Tax Management

Question 1

tax

Answer 1

frees charge by the government on a product, income, or activity

Question 2

direct tax

Answer 2

fee levied directly on personal income

Question 3

indirect tax

Answer 3

fee levied on consumption or an expenditure, privilege, or right, but not on income or property

Question 4

public goods and services

Answer 4

government-provided services that protect and support citizens; example are services provided by the police, fire, library, and military

Question 5

regressive tax

Answer 5

fee that is applied uniformly, imposing a greater burden (relative to resources)on the poor than on the rich

Question 6

progressive tax

Answer 6

fee designed to help create equity among citizens; the wealthy are taxed at a higher rate than the poor

Question 7

W-4 form

Answer 7

form filled out when starting a new job that determines how much of one’s pay is withheld for income taxed.

Question 8

withholdings

Answer 8

taxes taken out of your paycheck before you actually get your paycheck

Question 9

why do we pay taxes?

Answer 9

finance government expenditure

Question 10

what type of taxes are we subject to?

Answer 10

direct and indirect taxes

Question 11

explain the diff. btw progressive and regressive taxes.

Answer 11

progressive tax is a fixed tax, every one pay the same amount of money.
regressive tax is not fixed, the wealthier, the more to pay

Question 12

what things should you consider when calculating how much personal income tax you should contribute on a monthly basis?

Answer 12

to fill the W-4 worksheets

Question 13

gross income

Answer 13

wages, bonus, tips, interest earning, dividends, and gains from selling investment

Question 14

W-2 form

Answer 14

form sent by employer and IRS every year showing your earning and amount of money withheld for taxes

Question 15

adjusted gross income

Answer 15

gross income minus allowable deductions

Question 16

deduction

Answer 16

items that help reduce the income tax owed by reducing taxable income

Question 17

itemized deductions

Answer 17

if total tax deductions are greater than the standard deduction allowed by the IRS, you can list (itemize) them on Form 1040, thus reducing your overall income tax bill

Question 18

direct taxes for individual in Hong Kong

Answer 18

salary tax, profit tax, property tax

salary tax: employee
profit tax: self-employed, SME business owners, partnerships, and sale of any property for profit-making
property tax: rental income

Question 19

come taxable under salary tax

Answer 19

salary, tips, gifts, education benefit for children, cash allowance(e.g. food), stocks, income taxes paid by employer, holiday benefits by employer

Question 20

other tax in HK other than direct tax

Answer 20

• Excise taxes on tobacco, liquor, gasoline
• Rates on landed properties
• Government rent on land leases
• First registration of motor vehicles
• Air passenger departure tax
• Estate duty (abolished effective 2006)
• Hotel accommodation tax (0% effective 2008) -Betting duty
• Stamp duty

Question 21

Net Total Income and Net Chargeable Income

Answer 21

Total Income – Deductions

Total Income - Deductions - Allowances

Question 22

Salaries Tax for each year of assessment is chargeable on the smaller of

Answer 22

net total income at standard rate, or

net chargeable income at progressive rates

Question 23

diff. btw standard rate and progressive rate for tax

Answer 23

standard rate: one rate for all taxable income

progressive rate: increasing rate for the first three $40000s and fixed rAte for the rest

Question 24

marginal income tax rate

Answer 24

tax rate levied on your last dollar of taxable income

Question 25

average tax rate

Answer 25

tax rate calculate by dividing taxes paid by total taxable income

Question 26

alternative minimum tax

Answer 26

extra tax you need to pay on top of your regular income tax, which target the wealthier people who want to escape from paying tax

Question 27

capital gain/loss

Answer 27

a gain or loss on the sale of an investment asset like stock or real estate

Question 28

what is the diff. btw deduction and exemption?

Answer 28

Exemption doesn’t form part of total income while deduction form part of a total income.

Question 29

what is the diff. btw tax credits and tax reduction

Answer 29

tax credit: 1 credit mean that the tax on income is $1 reduced
tax reduction: instead of reducing resultant tax, taxable income is reduced, after multiplying the rate, less than $1 is reduced from the resultant tax

Question 30

characteristics of Hong Kong taxation system

Answer 30

Scheduler tax system, Simplicity, Territorial source concept, Low tax rate, Form of assessment, Year of assessment, Provisional tax assessment system, Double Taxation Relief

Scheduler tax system
Income tax is charged separately under three
headings: salaries tax, property tax and profits
tax

Simplicity
-Direct tax: salaries tax, property tax, profits tax
-Indirect tax: stamp duty, betting duty
-No dividend income, interest income, or
capital gains tax

Territorial source concept
only income derived form Hong Kong is subject to taxes

Year of assessment
Between April 1 of current year and March 31
of next year

Double Taxation Relief
Avoidance of double taxation for individuals working and living in the Mainland China and Hong Kong