Tax Management Flashcards
tax
frees charge by the government on a product, income, or activity
direct tax
fee levied directly on personal income
indirect tax
fee levied on consumption or an expenditure, privilege, or right, but not on income or property
public goods and services
government-provided services that protect and support citizens; example are services provided by the police, fire, library, and military
regressive tax
fee that is applied uniformly, imposing a greater burden (relative to resources)on the poor than on the rich
progressive tax
fee designed to help create equity among citizens; the wealthy are taxed at a higher rate than the poor
W-4 form
form filled out when starting a new job that determines how much of one’s pay is withheld for income taxed.
withholdings
taxes taken out of your paycheck before you actually get your paycheck
why do we pay taxes?
finance government expenditure
what type of taxes are we subject to?
direct and indirect taxes
explain the diff. btw progressive and regressive taxes.
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
what things should you consider when calculating how much personal income tax you should contribute on a monthly basis?
to fill the W-4 worksheets
gross income
wages, bonus, tips, interest earning, dividends, and gains from selling investment
W-2 form
form sent by employer and IRS every year showing your earning and amount of money withheld for taxes
adjusted gross income
gross income minus allowable deductions
deduction
items that help reduce the income tax owed by reducing taxable income
itemized deductions
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
direct taxes for individual in Hong Kong
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
come taxable under salary tax
salary, tips, gifts, education benefit for children, cash allowance(e.g. food), stocks, income taxes paid by employer, holiday benefits by employer
other tax in HK other than direct tax
- 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
Net Total Income and Net Chargeable Income
Total Income – Deductions
Total Income - Deductions - Allowances
Salaries Tax for each year of assessment is chargeable on the smaller of
net total income at standard rate, or
net chargeable income at progressive rates
diff. btw standard rate and progressive rate for tax
standard rate: one rate for all taxable income
progressive rate: increasing rate for the first three $40000s and fixed rAte for the rest
marginal income tax rate
tax rate levied on your last dollar of taxable income
average tax rate
tax rate calculate by dividing taxes paid by total taxable income
alternative minimum tax
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
capital gain/loss
a gain or loss on the sale of an investment asset like stock or real estate
what is the diff. btw deduction and exemption?
Exemption doesn’t form part of total income while deduction form part of a total income.
what is the diff. btw tax credits and tax reduction
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
characteristics of Hong Kong taxation system
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
