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Case for partner ship
A taxpayer is partner in corporation
own 40% of capital and has
monthly salary 2500 NIS for
managing, he is married and has
three sons one of them study in
the university with certificate and
others are school age.
The taxpayer lives with his father
and mother and take care of
them, he lives in a rent house 500
NIS monthly.
The operation result for the
corporation as follow: gains and
expenses
Dollar = 4 NIS
Dr
Cr
Purchase
250000
Sales
525000
Begging
inventory
125000
Ending
inventory
60000
Sales
expenses
17500
Managerial
expenses
7500
Salary for
partners
50%
60000
Furniture
depreciation
7500
Rent
7500
Sales
Cost of goods sold
525000
315000
Purchases
250000
Begging inventory
125000
Ending inventory
60000
Gross income
Deductions
210000
102500
Managerial expense
7500
Sales expense
17500
Furniture depreciation
10000
Rent
7500
Salary for two partners
60000
Net revenue
107500
Total revenue for partner
107500*40% = 43000
Total income for taxpayer
43000+ 30000 salary (2500*12)= 73000
Annual income
73000/4= 18250$
Exemptions
9500$
Resident
3000$
Wife
500$
Son *2
1000$
University student
2500$
Father and mother
1000$
Rent house 500*12/4
1500$
Taxable income
Paid income tax
8750
8750*8% =700$
Assume the given information for sharing
company !
What is the main difference?
The same situation without exemptions
Total revenue 107500/4 = 26875$
26875*15% =4031 income tax
Net income after income tax= 26875- 4031
=22844$ *40% share for the partner =9137$
Administrative appeals
A taxpayer who does not agree with the agent's (tax officer) report may
request a meeting with agent administrative tax office within 30 days by
written message, or he will lose the opportunity to do the appeal.
The administrative appeal process allows taxpayers one additional
opportunity to reach settlement before resorting to the courts.
Note that both taxpayer and tax officer do not want reach the litigation. !
Why?
- Taxpayer do not pay tax amount according to the law, and he want to
pay the lowest tax payment, he is very weak because of not holding
regular documents.
-
Tax officer want to reach for arrangement point (adjustment) to pay the
tax payment (sensible to tax officer) because the litigation will take a
long time (one year at least) and that will inhibit providing the public
treasury for the ministry of finance.
Important note:
Since the year 1967 tell now we have no litigation case for income tax !!!
But for VAT and CUSTOMS we have several cases.
• Tax evasion
• Tax avoidance
• Tax planning and strategy
What is the main difference between them?
Tax evasion is illegal work and that stands by offering wrong information
and phoney documents to pay less payment of the accrued tax.
That will cause criminal liability to tax payer.
Tax avoidance is legal work by following the procedures of income tax law
and get the best and largest of deductions and exemptions by
searching for the way that make the tax payment very little.
it is important to say that tax avoidance is accepted by the tax officer to
inhibit illegal tax evasion.
To reach the tax avoidance which is legal operation, every taxpayer must
think about the way and the most suitable condition for the project type
Trading or service or industrial project , …..
Every type has different key way for making the best legal tax avoidance.
Tax planning and strategy
Tax planning and strategy is a smart operation for all taxpayers and
business managers, so every taxpayer must know the best way of
exploitation for the situation of investment, for example:
-
Take the advantage of deduction and exemption
Know the timing of cash flow which leads taxpayer to higher tax
payment according to tax slides (1- 10000)X 8%, (10001- 16000)X12%,
(more 16000)X16%.
Offer one tax report (self assessment) for husband and wife if both of
them have separated income, that accepted by tax law
-
-
The right selection for the legal entity for the firm or company, individual
or partner or corporation, … association
Make the best benefit from expenses of medication , traveling, training,
or by new fixed assets.
* The benefit from the tax planning is a continuous operation round the
time for the project to compare between several decision making:
1- buy an asset or rental one, which is better? from the tax low's point of
view. ?
2- cash sales or credit sales or premium. The effect on cash flow.
3- buy fixed assets by loan or new partner or new shares !!!
What is your opinion about tax avoidance !!??
Income Tax concepts:
General Concepts
- Ability to pay concept
- Administrative convenience concept
- Arm's – length transaction concept
- Pay – as – you – go concept
Accounting concepts
- Entity concept
- Annual accounting period concept
Income concepts
- All – inclusive income concept
- Legislative grace concept
- Capital recovery concept
- Realization concept
- Wherewithal – to – pay concept
Deduction concepts
- Legislative concept
- Business purpose concept
- Capital recovery concept
Tax characteristics:
1- Imposed obligatory (not selection process)
2- Imposed by the government for all individuals, partners, corporations.
3- imposed pursuant legislative law.
4- special benefits and services or privileges are not receive as a result of
making the payment.
5- paid cash.
6- paid by regular amounts (periodic) annually, monthly or once only like
wealth tax
7- the payment of tax is ultimately (not available to restore it any way)
The importance of taxes:
1- Raising the revenue to be used for public or governmental purpose.
2- The social effect of taxation
- by making the redistribution of large income for poor people (people
without income)
- Imposing large taxes for unfavorable activities (cigarette, alcohol)
** Note the revenue of these activities are very large when comparing with other revenues.
3- The economic effect of taxation
- Make balancing for the prices.
- Controlling the inflation and local currency.
- Markdown prices in case of recession and unemployment
- Provide some projects with taxation facilities to hire labor and local
industries.
4- protect the local industries by imposing large customs for import
merchandise which has competitor local products to inhibit or reduce it.
The following are some products or goods, give your
comment according the effect of taxation.
- Grandiose cars
- Local clothes
- Local soft drinks (cola , Meca cola, ….)
Gaza and west bank.
- Transporting cars (for service or goods)
- White Paper and cleaning paper
- Plastic products
- Fruits ( Baitlahia, West bank, Israel )
- Mobiles