Not that long ago, I decided to embrace a dream of mine that I have had for a number of years and to try to start my own business. So far, things have gone a bit more smoothly than I would have guessed, and so I am very thankful for that. I am not going to delude myself into thinking that the lack of significant challenges I have faced is going to be the status quo though. I just purchased software for making pay stubs from Thepaystubs website and at the moment I am trying to figure out how to use it correctly. Continue reading →
Most of us, 67% of Americans that is, were happy that Washington passed the extension of the tax rates for another two years. But what impact does this really have? Hi, I’m Steve Beaman and welcome to this SBG Cast on the Financial Path!
Phew, that was close. At least that’s the feeling most financial professionals have when it comes to these tax increases being stalled. There was widespread concern that a sharp increase in taxes as proposed could put a significant stall on stock prices, real estate prices and much else thus leading to a second downturn in the non-recovery recovery we’ve been experiencing. And there was a sigh of relief among seniors who are looking to pass their hard-earned money down to their heirs, with a continuation of the death tax exemptions; $5m for singles, and $10m for couples.
But let’s take a moment and look beyond the short-term good feeling to the longer term for a moment. Keep in mind, this extension was only for 2 years and the money to pay for it will be borrowed on our nation’s visa card. Believe me, I’m not negative about reduced tax burdens, we’re incredibly overtaxed in my opinion. But this political manipulation of our federal tax code is more of the same that’s gotten us into the financial trouble we’re in. My point I guess, is that this political decision is just more evidence that we desperately need a complete overall of the revenue and expenditure sides of government. We cannot hold the economy hostage to the political whims of Washington… Period! This near miss on another tax only continues to put uncertainty in the minds of business people who are debating growth, and you know what, while evidence shows an increase would have HURT, in my opinion, this won’t help all that much. We’re still de-leveraging our economy, and the point that this will “stimulate” the economy, I think not. Remember, just because we have more to spend, doesn’t mean it’s spent here, in the United States. Manufactured items are largely done abroad, remember the trade deficit!
I believe this, like so many things in Washington is just one more clarion call for a total re-thinking of the revenue side of government. What is the purpose of taxation? It’s NOT for social management? Is it? Isn’t it just to pay for the things government feels the need to do? As such, let’s stop the idiocy of micro-managing the economy with thins like special tax breaks for this person, or that person, and just have all of us pay equally. Why should a home owner be treated preferably to a renter (who by the way tend to be lower income)? Why should any person in our society be penalized for succeeding? How many businesses pay someone LESS commission as they sell more? Reality, if anything, we should CUT tax rates as you make more thus incenting people to work harder and make more! But that’s not right either. How about we just simplify the debate and make one fundamental decision? Should we tax income, or expenditures? Expenditure is much easier to measure frankly and it does provide inherent incentive for people to save. So, the notion of a VAT tax isn’t all that bad, but that’s IF we ELIMINATE the income tax. Similarly, if we want to tax folks incomes, why not simply do it evenly. Yes, that’s a flat tax. No deductions, no exemptions, everybody who makes more than some notional level pays the same percentage. That way, Bill Gates will pay the same percentage as the person making $110,000 which today he doesn’t.
You want a large house and a beautiful garden. The problem is in the cost of ownership. You must borrow money from the banker to buy a house. You also need to borrow money for funding college education, buying a car, buying the furniture, and so on.
How much debt is too much debt?
You do not want to drown in debt. Many bankers the debt to income of 35%. The next question is whether to use pre-tax income or after-tax income?
For the sake of conservatism, you may want to base on after-tax earnings. Why?
For example, Peter is a bachelor with an annual gross of $100,000. His after-tax annual earningsis $84,000.
Based on his pre-tax income of $100,000, Peter can accept monthly repayment of (100,000 x 0.35) divided by 12 months = $2,916
Based on his after-tax earnings of $84,000, Peter can manage monthly repayment of (84,000 x 0.35) divided by 12 months = $2,450
There is a difference of $466 every month. If Peter saves $466 every month as an emergency fund, he will have a sum of $5,592 every year.
Bankers are conservative professionals. They want to see the debt to income ratio less than 35%. That is why it is better to be conservative and use the debt to after-tax income ratio for assessing your long term debt commitments.
The best method for reducing debt to income ratio is to pay off all credit card debt. You must not incur credit card debt if you are thinking of buying that big house.
A passionate blogger from Singapore. Personal finance is about making money, saving money, spending money and investing money. Rich in every sense is about my desire to be rich in every possible ways, not just in monetary term.
There are lots of people who seem to be very much interested in the field of law and they want to become attorneys and lawyers. If you are interested in this field as well then you must make sure that you learn about the various kinds of jobs available in this field.
It is very important to make sure that you are fit for this job. This kind of job has lots of challenges and you might have to provide a lot of time to this profession.
But the job of the attorney is also very satisfying because you can earn a lot of money in this job. Are you interested to choose a career as a tax attorney? These people usually deal with the tax related problems.
They provide important advice to their clients so that they do not face any problem with their tax related issues. This is the reason why these people must learn the tax law by heart. If you have a good communication skill and if you can play with numbers then you are fit for this job.
The tax attorneys can also join in various other fields like business, estate, international taxes, income as well as property. If you want to build your career in this field then you must choose the right kind of education. The person interested must take the law course.
After completing the course the attorney can join either the government organization or the private organization according to their wish. Lots of people do not know well about the taxes and this is the reason why they go to the tax attorneys.
Other than this, there are lots of other duties of these attorneys. These attorneys help the clients settle their income tax and also be familiar with the federal and the state tax. These people also have work in the property, estate as well as gift taxes.
Other than this, they examine the payroll procedures and also set up the portfolios of the stock. To become the tax attorney you need to specialize in this field. Taxes include a huge portion of the law and this is the reason why there are lots of works to do.
There are lots of law firms which hire these attorneys. They usually choose the attorneys who have experience of about 2 to 3 years. As they practice for a long time they gain more experience and they tend to get more popular.
You can earn a lot of money in this profession. The tax attorneys must have the membership of bar association before they start with their private practice. If you work hard then you will surely get proper success in this field.
Financial planning is really life planning. Choosing a home, particularly a retirement home, involves many factors. With state and local taxes on the rise, retirees should look closely at tax matters when formulating their retirement financial plan.
Retirees who plan on continuing to work in their “golden years” should know that state taxation of such income varies widely. Some states give retirees favored treatment on earned income, some treat retired seniors like everyone else, and some impose no tax at all on earned income. Taxation of investment income shows nearly as much variation between states. Retirees in a new domicile must also watch out for unexpected municipal income taxes.
Income from government, military, private pension and other retirement plans is growing increasingly important to the survival of retired individuals. Some states exempt all such pension income from taxation, while others exempt certain types or place limits on non-taxable pension income. Some states even tax former residents on retirement plan withdrawals, creating the possibility of paying income tax in two states. Some states follow federal tax formulas for taxation of Social Security benefits, others have their own formulas, and some tax benefits not at all.
Sales and property taxes must also be considered. Again, some states offer property tax advantages to retired seniors while others provide homestead exemptions. Retirees should consider sales taxes when estimating their retirement budget for such items as clothing, household goods, food and drugs.
It is also important not to overlook the effect of estate taxes upon the surviving spouse. Some states do not provide an unlimited marital deduction. Property ownership laws must also be examined in this area when considering the distribution of possessions upon death. Changes in these laws must be monitored as many states will attempt to make their financial environment more appealing to retirees.
All retirees weigh the cost of living, weather, nearness to relatives and recreational opportunities in their decision to settle in their retirement community. The tax climate should also be examined to analyze the financial situation during retirement. Working with an experienced financial planner, as well as a tax advisor, is often recommended to those looking for a retirement home.
Salary packaging, also known as a salary sacrifice arrangement, is a way to restructure your employment income so as to buy goods and services or pay personal expenses and costs from your BEFORE TAX income rather than your AFTER TAX income.
Such an effective and Australian Taxation Office (ATO) approved arrangement gives more buying power to you as you are spending the tax dollars that would otherwise be withheld from your pay and paid to the ATO for the government to spend.
But the problem is most salary packaging arrangements are ineffective because of the introduction of the Fringe Benefits Tax Assessment Act 1986 (FBT). This made most BEFORE TAX benefits received by an employee taxable to the employer at the top Australian marginal income tax bracket (currently 46.5%). In effect this means it is more expensive (more tax is payable) to salary package. It’s a result the government of the time who introduced the FBT intended because they wanted to raise more taxes.
Therefore, savings from an effective salary packaging arrangement can only arise in any of the following situations:
The benefit is not subject to FBT (eg, superannuation contributions).
The benefit is FBT-exempt (eg, trade journal subscriptions)
The benefit has no FBT value (eg, application of the “otherwise deductible” rule)
The benefit has an FBT value subject to concessional valuation rules (eg, car benefits)
So let’s see what benefits can be paid to an employee from BEFORE TAX income that can lead to a salary packaging tax savings. I will arrange benefits according to the above classifications.
Benefits not subject to FBT
Discounted shares purchased under an approved employee share acquisition scheme
Employer contributions to a complying super fund for the employee
Employment termination payments (for example, a company car given or sold to an employee on termination)
Benefits that are FBT-exempt
Most minor benefits valued at less than $300 where it would be unreasonable to treat the benefit as a fringe benefit
Certain work-related items such as:
a portable electronic device (eg, computer)
an item of computer software
an item of protective clothing
a tool of trade.
Benefits that have no FBT value
A benefit where the “otherwise deductible” rule can be applied.
A good example of this is in relation to the interest an employee pays on a rental property investment loan. Where the employer reimburses the interest charged on the investment loan by the bank, then because the interest would be deductible to the employee the FBT value is reduced to nil.
Another example is Income Protection Insurance paid for employees by the employer.
Benefits that have an FBT value subject to concessional valuation rules
Motor Vehicle by way of Novated lease
Motor Vehicles by way of Associate Lease
Living Away from Home Allowances
Meal entertainment that is valued under the 50/50 method.
I hope the salary packaging items I have listed above give you an idea of the types of benefits available so that you may use them in your own salary packaging arrangements if possible.
This article is not meant to go into detail of each individual item of benefit but to give you a basic concept of salary packaging and show you what the most common benefits are that are salary sacrificed.
The calculation and the maths can be quite complex but always revolve around the tax bracket the employee is in and the type of benefit received that has a concessional treatment under the FBT laws.
It is recommended that you speak to your Accountant salary packaging and FBT matters, because that is what we hare here for – to save you as much income tax as is legally possible.
Investing in a 401(k) has some significant tax advantages for you. These tax advantages are provided for you by the government as an incentive for you to fund your own retirement. The government needs as many people as possible to fund their own retirement as they cannot afford to fund everyone’s retirement. If this was the case you would have much larger deficits than what there is today, you would have a nation of retired people living at or below the poverty line which in turns affects the economy and the social unrest within society. Politically this would be poison for any party.
Income tax benefits are the incentives that the government is providing you whilst you have income earning capacity. There is the offset that you do not have to pay any income tax on your pre-tax contributions until you have withdraw your funds from your 401(k) plan, which hopefully is when you have retired. The government also provides for a tax deferral on any earnings you have made from your 401(k) investments until you withdraw from your 401(k) plan. The reduction in your gross income from investing in to 401(k) has a follow on effect to all other government income taxes that are applied at the federal, state or local level. This income that you have invested as pre-tax dollars has a snow ball effect on accumulating more retirement funds. This is known as compounding your investment. As an example to save $15,000 and you are not investing in 401(k), it takes approximately $24,000 in pre-tax income. On the other hand if you are investing in 401(k) it will only take approximately $16,000 in pre-tax income. That’s a big difference.
If you live in the right state, then they also may provide you with the benefit of not paying taxes on the contributions you make to 401(k). The odds are you are living in the right state as most states provide this benefit. There are some taxes you will have to continue to pay whilst you are receiving these tax benefits for 401(k), these taxes are for unemployment, Social Security and Medicare.
Last week, I shared how I get a shock every April 15th by the number of phone calls my office gets from the public looking for help with filing an extension. This April 15th didn’t disappoint!
Several of the callers knew they needed a federal extension, but they weren’t always sure about the state extension. Of course, the callers knew if they needed to file an extension for the state they lived in, but my team also asked them about other states and the response was usually silence.
This part of April 15th does not shock me because I’m constantly asking prospects and new clients about their state tax obligations and the response is always uncertainty.
More Than Just State Income Tax – State taxes usually come in three forms:
Many business owners (and real estate investors!) get into trouble by not even realizing they aren’t complying with the state tax laws. Here is a very common situation I see time and time again.
A couple has been investing in rental real estate in their home state for several years. They branch out and purchase 2 new rental properties in a neighboring state. The couple knows they need to pay real estate taxes in the neighboring state and that they need to file a state income tax return in the neighboring state. The couple thinks they have their state taxes covered.
Not so. Based on the above list, the couple has covered the property tax and income tax, but not the sales tax. And yes, many states have a sales tax on rental receipts. This couple was in one of those states.
The Scariest Part of State Taxes – The scariest part of state taxes is the huge accumulating expense that comes with non-compliance.
With this couple, the 2 new properties were in a state that had a 5% sales tax on rental receipts. The couple never knew about it, so they never collected it from their tenants. The state caught up with them 3 years later and required them to file sales tax returns for the past 3 years.
Here’s how it added up: The monthly rents for the 2 properties averaged $3,000. At 5%, the monthly sales tax due was $150. This totaled to $1,800 every year, so for the 3 years, the couple owed $5,400. And with penalties and interest the grand total was over $6,500!
The nice thing about sales tax is it can be passed through to your customer (or tenant), so you are allowed to collect it from your customer and remit it to the state. But, if you don’t know you are suppose to collect it and don’t collect it, it doesn’t mean you are off the hook. In this situation, you have to come up with the money yourself.
This couple had an unexpected sales tax bill of over $6,500. Fortunately, they had the funds to pay the bill but it significantly hampered their ability to continue their real estate investing as they planned.
The Solution – The solution for this couple is very simple. Collect the sales tax from their tenants and remit it timely. It can be an expensive lesson to learn and I see too many people learn it the hard way.
I get a shock every April 15th by the number of phone calls my office gets from the public looking for help with filing an extension. This April 15th didn’t disappoint!
Capital Gains Tax Holding UK investment via an offshore company would look at first glance to be a good way of avoiding UK capital gains tax. As the company is non UK resident,and provided the assets aren’t used for the purpose of a UK trade they will be exempt from UK capital gains tax (or more correctly corporation tax on the capital gain).
Note though that this tax exemption only applies if the company retains the cash until the shareholder is non UK resident or if the cash is retained overseas. Any extraction of the proceeds would be taxed to the extent that they were remitted to the UK. So whether a simple dividend is paid or if the company is liquidated and a capital distribution is paid the cash would need to be retained offshore. If you wanted to enjoy the proceeds in the UK you’d need to think about methods of remitting the proceeds with minimal UK tax implications.
A big problem with using an offshore company is in ensuring it’s controlled from overseas. If it was controlled from the UK it would be UK resident and as such taxed in full on any capital gains realised. If the company owns UK assets it makes it more difficult to avoid the company being classed as UK resident.
Inheritance taxUsing an offshore company is a big advantage for inheritance tax purposes, as it converts a UK asset into an overseas asset. As non UK domiciliaries are not subject to Inheritance tax on overseas assets they can then avoid tax on the UK property owned by the offshore company. One point to note here is that it’s important that the company shares pass on registration. They will then be classed as located where the share register is – which if this is outside the UK will ensure that the shares are excluded property.
Income taxA directly owned foreign holding company can at the most only achieve only a a partial avoidance of UK tax. Income tax, unlike capital gains tax is still taxed on UK source income. Therefore even if an offshore company is used, UK tax will still be charged on UK income.
However there are benefits to be obtained from using an offshore company. For example there can be a saving of higher rate tax as non resident companies are subject to the lower or basic rate of tax in respect of UK source income. Note though that you can obtain some income (eg UK bank interest) free of UK tax. This is because tax on this income is restricted to tax deducted at source if the recipient is a non resident.
SummaryAn offshore company investing in the UK can look to achieve the following tax benefits:
Avoidance of capital gains tax
Avoidance of inheritance tax
Partial avoidance of income tax
Anti avoidance rulesAside from the company residence position – which is always an issue where you have an offshore company with UK shareholders there are also the anti avoidance provisions to consider.
Note that there is also the related issue that if an individual exercises control over the company and makes it UK resident there is a risk that he may be a shadow director and any benefits provided to him (or his family) from the company would be charged to income tax.
The main anti avoidance provision that applies to income is S739. Although there is an exemption for non UK domiciliaries this does not apply to the company’s UK income.
Therefore if the offshore company had UK investment income this provision would deem the income of the company to be that of the person establishing/transferring to the company originally.
Another useful point to note is that S739 applies to any foreign registered company.
When can the anti avoidance rules be avoidedOne is where the UK individual buys a company that already has the UK investments in it. Provided he doesn’t inject any further assets to the company he shouldn’t be within the scope of the legislation (as he’s not made a transfer of assets resulting in income accruing to the company).
Secondly there is the motive defence which applies where the transfer was not for the purposes of avoiding UK tax, and was for a wholly commercial purpose. One case where this is more easily satisfied is where a non domiciliary established the company before coming to the UK.
When can the offshore non resident company be used as a tax shelter for UK investments?It can be used to avoid UK Inheritance tax It can be used to avoid UK tax on any capital gain It can be used as a partial shelter for UK income if S739 is avoided in one of the above ways.
However any extraction of the income or proceeds from the company to the UK would be subject to UK tax. Therefore ideally income/proceeds should be retained overseas.
Lee J Hadnum is a rarity among tax advisers having both legal & chartered accountancy qualifications. After qualifying as a prize winner in the Institute of Chartered Accountants entrance exams, he went on to become a Chartered Tax Adviser.
He previously ran his own his own tax consulting firm, and has written a number of tax books as well as editing the popular tax planning website www.wealthprotectionreport.co.uk.
For a limited time, Lee is offering a Free report on Offshore Teleworking from his Offshore Tax Site wealthprotectionreport.co.uk Wealth Protection Report offers a wide variety of information on tax matters including, Capital Gains Tax, Inheritance Tax and UK Emigration.
Article Source: http://EzineArticles.com/expert/Lee_Hadnum/95958
What is income tax and how is the rate determined? The answers vary a great deal from one country to another. In the U.S., income tax has become such a complicated process that even those working for the Internal Revenue Service have difficulty in determining the amount of tax that a person legally owes.
Laws and procedures are cumbersome enough to fill a large library. Because of the complicated structure of law and collection, many people believe that too much money is spent just on the procurement of income tax.
Income Tax Simplification
Simplification of the tax system in the United States has long been a goal, but no one knows how to accomplish it. Everyone knows the tax system doesn’t work well in its current state, and many people have ideas for change. Herman Cain, a former GOP candidate for President, had a plan for a 9% national sales tax, a 9% corporate tax, and 9% income tax. This would be assessed across the board with no exceptions.
While the suggestion sounds plausible, how it would actually work is hard to tell. It would decrease jobs in the income tax filing industry and within the IRS, but it isn’t clear how the change would take place and if enough revenue would be generated to take care of the country’s expenses. Additionally at the state level, adjustments would have to be made in taxation to coincide with the new rules at the federal level.
Taxation in Other Countries
Taxation in non-democratic countries has often put an extreme burden on those with the lowest incomes. In some of these countries, there is no set system of taxation in place and therefore no way to plan for how much citizens will be required to pay. In some cases, tax payers don’t even know how or where the money was spent.
Taxes almost always increase, because governments find more areas where they need funding. Even though accountability is necessary in democratic states, it is difficult to tell from a balance sheet how much of the tax dollar actually reaches the targeted program. This is another reason why tax reform is mentioned in every major political race.
Australian income tax is somewhat simpler than in the United States, and it does have rules that allow tax deductions under certain circumstances. It is a progressive tax from the individual standpoint because the more a person earns, the higher the percentage of income tax they pay.
The highest rate is 45% for individuals and there is also a 1.5% Medicare levy paid by everyone. There is no income tax paid for the first $6,000 of earnings a person has each year.
Corporate tax is a flat 30% in Australia, and that combined with personal income tax and capital gains tax amounts to 2/3 of what the government has to spend.
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Article Source: http://EzineArticles.com/expert/Michael_C_McC/1267216