Planit:Entering Zakat Tax Rebates Exercise Answer Key
Abdul Haqq and Maznita Omar want you as their financial advisor to plan for any tax benefits that would be available from their $1,812.50 (for the client) and $3665 (for the spouse) of zakat due.
Since the zakat is due for this year for their accumulated wealth, you can enter the zakat as a tax rebate based on the current tax system in your country.
1. First you will have to click on the Detail Cash Flow link
2. Expand the Taxes section to enter more data by clicking on the Plus sign.
3. In between the Taxes Payable and the Balance Due of the taxes, there is an editable field for Income Tax Deducted. This is where you will enter the amount of zakat being paid so that the full amount of the rebate is subtracted from the final taxes instead of the tax-liable income.
4. Under Client’s Income Tax Deducted enter the $1,812.50 of zakat due.
5. Under Spouse’s Income Tax Deducted enter the $3665 (or the shown value of Taxes Payable) of zakat due.
Note: Your client may have a higher zakat due than taxes payable. If the Income Tax Deducted is greater than the amount of Taxes Payable it will actually calculate a Tax Refund. Depending on the structure of income taxes in your country, if a refund would not be paid, enter the Income Tax Deducted as no more than the Taxes Payable, so it will calculate $0 in taxes due that year, without showing a refund.
6. Click Save so the taxes due for this year are re-calculated.
7. Click Back to return to the summary Cash Flow screen.
Note: The Taxes Paid at the summary level will still show the value for taxes payable as opposed to the final taxes due after the rebate. This is because the tax rebate is a one-time rebate and going forward higher level of income taxes payable will apply, rather than a higher lifestyle.