Choosing Someone To Do Tax Preparation

For most people, the tax season is a headache-inducing time of the year. Aside from the tons of computation that one has to do, an individual would also have to make sure that they fill their forms properly and have the needed attachment in place. Although this might be of little concern to people who are extremely organized with their records, the same cannot be said for majority of the people. This is where the help of a tax preparer such as the Karliner Tax Services provider comes into play.

When seeking the help of a tax preparer, a person has to consider a number of factors in mind, one of which is the preparer’s qualifications. With the release of the recent guidelines from the IRS, one has to keep in mind that they should only get a preparer who has been issued a Preparer Tax Identification Number, or PTIN. It is also a good idea to consider only a tax preparer who is affiliated with a relative professional organization and who makes sure that he or she does continued education. The last one is particularly important, as the preparer has to be aware of the different updates in the guidelines when it comes to tax preparation.

Once an individual has made a shortlist of possible tax preparer to hire, experts such as the Karliner Tax Services recommend checking into the person’s history. If possible, one should get a tax preparer who has not had any negative records at the Better Business Bureau. Aside from this, one should also look into the person’s licensure status as well as the presence of any disciplinary action. This can easily be coordinated with the state board of accountancy as well as state associations.

Everyone should be wary of tax preparers who claim to be able to help people take home a larger amount of refund. In the same manner, people should also stay away from tax preparers who charge fees based on how much refund a person is able to get. Under no circumstance should a tax preparer have the refund deposited to his or her account as the whole refund should go directly to the person.

If possible, one should go for a tax preparer who makes use of electronic filing. Aside from being a sign that the tax preparer is someone who is trusted by many, the use of electronic filing also lessens the probability of errors caused by human intervention. Electronic filing has also been proven to be one of the most secure ways of processing tax returns. 

In order to ensure that the tax preparer is able to do a good job of filing the tax returns properly, the client concerned would have to make sure that the tax preparer has the entire document he or she needs. This would include receipts, pay stubs, and W-2. One has to be wary of tax preparers who are willing to push through with the filing even before the client has received his or her copy of the W-2.

About the author: Laura Hoover is a former tax advisor who now takes various home-based gigs such as tax computation and consultation. She is currently thinking of getting back into the industry and get a job at a tax servicing company like Karliner Tax Sevices. 

The countries with the world’s top 5 highest income rates

With the globe still struggling to recover from the worst recession since World War II and elections occurring in Europe and the USA, taxes have once again become a hot topic of conversation as many countries propose further rises. But which countries currently have the highest income tax rates?

5. Japan, Belgium, Austria, UK (tied)
The top income tax rate for Japan, Belgium, Austria and the UK is 50%. As the only Asian country in the top 5 highest income tax rates in the world, Japan’s top tier rate of 50% is more than double Asia’s average of 23%. Despite this, its tax revenue is the fifth lowest amongst OECD member countries due to a rocketing national debt crisis.
Western Europe may have the highest income tax rates of any region in the world but Belgium’s highest tax rate is still 5% higher than the average. Belgians are lumped with the highest tax and social security burden, regardless of income, of any OECD member. Austria may frequently be ranked as one of the best places to live in the world but they are certainly taxed for the privilege! When the UK raised its top income tax rate to 50% in 2010 it leapt from the 13th to the 4th highest income tax rate in the European Union and was the biggest top-rate income tax hike in the world that year.

4. The Netherlands
At 52%, well above Western Europe’s average of 45.7%, The Netherlands’ top income tax bracket is undoubtedly high but it does help to pay for a wealth of benefits. The Dutch enjoy reimbursements of up to 70% on childcare, subsidies on children’s books, money towards holidays which amounts to 8% of an individual’s salary, and free medical care.

3. Denmark
Denmark’s income tax rate for its top band of wage earners may have come down from 62.3% in an economy-boosting drive in 2008 but it is still 55.4%, making it the third highest rate in Western Europe. However, these tax cuts have also decreased the tax and social security burden on single taxpayers.

2. Sweden
At 55.6%, Sweden’s top income tax rate is higher than any other Scandinavian country and the second highest in the world. However, its taxes fund an incredibly generous social security system - Sweden spends more of its GDP on social services than any other country in the world - which allows Swedes to enjoy free education, subsidised healthcare and public transport, and a government-guaranteed pension.

1. Aruba
Not many would guess that the country with the highest income tax in the world is Aruba. The tiny Dutch territory in the Caribbean has a top tier income tax rate of 59%, far higher than the Caribbean average of 26.7% and astronomically higher than the Bahamas, Bermuda and the Cayman Islands which have no income tax at all. However, the island also boasts one of the highest standards of living in the Caribbean.

Aruba may not stay at the top spot for much longer if the newly elected French president Francois Holland has his way. To help pay off the country’s crippling debt, Holland is proposing to raise the income tax rate on the wealthiest (those who earn over €1 million) from the current 48% to a whopping 75%!

This articles is provided by My Refund, the New Zealand registered tax agent www.myrefund.co.nz

Overview of the Indian Tax System

The Indian tax system can be very complex, but for a clearer understanding, we can break it down into simple elements that make up one’s personal income:

a) Salary from an Employer.

b) Rental (house property) income

c) Capital gains (gain or losses made by the buying and selling of Shares and other capital assets)

d) Business income – income earned as a professional or as a partner in a firm.

e) Other sources of income such as interest and dividends.

Put all these incomes together and you get your Gross Total Income. It is called “gross” total income because you can reduce this income by various schemes available. These are called Tax Deductions. You can reduce your tax liability by investing in either of the following tax deductions:

a)  Invest money into a Provident Fund account

b) Investing a term deposit (FD) for 5 years

c) Paying premium of life insurance policy for yourself, your spouse and your children.

d) Repaying the principal component of a home loan.
e) Paying the Tuition Fees for the education of your children.


The above tax deductions can help you reduce your taxable income by upto Rs 100000 under Section 80c of the Indian Income Tax Act.

There are other tax deductions which are applied when you pay premiums of a mediclaim policy or when you give donations to recognized charitable organizations or when you pay the interest of an education loan, amongst several others that help you further reduce your taxable income.

After the tax deductions have been applied we arrive at your Total Income. We can then calculate your tax liability as per the following tax slabs:

There are basic exemptions limits on which you pay no tax. Any income over these limits is then taxed at different rates listed below:

For the assessment year 2012-2013, the basic exemption limits are:
Rs. 180000 for men, Rs. 190000 for women and Rs. 250000 for senior citizens

All Income Over the basic exemption limit but below Rs. 500000 will be taxed at 10%.

Income over Rs. 500000 but below Rs. 800000 will be taxed at 20%.
and lastly,
Income over Rs. 800000 and above is charged at 30%.

Once your tax liability is determined, all your tax credits such as TDS, advance taxes and self assessment taxes are deducted from your liability to get to a final grand total of the possible taxes that you may pay or get refunded.

Working Example:

A Male, aged 45 with a Salary Income of Rs. 250000 and Interest Income of Rs. 50000, a Rs. 5000 Investment in Employee Provident Fund and a total TDS of Rs. 5000 in the assessment year 2012-2013 will be taxed as follows:

Gross Total Income: Rs. 250000 + Rs. 50000 = Rs. 300000
Tax Deduction: Rs. 5000 (Investment in EPF)
Total Income: Rs. 295000
Basic Tax Exemption: Rs. 180000
So you have to now pay Tax on Rs. 115000 @ 10% = Rs. 11500
But you have already paid TDS of Rs. 5000, which is deducted from Rs. 11500 to arrive at a final tax figure of Rs. 6500 + Surcharge + Education Cess which is payable as your final tax liability.

The above article has especially written for Finance Buzz on Tax system in India by Aashish Ramchand, a Chartered Accountant by profession and Co-Founder of Make My Returns (www.makemyreturns.com)

Tax Saving Tips

Nothing is certain but death and taxes. The time of the year has come to think about your taxes for the last financial year. If you are a first timer in paying income tax,

But do you really give a thought while investing for the purpose of tax-saving? The Income Tax law is complicated due to the variety of cases it needs to cover, but even for seasoned professionals certain aspects of Income tax laws are confusing or not knowledgeable. Here are some tips which might be helpful for some extra saving of tax:

1) Get insured but with a caveat: With the new DTC proposal, all life insurance policies whose sum assured is greater than 20 times the annual premium, the maturity proceeds are taxable as normal income. So if you are trying to buy any life insurance policies just to save tax, be aware to have annual premium less than 5% of sum assured. This does not apply to term insurance though, since there is no maturity proceeds.

2) Use losses in stocks to save tax: Short-term capital losses can be set off against both short-term as well as long-term capital gains. This is something most people often miss, especially for salaried employees who do not seem to account the stock losses in the IT-declaration proof submission to the employer.

3) Pay rent to your parents if you stay with them: If you stay in a house owned by your parents (or even spouse) and if their income is not significant (especially true to senior citizen parents), then you can pay them rent which can be used to save against HRA. The person receiving the rent has to pay taxes though if the income exceeds the stipulated amount.

4) Use alternate LTA claims: Typically LTA claims can be taken only once in two years. So if you & your spouse both are working, you can decide to alternately claim the LTA benefit with your respective employers.

5) Give loans to your children: If you give a lump-sum amount to your major children as loan (interest-free), you can avail of the tax-benefit since no income or gift tax is applicable on such a loan. This is similar as giving them a gift, the difference would be that when you gift the ownership of the money gets transferred to your children.

Infrastructure bonds not really tax-free

In my office there was a lot of hype over investment in the IDFC Infrastructure bonds which were recently issued. These were considered as a great investment vehicle by most of the websites/media channels, goading the retail public to take part in the issue.

I felt that the biggest mis-information regarding these infrastructure bonds is the notion of it being tax-free. Also the problem is compounded by the introduction of section 80CCF in the IT Act by the government which allowed additional window of tax deduction of investments upto Rs 20,000.

But as I mentioned earlier that there are lot of caveats to investing in these infrastructure bonds.  The biggest confusion most retail investors have is that the bonds are tax-free, but they are not. The interest received from these bonds are actually taxable and it has been mentioned in the prospectus of the IDFC Infrastructure bond[PDF] as well (check page 29). The current IT Act does not exempt the interest earned through these infrastructure bonds although the tax at source (TDS) is NOT deducted. 

The 20,000 Rs additional tax deduction window is too small for any significant benefit. So if you fall in the highest bracket you save at the most Rs 6K a year. The interest earned by you at the rate of 7.5% to 8% will get lower after you include the interest in your taxable income and pay tax on it.

Also most investor think that investment in these bonds is as secure as a fixed deposit, but in-fact these are not as secure. The investors should visit the Risk Factors (Page 46) in the PDF to become aware of the risk in these investments.

I suggested in my earlier post to wait before investment and now I would suggest to invest only if you want to diversify your portfolio to include these bonds, otherwise I would suggest an equivalent investment in mutual funds (higher risk appetite) or in gold (higher gains with lower risks) since these avenues are much better than infrastructure bonds in the current form.

UPDATE: The tax-free bonds typically signify that the investment amount can be used against tax reduction, but I feel that it creates a confusion and should only be applied to EEE type of investments.