "early withdrawal" amount from your 401k. To calculate your 401k early withdrawal penalty, you need to understand two components of early withdrawal. The first one is how to calculate the federal and state tax that will be come due. The second is the tax penalty on early withdrawal, included in most plans. Below you will find the method for calculating your 401k penalty.

Step1 - Federal Tax Due: Determine what federal tax rate you are paying. Once you take the money out of the 401k it is considered income, as the withdrawal is from money that is pre-tax, and must be taxed. The federal income tax rate runs from roughly 15 percent to 35 percent for the majority of Americans. To find your tax bracket, check your previous tax returns and also make sure that your withdrawal does not propel you into a new tax bracket. For example, if you take out $30,000 from your plan, you will have to pay $6,000 as a penalty if your tax rate is 20%, assuming that the distribution is all income.

Step2 - State Tax Due: In this step, you will have to determine the state income tax bill on the 401k withdrawal. Check the state income tax you paid the previous year, as this amount of money should be accounted for as well. From the example above, if you state income tax rate is 5%; you will pay $1,500 to the state on the income of $30,000.

Step3 - Early Withdrawal Penalty: Add 10 % to the amount of the withdrawal you are making to get your final penalty. IRS rules generally states that you are charged 10% as an early withdrawal penalty, unless you qualify for some exception. This amount will be in addition to the taxes mentioned above. For instance, if you are taking $30,000 and are in a 20 percent tax bracket in a state with 5 percent income tax, your $30,000 withdrawal will net you less than $20,000. You lose $3000 for the penalty, $6000 for the federal income tax and $1500 for the state income tax.

Determine whether you qualify for an exemption from the penalty, as in certain instances, you can access your money early without paying the taxes.

Potential exceptions to early 401k withdrawal penalties

Potential exceptions to early withdrawal penalties from a Traditional IRA

The 401k early withdrawal should be seen as a last resort. The best option to save you from 401k withdrawal penalty is to inquire about the possibility of obtaining a 401k loan; such loans are not subject to tax and penalties. The good news is that you will not have to pay 401k early withdrawal penalties if you withdraw money when you leave your company, the same year you reach the age of 55 years or greater.

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Wiley Tax Preparer: A Guide to Form 1040 (Wiley Registered Tax Return Preparer Exam Review) $32.50 Whether you’re already a tax preparer or you’re looking to become one, you need a firm grasp of the tax concepts on which individual taxation is based. We created the Wiley Tax Preparer as a refresher for the experienced tax preparer, and as a readable guide for the less-experienced tax preparer.This timely guide is an essential tax resource providing you with useful information on tax princip...

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Your 2010 Financial To-Do List

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Question: how long until I get an intercepted tax rebate for back child support owed?

My lawyer put an interception application in so I could get the tax rebate from my daughter's dad who owes a boat load of child support. He has a warrant out for his arrest, and still I can't get the child support he owes. My main question is, does anyone know what the process is on intercepted tax rebate checks to be processed towards back child support?

Answer: your lawyer may be able to put a application in but i'm not sure i've never heard of that before,but i do know one way it's done is through your local child support enforcement agency if you have an open case with them.

the cse can have the financial management services (fms)notified that your ex owes arrearages on his child support and have it ss# flagged and once they processes his tax return and rebate check fms will send his checks along with his arrearage amounts and the name and phone # of the agency requesting his checks to the irs then the irs will send that money to the cse who will then send it to you.

it takes about 4 weeks to get the check once it has been offset,if he's not married and filed a joint return,or if he or you don't owe any federal debts,or if you weren't or is receiving public assistance.

if he married and filed jointly it will be held for 6 months to allow the spouse to file an injured spouse claim form.

if he owes any federal debts or you the rebate or refund will go to that debt first and if any left it will come to you.

very complicated situation but i hope this helps

GOOD LUCK,HOPE YOU GET IT SOON

P.S.WHEN DID YOUR LAWYER PUT IN THE ORDER FOR HIS REBATE TO BE OFFSET,I ASKED B/C IN ORDER TO GET HIS REBATE HE HAD TO PUT IT IN BY DECEMBER 31ST 2007 TO GET HIS CHECK THIS YEAR,ALSO DID YOU GET YOUR EX'S FEDERAL REFUND YET OR ARE YOU SUPPOSE TO,B/C IF YOU DIDN'T GET THE REFUND YOU WON'T GET THE REBATE EITHER.

THE YEAR IN REVIEW

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Question: Can you withdraw from your IRA and avoid the 20% tax penalty?

If I use my IRA to fund my startup can I deduct the expenses and not pay the early withdrawal termination tax?

I am starting a business. I have about $7,000 in my IRA with which I would like to withdraw and use for my startup expenses. Regardless of risks etc which is debatable. I know there is a 20% tax if you pull your IRA out early. Can I offset this taxable amount if I have little or no income or deduct business expenses from it?
Yes but could business expenses and other deductions offset the 10% penalty?
For instance if you had no income for the year but had the income from the IRA (I am 25 btw), you would still have to pay the penalty? Couldn't you deduct business expenses etc to offset your tax liability?
Where can I get professional accounting advice on the cheap?
So to clarify there is absolutely no way out of the 10% penalty?

Answer: Sorry, you can not dig into your IRA to start a business, buy a house
yes. For IRA questions, go see your Banker. It's free, they probably
have lots of alternatives on funding your business and it's free to ask
a question.

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Question: Do Canadians pay 65% in tax?

I know the answer is no. The reason I am asking is a YA Top Contributor claimed this to be true. She said it in response to someone enquiring about moving to Canada for free health care. I provided links to all necesary government web pages showing that Cdns certainly do not pay 65% tax (and actually taxation at almost the same level as the US), but this person (a non-Canadian) insists that I am incorrect and that it is just my 'opinion' that Canadians do not pay 65% tax.

Does anyone else believe that Cdns pay 65% tax? Where do rumours like this come from?

Answer: The rumour comes form the fact that we are known abraod, particularly by Americans, as having a wealth of social services which we must pay for via taxes (health care, education, etc...).

The other part of the rumour is that we do, in fact, pay a LOT of tax, but this also varies depending on where you live and your income level, if you have any capital gains to declare, etc.

In most provinces we pay hefty Provincial and Federal Sales taxes at points of purchase: for example you may pay an additional 11% on a chocolate bar you buy at the store.

The canadian tax system is incredibly complex. I have, by necessity, been trying to figour out exactly what people will pay given certain variables, but this is extremely difficult unless you have the knowledge and experience to do so. IT REALLY TAKES AN EXPERT.

65% though, seems quite high. While trying to build a template for checking profit/loss on a stock sale, I consulted a tax lawyer: usually what they do in an unknown situation is assume that everything is taxed at 50%. Indeed, I believe the highest combined federal and provincial tax rates only total to 49%, though i can't offer proof of this.

Remember Canada has a progressive tax system as well: you'll only pay the highest rates on dollar amounts above a certain amount.

You can find out pretty much everything here

http://www.cra-arc.gc.ca/tx/ndvdls/fq/txrts-eng.html#federal

For the first part of your question well, that's the trouble with Y!Answers, and, by extension, the web 2.0 world: the correct answers, the correct information are not chosen by experts.
If web 1.0 was the wild west of the internet's history, then web 2.0 is the equivalent of high school: to a large extent, it's a popularity contest, and it's a place where style is beginning to eclipse substance.

Of course, we're all a part of it, but I like to think i'm causing only minimal damage by refusing to comment on that which I am not qualified.

Good luck!

IRS to regulate tax preparers

WASHINGTON — The IRS plans to require tax preparers to pass a test and register with the government to better police a largely unregulated industry used by most taxpayers.

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