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Income: Income includes both taxable and nontaxable types of income Deductions:

Income: Income includes both taxable and nontaxable types of income Deductions: Deductions are amounts that tax law specifically allows as subtractions from gross income. The rule is that an item may not be deducted unless the tax law specifically permits it.

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Income: Income includes both taxable and nontaxable types of income Deductions:

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  1. Income: Income includes both taxable and nontaxable types of income Deductions: Deductions are amounts that tax law specifically allows as subtractions from gross income. The rule is that an item may not be deducted unless the tax law specifically permits it. Deductions are characterized as expenses, losses, and exemptions. An expense is a current period expenditure that is incurred to earn income. Deductions for expenses are limited to those incurred in a trade or business in an income-producing activity. And certain specifically allowed personal expenses of individuals.

  2. Tax prepayments: The tax prepayments are subtracted from the income tax liability to determine whether the taxpayer has underpaid and owes additional tax with the return (tax due). Tax credit: A tax credit is a direct reduction in the income tax liability. Tax credit are treated like tax prepayments, a credit is not deducted to arrive at taxable income but is instead subtracted directly from the income tax liability. cause of (withholding)

  3. Income defined (includes income from all resources) Minus: excluded income Equals: gross income Minus: deduction and exemptions Equals: taxable income * tax rate (from tax law) Equals: income tax Minus: tax prepayments Tax credit Equals: tax (refund) due with return

  4. Filing returns: Every taxpayer must hold (work with) regular accounting documents to keep debit and credit tax payments and make the adjustment end of the year. Taxpayer and the government can correct errors on returns within a limited time after 30th of April the next year. Palestinian income tax system is based on (self assessment) which requires taxpayers to report and pay their taxes correctly.

  5. Revenue and expenses accounts for auditing office

  6. You have the following information: 1- cost of computer 1000$ and accumulated depreciation 300$ and the exchange price for old 100$ and the new cost 1000$. 2- tax officer accept 60% of phone expense and the bad debits documented with judgment. 3- the office owned by Mr. Haider and he is married and has 8 sons and one university student. Required: calculate the income tax to be paid annually and monthly.

  7. answer

  8. Calculated net profit before harborage and donation • Deduct donation (31270*20%) • Deduct harborage expenses • Taxable income Deduct exemptions: 3000 resident • Wife 4000 sons (500*8) • University student. (10000) total • Net taxable income (10000*8%+ 4078*12%) = 800+ 489.36 = 1289.36 annually 1289.36/12= 107,44 monthly.

  9. Case: Dr. Yahia works in his own private clinic and you have the following information on 31-12-2007 The total gross income = 130000 NIS And paid the following expenses: • Electricity bills 1800 NIS annually. • Water bills 600 NIS annually. • Phone bills 2160 NIS annually. - In February 2007 bought Computerized Tomography (CT) equipment amounted 5000$ and the depreciation rate is 7% annually. • Mrs. Om Naser work as a nurse with monthly salary 900 NIS • Akram work as an office assistant with monthly salary 600 NIS • Dr. Yahia married with Dr. Sozan and she work in the ministry of health. • They have three sons, Ahmed student in the 6th class and Amjad student via Islamic university with certificate document, and Rana married and lives with here husband. • Dr. Yahia live with his father and he has pension from Palestinian army. • They live in a rent house 200$ monthly paid by Dr. Yahia

  10. If you know that Dr. Yahia has no income except 200$ monthly salary from (USAID) paid for his medical consulting. Required: calculate the following: 1- total gross income. 2- taxable income. 3- The deductions and exemptions. 4- the accrued value of tax annually and monthly. The exchange rate for dollar 4.5 NIS.

  11. 1- The total gross income from all recourses = 130000/4.5= 28888.8$ 200$* 12 = 2400$ Total income = 31288.8 Gross taxable income = 28888.8 Deductions Electricity 1800/ 4.5 = 400$ Water 600/ 4.5 = 133$ Phone 2160/ 4.5 = 480$ Depreciation of CT 5000$* 7% =350$ Om Naser salary = 900*12/ 4.5 = 2400$ Akram salary = 600*12/ 4.5 1600$ total of deductions = 5363$.

  12. Exemptions: Resident 3000$ Wife 0$ Sons 500$ University student 2500$ Married daughter 0$ Rent of house 2000$ (200*12=2400) max 2000$ Total of exemption 8000$ Total of deductions and exemptions = 5363+8000 =13363$ Net taxable income =28888.8 – 13363 = 15525.8$ Annual income tax = (10000*8% + 5525.8*12%) 800 + 663 = 1463$ Monthly income tax = 1463/12 = 121.9$ 121.9 *4.5 = 548.6 NIS

  13. Case: Mrs. Eman is a relict woman, she works in private company with monthly salary 1850 NIS, She has three sons and lives in a rent house 8500 NIS annually Required: calculate the income tax to be paid (the exchange rate 5 NIS) Note : in this case we have family woman, and she will have all the exemption have been given to the family man. Answer: Annual income 1850*12/5 = 4440$. Deduct the exemption Resident 3000$ Husband (dead) 0$ Sons 1500$ (3*500) Rent 1700$ Total 6200$ So tax is 0$ because the exemption are more than the income.

  14. Mr. Ibraheem work at the ministry of finance in Gaza with monthly base salary 1742.77 NIS and has additional career 25% from the base salary. • He has monthly the following: • Addition allowance (wife) 60 NIS • Addition allowance (son) 20 for each son * 2= 40 NIS • Addition for traveling 54 NIS • Addition for salary purpose 2% of base salary and the addition career. Required: Calculate the income tax if you know that government calculate tax according to exchange price for dollar 4.4 NIS note: Often the government saving = 10% of base salary and addition career.

  15. Answer: Base salary 1742.77 Addition career 435.69 ( 1742.77*25% ) Addition allowance (wife) 60 NIS Addition allowance (son) 20 for each son * 2= 40 NIS Addition for salary purpose 2% of base salary and the addition career 2178.46*2% = 43.57 NIS Addition for traveling 54 NIS Total of salary =2376,03 Deduct excluded income according to Palestinian income tax law. - Government saving = (1742.77+435.69) * 10% = 217.84 • Addition for traveling 54 • Health security = 75 Total of excluded income 346.84 taxable income= 2029.184 Annual income for Ibraheem = 2029.184 * 12 / 4.4 = 5834.188$

  16. Deduct exemption Resident 3000$ Wife 500$ Sons 1000$ Total of exemptions 4500$ Net taxable income after exemption 1034.14$ Annual income tax =1034.14*8%. =82.73$ Monthly income tax 82.73/12 = 6.89$ *4.4= 30.34 NIS.

  17. Case: The following are information for a taxpayer taken from his self assessment for the year 2007 Revenues: • Salary from vacancy during the year 10000$ • Sales for his own shop 48000$ • Net profit from shares 22000$ • Revenue from farming project 12000$ • Gift from relative person 11000$ Expenses: • Cost of goods sold for his own shop 18000$ • Purchased a fridge machine for the shop amounted 3000$ and the depreciation rate 10% annually. • Rent for the shop 1200$ • The depreciation for the car 2000$ only 50% accepted by tax officer. • Utilities expenses for business (water, electricity, phone) 500$ • Rent of his house 5000$ • Medical care expenses for his son (documented) 3000$ • Cost of school premium for his sons. (American school) 1400$ • Living cost for his family 5000$

  18. Personal information: • Married and has two sons. • No accrued tax from previous years • The owner for his vacancy work deduct 100$ monthly paid to tax office. Required: 1- total income 2- non taxable income 3- taxable income 4- deductions 5- exemptions 6- net taxable income 7- Tax credit (if any) 8- accrued tax 9- tax value to be paid or refund 10- Not accepted deductions or exemptions (if any)

  19. Answer: 1- Total of income = 103000 • Salary from vacancy during the year 10000$ • Sales for his own shop 48000$ • Net profit from shares 22000$ • Revenue from farming project 12000$ • Gift from relative person 11000$ 2- non taxable income= 45000 • Net profit from shares 22000$ • Revenue from farming project 12000$ • Gift from relative person 11000$ 3- taxable income= 58000$ • Salary from vacancy during the year 10000$ • Sales for his own shop 48000$ 4- deductions = 21000$ * Cost of goods sold for his own shop 18000$ * fridge machine depreciation 300$ * Rent for the shop 1200$ * The depreciation for the car 50%*2000= 1000$ * Utilities 500$

  20. 5- exemptions Resident 3000$ Rent of house 2000$ Medical care 3000$ Wife 500$ Sons 1000$ 6- net taxable income = 27500$ 7- Tax credit 100$* 12= 1200$ 8- accrued tax =3360 10000* 8%= 800 6000*12% =720 11500*16% = 1840 9- tax value to be paid or refund = 2160$ paid 10- Not accepted deductions or exemptions = 10400$ 1000$+ 3000$+ 1400$+ 5000$

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