Monday, March 16, 2009

Fair Tax

Financial

The FairTax eliminates the tax bias against investment.
Under the FairTax, savings and investments are not taxed at all. As Americans save more money, the pool of funds in lending institutions grows. When you add to this the flood of capital currently trapped offshore, we realize a huge increase in the pool of capital, thereby causing the cost of borrowing funds to drop.
The FairTax dramatically increases investment levels compared to the current income tax system.
Investment is important to all wage earners because of the relationship that exists between real wage rates and the level of capital investment per worker. In fact, the most significant contributing factor to achieving higher real wages is the level of capital investment per worker. A worker or farmer, for example, is more productive if he has more machinery and equipment to work with, particularly new equipment that incorporates the latest technological innovations. Higher productivity leads to higher real wages.
Foreign capital investment will also positively impact domestic wage rates and our economy. After repeal of the income tax, the U.S. will be perhaps the most attractive place on earth to invest, attracting investment capital from around the world that will finance new plants and create jobs here in America.
Interest rates drop.
Interest rates include compensation to the lender for the tax that they must pay on the interest you pay them. Under the FairTax, interest rates drop immediately and quickly by approximately one-quarter toward the current tax-exempt rate.
Financial
The FairTax eliminates the tax bias against investment.
Under the FairTax, savings and investments are not taxed at all. As Americans save more money, the pool of funds in lending institutions grows. When you add to this the flood of capital currently trapped offshore, we realize a huge increase in the pool of capital, thereby causing the cost of borrowing funds to drop.
The FairTax dramatically increases investment levels compared to the current income tax system.
Investment is important to all wage earners because of the relationship that exists between real wage rates and the level of capital investment per worker. In fact, the most significant contributing factor to achieving higher real wages is the level of capital investment per worker. A worker or farmer, for example, is more productive if he has more machinery and equipment to work with, particularly new equipment that incorporates the latest technological innovations. Higher productivity leads to higher real wages.
Foreign capital investment will also positively impact domestic wage rates and our economy. After repeal of the income tax, the U.S. will be perhaps the most attractive place on earth to invest, attracting investment capital from around the world that will finance new plants and create jobs here in America.
Interest rates drop.
Interest rates include compensation to the lender for the tax that they must pay on the interest you pay them. Under the FairTax, interest rates drop immediately and quickly by approximately one-quarter toward the current tax-exempt rate.
Financial
The FairTax eliminates the tax bias against investment.
Under the FairTax, savings and investments are not taxed at all. As Americans save more money, the pool of funds in lending institutions grows. When you add to this the flood of capital currently trapped offshore, we realize a huge increase in the pool of capital, thereby causing the cost of borrowing funds to drop.
The FairTax dramatically increases investment levels compared to the current income tax system.
Investment is important to all wage earners because of the relationship that exists between real wage rates and the level of capital investment per worker. In fact, the most significant contributing factor to achieving higher real wages is the level of capital investment per worker. A worker or farmer, for example, is more productive if he has more machinery and equipment to work with, particularly new equipment that incorporates the latest technological innovations. Higher productivity leads to higher real wages.
Foreign capital investment will also positively impact domestic wage rates and our economy. After repeal of the income tax, the U.S. will be perhaps the most attractive place on earth to invest, attracting investment capital from around the world that will finance new plants and create jobs here in America.
Interest rates drop.
Interest rates include compensation to the lender for the tax that they must pay on the interest you pay them. Under the FairTax, interest rates drop immediately and quickly by approximately one-quarter toward the current tax-exempt rate.
Interest income, like all other income, is not taxed under the FairTax plan. Furthermore, there is no longer any need to track interest paid on loans for the purpose of mitigating income
tax liability. Under our current system a deduction, when applicable, allows taxpayers to make interest payments from pre-tax dollars to the extent of their marginal tax rate. Under the FairTax, people make all interest payments from 100 percent pre-tax dollars.
The FairTax causes the stock market to appreciate.
The value of corporate stock or a corporate bond is the present discounted value of the expected future income stream (net of tax) of the stock or bond. Thus, a stock’s value or a bond’s value is a function of two things: The expected future income from owning the asset and the interest rate. The FairTax increases the expected future return on assets and causes interest rates to fall 25 to 30 percent. Investors prosper greatly under this plan, since corporations face lower operating costs and individuals have more money to save and invest. The reform significantly enhances the retirement savings and/or retirement spending power of most Americans.

www.FairTaxNation.com
Interest income, like all other income, is not taxed under the FairTax plan. Furthermore, there is no longer any need to track interest paid on loans for the purpose of mitigating income
tax liability. Under our current system a deduction, when applicable, allows taxpayers to make interest payments from pre-tax dollars to the extent of their marginal tax rate. Under the FairTax, people make all interest payments from 100 percent pre-tax dollars.
The FairTax causes the stock market to appreciate.
The value of corporate stock or a corporate bond is the present discounted value of the expected future income stream (net of tax) of the stock or bond. Thus, a stock’s value or a bond’s value is a function of two things: The expected future income from owning the asset and the interest rate. The FairTax increases the expected future return on assets and causes interest rates to fall 25 to 30 percent. Investors prosper greatly under this plan, since corporations face lower operating costs and individuals have more money to save and invest. The reform significantly enhances the retirement savings and/or retirement spending power of most Americans.

Wednesday, March 11, 2009

Questions & Answers


Question: What do I need to declare as income? Stipends, travel grants, fellowships, loans?
Answer: Loans are not income, so no taxes on it. There may be a tax benefit when you pay the interest on the loan.
Fellowships are income, and you report the income on the wages line and add it to any w-2 income you receive. This income is not subject to social security taxes.
Stipends are income and you will either receive a w-2 (wages) or a 1099-misc (contract work is self-employment requiring Schedule C and Schedule SE).
Travel grants could be income or not. Contact the grant administrator to see if your particular travel grant will be reported to IRS as W-2 (wages), 1099-misc (contract work) or reimbursement of expenses (not reportable to IRS as income).


Question: What part of fellowship income is tax exempt?
Answer: Fellowship income is reported the same as w-2 wages, but is not subject to social security. In the same way as w-2 wages, your standard deduction and personal exemption amounts are not taxable. For a 2006 tax return, if you are single and can claim your own personal exemption, then your standard deduction is $5150 and your personal exemption is $3300. If your income (from all sources) is greater than your standard deduction, then you are required to file a tax return… even if you do not owe taxes. You may find your fellowship income on a W-2 or on a 1098-T, depending on the administration of the fellowship.


Question: If I do not receive a W-2 for internship Stipend income, can I assume the income is not taxable?
Answer: I would assume that you did not receive your mail. Call the administrator for the stipend and verify that no W-2 was sent. Because some stipends are not taxable, you need to verify with the source to determine the tax reportable status of this money.


Question: How do I report fellowship income if I have no Social Security number? I came to this country in September, got a fellowship and now have to file a tax return.
Answer: Complete your tax return and report your fellowship on the W-2 wages line. Complete a W-7P request for a taxpayer ID. Mail these together to IRS. They will process the request for a taxpayer ID and then process your tax return.


Question: How do I report income from more than one state? How do I become a California resident?
Answer: IRS does not care what state you reside in. So for your federal tax return, just combine your income (w-2 wages).

MexDer News

MexDer News

Two minute lockout
MexDer nominated by FOW as "The Emerging Exchange of the year" Awards 2007 Award ceremony
IOMA 2007 hosted by MexDer video
MexDer ranking #5 in the World according to FIA 2006
FIA Annual Volume 2006
On December 18 MexDer will carry out the delisting of the IPC options, the migration and listing of the IPC Options on Futures Contracts.
Mutual Funds are authorized to trade Derivatives by the National Banking and Securities Commission (CNBV) and the Central Bank of Mexico in December 2006
Modifications to the Federal Income Tax Regulation authorize private pension funds to use derivatives for hedging, October 3, 2006.

Filters for Volume and Price Changes for entering orders
Mexican Insurance Companies and Bonding Institutions may use derivatives products for the first time on MexDer. As published in the Official Gazette of the Federation on Circulars F-7.3 and S-11.4, respectively
Net capital rules for Banks will increase trading on derivatives by reducing the equity capital cost making net positions possible between organized exchanges and over the counter markets. As published in the Official Gazette of the Federation.
Important Tax news
The Federal Income Tax Regulation (Art. 199) eliminates the withholding of the income tax to residents from abroad on TIIE (Interbank Interest Rate) Derivatives and Derivative securities issued by the Federal Government traded on MexDer. 23/Dec/2005
Euro / MXN Peso Futures Contract at MexDer
Global Accounts are approved in MexDer, view a summary of the main modifications.
MexDer is ranked fifth place world-wide in trading volume of futures contracts by the end of 2004. View the statistics published by the Futures Industry Association



CONSULT MARKET VIEW

Monday, March 9, 2009

Backup Withholding



Backup Withholding (28%) for Payments to U.S. Tax Residents

Prepared by: Jose A. Carus, Jr. (Tax Compliance Manager)
Prepare Date: 05/02/08
What is Backup Withholding and When should you withhold the 28% Backup Withholding from a payment made to a U.S. Tax Resident
What is Backup Withholding?
Government entities that make certain payments are required to withhold income tax of 28% from these payments if the payee is not exempt from backup withholding and fails to furnish correct taxpayer identification number (TIN). Backup withholding does not apply to wages or pension payments.
You generally must withhold 28% of certain taxable payments if the payee fails to furnish you with his or her correct taxpayer identification number (TIN).
"Missing" Taxpayer Identification Number
A taxpayer identification number is considered "missing" whenever (1) the TIN is not provided, (2) the TIN has more or less than nine digits, or (3) the TIN includes an alpha character in one or more of its nine positions.
This withholding is referred to as "Backup Withholding." IRS Publication 15 provides additional information regarding which payments are subject to backup withholding.
Payments that may be subject to backup withholding include interest, dividends, rents, royalties, nonemployee compensation, and certain other payments including broker and barter exchange transactions.

How to Complete the PIR when 28% Backup Withholding is required
Complete the Payment to Individual Report (PIR)
In the Purpose of Payment box enter the reason for withholding the 28% backup withholding. For example, "Payment recipient refused to provide an SSN."
In the box with the words Wisconsin Department of Revenue please cross out the words Wisconsin Department of Revenue and enter the words University of Wisconsin System (Vendor # 507013).
Process the PIR using the normal UW procedures.
Once the PIR has all the required approvals please forward it directly to:
Jose A. Carus, Jr.
Tax Compliance Manager
21 North Park Street, Suite 6101
Madison, WI 53715

U.S. INCOME TAX INFORMATION

U.S. INCOME TAX INFORMATION
TAX FACTS FOR US CITIZENS LIVING ABROAD, 2005
Who must file a return? Any US citizen (throughout this fact sheet the term US citizen includes both citizens and US resident aliens) who has worldwide income in excess of the sum of his or her standard deduction and personal exemption must file a return annually. For 2005 the standard deduction amounts for most people are $10,000 (married filing jointly), $5,000 (single or married filing separately), and $7,300 (head of household). The personal exemption amount is $3,200 for each taxpayer and dependent.
When is my tax return due? US citizens have an automatic extension to June 15 if their residence address is overseas on April 17, 2006. For overseas residents who must file tax returns for calendar year 2005, returns are due by June 15, 2006. However, any amounts owed must still be paid on or before April 17, 2006. The automatic extension applies only to filing the return; it does not affect the due date of any money owed. An international postmark by these dates counts as timely filed, so long at the postmark date is clearly legible.
What form should I file? As the foreign earned income exclusion can only be claimed on a Form 1040, US citizens overseas will normally file a Form 1040. Do not file a Form 1040A or Form 1040EZ if you have income earned from working overseas.
How do I claim the foreign earned income exclusion? To claim either the foreign earned income exclusion or the foreign housing exclusion, you must complete either Form 2555 or Form 2555EZ. The Form 2555EZ should only be used if you were a full year resident overseas with earned income of less than $80,000. If you were an overseas resident for only a part of the year, if you earned more than $80,000, or if you are claiming a foreign housing exclusion, file Form 2555.


What is the maximum foreign earned income exclusion? The maximum exclusion amount for 2004 and future years is $80,000, with possible inflation adjustments for tax years 2006 and later. Each individual taxpayer may claim the exclusion. Thus, a married couple when both work can each claim up to the exclusion limit for the income they earn. If both spouses are employed overseas and both earn $80,000 or more in 2004 the maximum earned income exclusion is $160,000. If one spouse earns more than $80,000 and the other earns less the exclusion may not be "shared." The spouse earning more than $80,000 will have taxable earned income equal to the excess of earned income over $80,000; the spouse earning less than $80,000 will be able to exclude only the amount earned as an individual.
May I claim both the foreign earned income exclusion and the foreign housing exclusion? Yes, if your earned income exceeds the foreign earned income exclusion limit ($80,000 single, $160,000 joint in 2004). To the extent your total foreign housing costs exceed 16 percent of the annual salary of a GS14, Step 1, US government employee, those excess costs may be excluded. Fortunately, the Internal Revenue Service provides the daily rate, which will be approximately $11,700 for tax year 2005. If rent, local housing or real estate tax, common area fees, utilities, etc., exceed this amount the excess amount may be excluded from income.


Where can I get more guidance on filing requirements for US citizens resident overseas? Internal Revenue Service Publication 54, "Tax Guide for U.S. Citizens and Resident Aliens Abroad" has more detailed information. You may also go to the IRS web site, http://www.irs.gov/.
If I want professional help in preparing my return whom may I consult? TieCare has a relationship with Global Tax Service, which provides expert tax preparation services for US citizens or resident aliens residing overseas. E-mail Rick Gray, CPA, at tiecare01@cs.com.

Saturday, March 7, 2009

Tax Laws

Income Tax Laws
S.R.O. 600(I)/91, dated 02-07-1991. In exercise of the powers conferred by clause (c) of subsection
(4) of section 50 of the Income Tax Ordinance, 1979 (XXXI of 1979), and in suppression
of its Notification No. 707(I)/80, dated 26th June, 1980, the Central Board of Revenue is pleased
to specify the special rate specified in the table below for deduction of advance tax under the said
sub-section in respect of the payments specified in the table.
Table
Payment Rate
(i) Payments on account of supply of raw hides and skins One per cent.
(ii) Payments on account of supply of cotton lint. One per cent.
(iii) Payments on account of supply of raw wool. Two per cent.
(iv) Payments on account of transportation of goods through
goods transport vehicles.
One per cent.
(v) Payments on account of supply of rice. One per cent.
(vi) ----------------------- ------------
(vii) Payments on account of supply of motor vehicles to
Government Department and Corporations.
0.75 per cent.
(viii) Payments on account of supply of iron and steel items like
M.S. bars, angle iron, tee iron and girgers, received by
suppliers of these items which are not manufactured by them.
1.25 per cent.
(ix) Payments on account of Modaraba transactions made by a
Modaraba or an Investment Bank.
One per cent.
2. This notification shall have effect from the first day of July, 1991.
{C. No. ITJI-1 (7)/84 Vol-II.}
{Note: In the Table, after entry (vi), a new entry (vii) was added vide SRO 551(I)/92, dated 02-06-
1992 and shall have effect for the assessment year 1991-92 only. Netry (viii) was added vide
SRO 895(I)/92, dated 15-09-1992 and shall be deemed to have effect from the 9th August, 1992,
and shall remain valid till 30th June, 1993.}
{Note : In the Table, after entry at serial number (viii), a new entry (ix) was added vide SRO
181(I)/93, dated 02-03-1993 and that entry (ix) was substituted vide SRO 413(I)/94 dated 29-05-
1994}
{Note : In the table, entry (vi) was omitted vide SRO 629(I)/94 dated 27-06-1994 and shall have
effect from the first day of July, 1994.}
Deduction of tax at source:
(1) Any reason responsible for paying any income chargeable under the head “Salary” shall,
at average rate of tax computed at the rates specified in the First Schedule on the
estimated income of the assessor under this head for the financial year in which the
payment is made after making such adjustment, as may be necessary, for any excess
deduction or deficiency arising out of any previous deduction or failure to make such
deduction during the said financial year.
Deduction of tax at source (On supply of Cotton Lint etc.)
Notwithstanding anything contained in this Ordinance:
(a)Any person responsible for making any payment in full or in part (including a payment by way
of an advance) to any person being resident (hereinafter referred to respectively as “payer” and
recipient”), on account of supply of goods or for service rendered to, or the execution of a contract
with the Government, or a local authority, or a company, or a registered firm, or any foreign
contractor or consultant or consortium shall deduct advance tax, at the time of making such
payment, at the rate specified in the First Schedule, and credit for the tax so deducted in any
financial year shall, subject to the provisions of section 53, be given in computing the tax payable
by the recipient for the assessment year commencing on the first day of July next following the
said Financial year, or in the case of an assessor to whom section 72 ort section 81 applies; the
assessment year, if any, in which the “said date”, as referred to therein, falls whichever is the
later:
Provided that the provisions of this clause shall apply, mutates mutinies, to any payment made on
or after the first day of July, 1998, to a non-resident person on account of execution of a turnkey
contract, a contract of sub-contract for designing, supply of a plant and equipment and
construction, assembly or like project in Pakistan or any other contract for construction or for
service rendered other than that to which the provisions of sub-sections (3A) and (4A) apply.
Explanation.
For the purpose of clause (a) the expression “supply of goods” includes both cash and credit
purchases of goods by the payer, whether under a contract or not, on credit or in cash.
(b) The Commissioner may, on an application made by any such recipient and after making such
enquiry as he thinks fit, allow, by an order in writing, any person responsible for making such
payment not to deduct any tax from any payment or payments made to such recpient in any
financial year; and where such order is made, the person responsible for making any payment
shall thereafter, and until such order is cancelled, make such payment without deduction of tax
under clause (a): and
Provided that.
(i) Nothing contained in clause (a) or clause (b) shall apply any payment on account of
securitization of receivables or to any payment made on account of the refund of any
security deposit to the purchase of an asset under a lease and buy back agreement
by a modaraba or leasing company or a banking company or a financial institution.
(ii) Nothing contained in sub-section (10) shall apply to companies as payers and
(iii) Where tax is withheld by any person responsible for making any payment to the
Special Purpose Vehicle, on behalf of the originator, it shall be deposited to the credit
of the originator.
{Note : The following amendments were made vide Finance Ordinance, 2001.
In the proviso:
(i) in clause (i)
(a) after the word “apply” the words “any payment on account of securitization of
receivables by a special purpose vehicle to the originator or “ were inserted; and
(b) the word “and”, at the end, was omitted;
(ii) in clause (ii), for the full stop, at the end, the semi colon and word “; and” were
substituted and thereafter a new clause (iii) was added }
Deduction of tax at source (on payment of Brokerage and Commission)
Any person responsible for making any payment in full or in part (including a payment by way of
advance) to any person, on account of brokerage or commission on behalf of the Government, a
local authority, a company, a registered firm or foreign contractor or consortium shall deduct tax,
at the time of making such payment, at the rate specified in the First Schedule:
Provided that where any person receives payment on behalf of his principal and remits it after
deducting his commission such commission shall be deemed to have been paid to him and such
principal shall collect the tax.
{Note: This sub-section was substituted vide Finance Act, 1999}

Friday, March 6, 2009

News



Israel to Implement Income Tax Reforms, Vows Netanyahu,by Lorys Charalambous, Tax-News.com, Cyprus Last updated 8 hours ago Friday, March 06, 2009 Benjamin Netanyahu, Israeli Prime Minister-designate, has vowed to cut income taxes for low- and middle-income earners and reduce the corporate income tax on small businesses this year, contrary to recent reports suggesting reforms would be delayed.


Canada Grants Agricultural Tax Concessions, by Mike Godfrey, Tax-News.com, Washington Last updated 5 hours ago Friday, March 06, 2009 Canadian Finance Minister Jim Flaherty today tabled a proposal in the House of Commons for tax amendments to help farmers who have had to deplete their breeding herds of grazing livestock as a result of flood or excessive moisture.


Czech Government Approves Tax Amendments, by Lorys Charalambous, Tax-News.com, Cyprus Last updated 8 hours ago Friday, March 06, 2009 Reduced social insurance rates and shortened accelerated depreciation periods were approved by the Czech government on March 2; the two measures are expected to mitigate the effects of the financial crisis and boost employment.

News



Obama Urged To Clarify NAFTA Intentions,by Mike Godfrey, Tax-News.com, Washington Last updated 5 hours ago Friday, March 06, 2009 Echoing concerns held by many businesses trading across America's borders, a senior Republican Senator has urged President Obama to clarify his intentions regarding the North American Free Trade Agreement between Canada, Mexico and the United States.
France Announces Gambling Tax Rates,by Amanda Banks, Tax-News.com, London Last updated 4 hours ago Friday, March 06, 2009 French government budget minister Eric Woerth has this week announced the tax rates which will be levied on the gambling industry. The opening up of the industry to private sector competition is in response to infringement proceedings initiated by the European Commission.
Chinese Stimulus Package Will Not Be Increased,by Mary Swire, Tax-News.com, Hong Kong Last updated 6 hours ago Friday, March 06, 2009 Chinese premier Wen Jiabao has announced that no more funding will be added to the country's current stimulus package, but added that the government will boost spending over the coming months

Thursday, March 5, 2009

IncomeTax Law



Income Tax Laws
S.R.O. 600(I)/91, dated 02-07-1991. In exercise of the powers conferred by clause (c) of subsection
(4) of section 50 of the Income Tax Ordinance, 1979 (XXXI of 1979), and in suppression
of its Notification No. 707(I)/80, dated 26th June, 1980, the Central Board of Revenue is pleased
to specify the special rate specified in the table below for deduction of advance tax under the said
sub-section in respect of the payments specified in the table.
Table
Payment Rate
(i) Payments on account of supply of raw hides and skins One per cent.
(ii) Payments on account of supply of cotton lint. One per cent.
(iii) Payments on account of supply of raw wool. Two per cent.
(iv) Payments on account of transportation of goods through
goods transport vehicles.
One per cent.
(v) Payments on account of supply of rice. One per cent.
(vi) ----------------------- ------------
(vii) Payments on account of supply of motor vehicles to
Government Department and Corporations.
0.75 per cent.
(viii) Payments on account of supply of iron and steel items like
M.S. bars, angle iron, tee iron and girgers, received by
suppliers of these items which are not manufactured by them.
1.25 per cent.
(ix) Payments on account of Modaraba transactions made by a
Modaraba or an Investment Bank.
One per cent.
2. This notification shall have effect from the first day of July, 1991.
{C. No. ITJI-1 (7)/84 Vol-II.}
{Note: In the Table, after entry (vi), a new entry (vii) was added vide SRO 551(I)/92, dated 02-06-
1992 and shall have effect for the assessment year 1991-92 only. Netry (viii) was added vide
SRO 895(I)/92, dated 15-09-1992 and shall be deemed to have effect from the 9th August, 1992,
and shall remain valid till 30th June, 1993.}
{Note : In the Table, after entry at serial number (viii), a new entry (ix) was added vide SRO
181(I)/93, dated 02-03-1993 and that entry (ix) was substituted vide SRO 413(I)/94 dated 29-05-
1994}
{Note : In the table, entry (vi) was omitted vide SRO 629(I)/94 dated 27-06-1994 and shall have
effect from the first day of July, 1994.}
Deduction of tax at source:
(1) Any reason responsible for paying any income chargeable under the head “Salary” shall,
at average rate of tax computed at the rates specified in the First Schedule on the
estimated income of the assessor under this head for the financial year in which the
payment is made after making such adjustment, as may be necessary, for any excess
deduction or deficiency arising out of any previous deduction or failure to make such
deduction during the said financial year.
Deduction of tax at source (On supply of Cotton Lint etc.)
Notwithstanding anything contained in this Ordinance:
(a)Any person responsible for making any payment in full or in part (including a payment by way
of an advance) to any person being resident (hereinafter referred to respectively as “payer” and
recipient”), on account of supply of goods or for service rendered to, or the execution of a contract
with the Government, or a local authority, or a company, or a registered firm, or any foreign
contractor or consultant or consortium shall deduct advance tax, at the time of making such
payment, at the rate specified in the First Schedule, and credit for the tax so deducted in any
financial year shall, subject to the provisions of section 53, be given in computing the tax payable
by the recipient for the assessment year commencing on the first day of July next following the
said Financial year, or in the case of an assessor to whom section 72 ort section 81 applies; the
assessment year, if any, in which the “said date”, as referred to therein, falls whichever is the
later:
Provided that the provisions of this clause shall apply, mutates mutinies, to any payment made on
or after the first day of July, 1998, to a non-resident person on account of execution of a turnkey
contract, a contract of sub-contract for designing, supply of a plant and equipment and
construction, assembly or like project in Pakistan or any other contract for construction or for
service rendered other than that to which the provisions of sub-sections (3A) and (4A) apply.
Explanation.
For the purpose of clause (a) the expression “supply of goods” includes both cash and credit
purchases of goods by the payer, whether under a contract or not, on credit or in cash.
(b) The Commissioner may, on an application made by any such recipient and after making such
enquiry as he thinks fit, allow, by an order in writing, any person responsible for making such
payment not to deduct any tax from any payment or payments made to such recpient in any
financial year; and where such order is made, the person responsible for making any payment
shall thereafter, and until such order is cancelled, make such payment without deduction of tax
under clause (a): and
Provided that.
(i) Nothing contained in clause (a) or clause (b) shall apply any payment on account of
securitization of receivables or to any payment made on account of the refund of any
security deposit to the purchase of an asset under a lease and buy back agreement
by a modaraba or leasing company or a banking company or a financial institution.
(ii) Nothing contained in sub-section (10) shall apply to companies as payers and
(iii) Where tax is withheld by any person responsible for making any payment to the
Special Purpose Vehicle, on behalf of the originator, it shall be deposited to the credit
of the originator.
{Note : The following amendments were made vide Finance Ordinance, 2001.
In the proviso:
(i) in clause (i)
(a) after the word “apply” the words “any payment on account of securitization of
receivables by a special purpose vehicle to the originator or “ were inserted; and
(b) the word “and”, at the end, was omitted;
(ii) in clause (ii), for the full stop, at the end, the semi colon and word “; and” were
substituted and thereafter a new clause (iii) was added }
Deduction of tax at source (on payment of Brokerage and Commission)
Any person responsible for making any payment in full or in part (including a payment by way of
advance) to any person, on account of brokerage or commission on behalf of the Government, a
local authority, a company, a registered firm or foreign contractor or consortium shall deduct tax,
at the time of making such payment, at the rate specified in the First Schedule:
Provided that where any person receives payment on behalf of his principal and remits it after
deducting his commission such commission shall be deemed to have been paid to him and such
principal shall collect the tax.
{Note: This sub-section was substituted vide Finance Act, 1999}

International Student and Scholar Advising
Federal Income Tax Brochure
February 2009
James Tenney, Judy Todd, Robin Catmur
P R O F E S S I O N A L N E T W O R K S
© 2006, 2009. NAFSA: Association of International Educators. All rights reserved.
The information contained in this resource is intended to provide accurate information on federal income
taxes for advisers in the field of international education. It is provided with the understanding that the
publisher and contributing authors are not engaged in rendering legal services, and with the understanding
that the content does not constitute legal advice. NAFSA disclaims any and all liability resulting from
reliance upon this general information. Likewise, no information contained in e-mail messages or Web
postings, or in other correspondence or materials associated with this resource should be construed as
legal advice. Where legal advice or other expert assistance is required, the services of a competent
attorney should be sought.
Federal Income Tax Brochure
February 2009
By: James Tenney, Judy Todd, and Robin Catmur (content editor)
Introduction
This brochure is designed to offer general guidelines only for federal income tax obligations,
including determining tax residency and which forms must be filed and when.
Taxes are often complicated—even for those native to the United States. There are many
different kinds of taxes in the United States, and different agencies are responsible for collecting
these taxes. These taxes include:
Personal Property Tax (supports local roads and schools and is primarily a tax on ownership
of a car). This yearly local tax that will vary, depending on the purchase price of the car or
cars owned. Nonresidents are not exempt from this tax.
Social Security and Medicare taxes (together called FICA). These taxes support U.S. retirees
and the disabled. Nonresidents in F, J, M, or Q categories are exempt from these taxes during
the time they are ―non-resident aliens‖ for tax purposes if they are in valid immigration
status.
City/Local Income Tax is generally required in larger metropolitan areas and may require
that a tax return be filed for that locality.
State Income Tax (only Alaska, Florida, New Hampshire, Nevada, Tennessee, Texas, and
Washington do not have a state income tax). Individuals living in all other states must file a
state income tax return if they receive any U.S. income while living in that state. Some states
allow tax treaty exemptions similar to those available at the federal level; others do not. It is
the responsibility of all taxpayers to follow the tax rules for the state in which they live.
Many state Departments of Revenue have excellent Web site resources or local offices that
can provide answers for taxpayers with questions about their filing obligations.
Federal Income Tax.
What is Considered Income?
Nonresidents, for tax purposes, are taxed only on their U.S. income. With a few exceptions, this
means that any income received from outside the United States is not considered taxable in the
United States. Residents, for tax purposes, are taxed by the United States on their income from
anywhere in the world.
Sources of U.S. income may include on-campus employment, scholarships, fellowships,
graduate assistantships, practical or academic training, and any compensation received for labor.
© 2006, 2009. NAFSA: Association of International Educators. All rights reserved.
Individuals who are nonresidents for tax purposes (as discussed below) are not required to pay
taxes on interest paid to them by U.S. banks.
Note: ―Income‖ is not limited to wages paid to the nonresident in cash, but also includes that
portion of a scholarship, fellowship, or assistantship that is applied to housing and meal
expenses. The portion applied directly to tuition, fees, and books is not considered income to any
student. If scholarship money is provided directly to the nonresident by check or cash, however,
it is fully taxable even if the student intends to use it to pay for tuition, fees, and/or books.
What is a Tax Return?
In the United States, federal income taxes are prepaid by our employer(s) based on the estimate
of liability provided by the employee on the Form W-4 (usually completed by the employee at
the time of hire). Since the withholding is only an estimate, employees are given a yearly
opportunity to reconcile the amount taken out with how much was owed. The name of the form
on which the reconciliation is made is called the ―Tax Return.‖ The tax return is filed with the
Internal Revenue Service (IRS), an agency of the U.S. government.
In some cases, filing the tax return results in a refund from the IRS because the withholding was
higher than necessary. However, sometimes a taxpayer does not have enough withheld from
payments and must send a payment to the IRS with his or her tax return. Occasionally, the
amount taken out matches the amount due, so no money is due by either the taxpayer or the IRS.
(This happens most often when a tax treaty exemption has been applied, and there is no liability
on the income.)
The deadline for filing the tax return is April 15 of every year for individuals within the United
States. Individuals filing a tax return from outside the United States have an automatic extension
of time to file until June 15. However, this is NOT an extension of time to pay, so care must be
taken to not encourage late filing when tax may be due. Individuals who need to file only the
Form 8843 because they had no income are also given until June 15 to submit their form.
Who Must File a Tax Return?
All individuals in the United States who have income must file a U.S. tax return. Tax residents
usually complete Forms 1040 or 1040-EZ. Nonresidents for tax purposes must complete either
Forms 1040NR-EZ or the longer 1040-NR. (See ―Tax Residency Determination‖ below to
determine which forms must be filed.)
A tax return must be filed even if no taxes are withheld from the income because of a tax treaty
exemption between the United States and the country of tax residence for the international
visitor. Nonresidents who are married and both work must each file a U.S. tax return.
Please note that the IRS changed the withholding requirements for employers and the filing
requirements for nonresident aliens as of January 1, 2006. Non-resident aliens are not required
to file a tax return if the income amount is below the personal exemption amount. If taxes were
withheld, the taxpayer may still choose to file a return, even if the income amount is less than the
personal exemption for that year.
© 2006, 2009. NAFSA: Association of International Educators. All rights reserved.
In addition to the tax return, all individuals in F, J, M, and Q immigration status who are ―exempt
individuals‖ (including spouse and children) are required to file a Form 8843 - Statement for
Exempt Individuals. Filing this form does not mean the person is exempt from taxes, but rather
that he or she is exempt from counting days of presence in the United States to determine if he or
she is to be taxed as a resident or a nonresident. This form asks for certain information about
immigration status. Therefore, if a nonresident alien has no income in the United States but is
still within the ―exempt individual‖ period, he or she must file the Form 8843.
What is a “Non-Resident” Alien?
Two primary U.S. government agencies use the terms ―Non-resident‖ and ―Resident Alien,‖ but
define them differently, which can be a source of significant confusion to international visitors.
The U.S. Immigration Service (USCIS) defines a nonresident alien as someone in the United
States who is not a U.S. citizen or U.S. permanent resident and who has a residence abroad
he or she does not intend to abandon (i.e., he or she has not been provided authorization to
live in the United States permanently).
The IRS divides everyone into two categories for tax purposes—resident and nonresident:
o Residents: all U.S. citizens, Lawful Permanent Residents (i.e., ―green card‖ holders), and
nonresident aliens for immigration purposes who have met the Substantial Presence Test
(described below).
o Nonresidents: all others, regardless of immigration status.
Determining Tax Residency
The Substantial Presence Test (SPT) is the way the IRS determines when nonresident aliens for
immigration purposes have been in the United States long enough to be considered residents for
tax purposes. To pass the SPT, one must be present in the United States for a total of 183 days,
counted over a period of three years as detailed more fully in IRS Publication 519.
Those in F, J, M, and Q immigration status do not count days of physical presence during the
time they are ―exempt individuals.‖ (Remember that ―exempt individual‖ does not mean exempt
from tax, but exempt from counting days of physical presence toward the substantial presence
test.) The rules for ―exempt individuals‖ are:
F, J, M, or Q students and their dependents are ―exempt individuals‖ for a period of five
years throughout their lifetime (going back to January 1, 1985 when tax laws changed).
J nonstudents and their dependents are ―exempt individuals‖ for a period of two out of every
six tax years.
and institutions
providing income to nonresidents.
http://www.irs.gov/publications/p519/index.html
901: U.S. Tax Treaties
Tables and texts that outline each current tax treaty and any retroactive clauses with older
agreements. This is valuable for both nonresident aliens and institutions making payments to
them. In cases that are ambiguous, the tax treaty text should be used.
http://www.irs.gov/pub/irs-pdf/p901.pdf
http://www.windstar.com/public/treaties.html
4152: Electronic Tool-Kit for Non-Resident Alien VITA Sites
Comprehensive guide for those seeking more detail, including scenarios and frequently asked
questions.
http://www.irs.gov/pub/irs-pdf/p4152.pdf
© 2006, 2009. NAFSA: Association of International Educators. All rights reserved.
IRS Link and Learn Foreign Student VITA Volunteer Training and Testing (replaced IRS
Publication 678-FS as of tax year 2008)
http://www.irs.gov/app/vita/foreign_student.jsp
IRS Form W-7
http://www.irs.gov/pub/irs-pdf/fw7.pdf
IRS Substantial Presence Test
http://www.irs.gov/businesses/small/international/article/0,,id=96352,00.html
U.S. Citizenship and Immigration Services
http://uscis.gov/graphics/
Social Security Administration
http://www.ssa.gov/
Examples of University Resources
University of Cincinnati
http://www.isso.uc.edu/
University of Missouri
http://cashiers.missouri.edu/nra.htm
University of Tennessee Health Science Center
http://www.utmem.edu/international/incometax.php

Tuesday, March 3, 2009



An income tax is a tax levied on the financial income of people, corporations, or other legal entities. Various income tax systems exist, with varying degrees of tax incidence. Income taxation can be progressive, proportional, or regressive. When the tax is levied on the income of companies, it is often called a corporate tax, corporate income tax, or profit tax. Individual income taxes often tax the total income of the individual (with some deductions permitted), while corporate income taxes often tax net income (the difference between gross receipts, expenses, and additional write-offs).

Contents

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[edit] Principles

The "tax net" refers to the types of payment that are taxed, which included personal earnings (wages), capital gains, and business income. The rates for different types of income may vary and some may not be taxed at all. Capital gains may be taxed when realized (e.g. when shares are sold) or when incurred (e.g. when shares appreciate in value). Business income may only be taxed if it is significant or based on the manner in which it is paid. Some types of income, such as interest on bank savings, may be considered as personal earnings (similar to wages) or as a realized property gain (similar to selling shares). In some tax systems, personal earnings may be strictly defined where labor, skill, or investment is required (e.g. wages); in others, they may be defined broadly to include windfalls (e.g. gambling wins).

Tax rates may be progressive, regressive, or flat. A progressive tax taxes differentially based on how much has been earned. For example, the first $10,000 in earnings may be taxed at 5%, the next $10,000 at 10%, and any more income at 20%. Alternatively, a flat tax taxes all earnings at the same rate. A regressive income tax may tax income up to a certain amount, such as taxing only the first $90,000 earned. A tax system may use different taxation methods for different types of income. However, the idea of a progressive income tax has garnered support from economists and political scientists of many different ideologies, from Adam Smith in The Wealth of Nations[1] to Karl Marx in The Communist Manifesto.[2]

Personal income tax is often collected on a pay-as-you-earn basis, with small corrections made soon after the end of the tax year. These corrections take one of two forms: payments to the government, for taxpayers who have not paid enough during the tax year; and tax refunds from the government for those who have overpaid. Income tax systems will often have deductions available that lessen the total tax liability by reducing total taxable income. They may allow losses from one type of income to be counted against another. For example, a loss on the stock market may be deducted against taxes paid on wages. Other tax systems may isolate the loss, such that business losses can only be deducted against business tax by carrying forward the loss to later tax years.

[edit] History

The concept of taxing income is a modern innovation and presupposes several things: a money economy, reasonably accurate accounts, a common understanding of receipts, expenses and profits, and an orderly society with reliable records. For most of the history of civilization, these preconditions did not exist, and taxes were based on other factors. Taxes on wealth, social position, and ownership of the means of production (typically land and slaves) were all common. Practices such as tithing, or an offering of firstfruits, existed from ancient times, and can be regarded as a precursor of the income tax, but they lacked precision and certainly were not based on a concept of net increase.

In the year 10, Emperor Wang Mang of China instituted an unprecedented tax -- the income tax -- at the rate of 10 percent of profits, for professionals and skilled labor. (Previously, all Chinese taxes were either head tax or property tax.) Another income tax was implemented in Britain by William Pitt the Younger in his budget of December 1798 to pay for weapons and equipment in preparation for the Napoleonic wars. Pitt's new gradu.

Types

[edit] Personal

A personal or individual income tax is levied on the total income of the individual (with some deductions permitted). It is often collected on a pay-as-you-earn basis, with small corrections made soon after the end of the tax year. These corrections take one of two forms: payments to the government, for taxpayers who have not paid enough during the tax year; and tax refunds from the government for those who have overpaid. Income tax systems will often have deductions available that lessen the total tax liability by reducing total taxable income. They may allow losses from one type of income to be counted against another. For example, a loss on the stock market may be deducted against taxes paid on wages.

[edit] Corporate

Corporate tax refers to a direct tax levied by various jurisdictions on the profits made by companies or associations and often includes capital gains of a company. Earnings are generally considered gross revenue minus expenses. Corporate expenses that relate to capital expenditures are usually deducted in full (for example, trucks are fully deductible in the Canadian tax system, while a corporate sports car is only partly deductible). They are often deducted over the useful life of the asset purchase. Notably, accounting rules about deductible expenses and tax rules about deductible expense will differ at times, giving rise to book-tax differences. If the book-tax difference is carried over more than a year, it is referred to as a temporary difference, which then creates deferred tax assets and liabilities for the corporation, which are carried on the balance sheet.

See also: Excess profits tax, Windfall profits tax

[edit] Payroll

A payroll tax generally refers to two kinds of taxes. Taxes which employers are required to withhold from employees' pay, also known as withholding, Pay-As-You-Earn (PAYE) or Pay-As-You-Go (PAYG) tax. These withholdings contribute to repayment of an employee's personal income tax obligation; if the payments exceed this obligation, the employee may be eligible for a tax refund or carryforward to future periods.

Other group of payroll taxes are paid from the employer's own funds, either as a fixed charge per employee or as a percentage of each employee's pay. Payroll taxes often cover government social insurance programs such as social security, health care, unemployment, and disability. These payments do not count towards income taxes of employees and employers, but are normally deductible by the employers.

[edit] Inheritance

The inheritance tax, estate tax and death duty are the names given to various taxes which arise on the death of an individual. In international tax law, there is a distinction between an estate tax and an inheritance tax: the former taxes the personal representatives of the deceased, while the latter taxes the beneficiaries of the estate. However this distinction is not always respected. For example, the "inheritance tax" in the UK is a tax on personal representatives, and is therefore, strictly speaking, an estate tax.

[edit] Capital gains tax

A capital gains tax is the tax levied on the profit released upon the sale of a capital asset. In many cases, the amount of a capital gain is treated as income and subject to the marginal rate of income tax. However, in an inflationary environment, capital gains may be to some extent illusory: if prices in general have doubled in five years, then selling an asset for twice the price it was purchased for five years earlier represents no gain at all. Partly to compensate for such changes in the value of money over time, some jurisdictions, such as the United States, give a favorable capital gains tax rate based on the length of holding. European jurisdictions have a similar rate reduction to nil on certain property transactions that qualify for the participation exemption. In Canada, 20–50% of the gain is taxable income. In India, Short Term Capital Gains Tax (arising before 1 year) is 10% [15 % from F.Y 2008-09 as per Finance Act 2008] flat rate of the gains and Long Term Capital Gains Tax is nil for stocks & mutual fund units held 1 year or more, provided the sale of shares involved payment of Securities Transaction Tax and 20% for any other assets held 3 years or more.

[edit] Around the world

Income taxes are used in most countries around the world. The tax systems vary greatly and can be progressive, proportional, or regressive, depending on the type of tax. Comparison of tax rates around the world is a difficult and somewhat subjective enterprise. Tax laws in most countries are extremely complex, and tax burden falls differently on different groups in each country and sub-national unit. Of course, services provided by governments in return for taxation also vary, making comparisons all the more difficult.

[edit] Critique

Poorly created and unfairly implemented income tax systems can penalize work, discourage saving and investment, and hinder the competitiveness of business.[6] Income taxes are not border-adjustable; meaning the tax component embedded into products via taxes imposed on companies cannot be removed when exported to a foreign country (see Effect of taxes and subsidies on price). Taxation systems such as a national sales tax or value added tax remove the tax component when goods are exported and apply the tax component on imports.[7] The principles of an income tax are also argued by critics. Frank Chodorov wrote "... you come up with the fact that it gives the government a prior lien on all the property produced by its subjects." The government "unashamedly proclaims the doctrine of collectivized wealth. ... That which it does not take is a concession."[5]

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