Income Tax Paid Bookkeeping Question

by Sundaravalli
(ChennaI)

Income Tax Paid Bookkeeping Question

Income Tax Paid Bookkeeping Question

How to account for the income tax paid by the limited Company?

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Aug 24, 2023
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starstarstarstarstar 		Limited Company Income Tax
by: BB

Accounting for income tax paid by a limited company involves recognizing both the income tax expense and the payment of the tax liability. Here's a general outline of how it can be done:

Recording Income Tax Expense: During the year, a company will usually accrue income tax expense based on its taxable profits. This is recorded in the income statement as an expense.

Journal Entry:

Debit (increase) Income Tax Expense
Credit (increase) Income Tax Payable (a liability account)

Paying the Income Tax: When the company actually pays the tax to the tax authority, it will decrease its liability and cash or bank balance.

Journal Entry:

Debit (decrease) Income Tax Payable (a liability account)
Credit (decrease) Cash or Bank (an asset account)

Please note that tax accounting can be a complex subject, and it may be governed by specific regulations and accounting standards in your jurisdiction. Consulting with a tax professional or accountant familiar with the local laws would be advisable.

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Income Tax Scrutiny

Dear Sir, Our company has accepted an amount of 20,000 Rs per day for five days (totaling 100,000 Rs) from a party, against a loan given to the party. The case is now under scrutiny by the tax department, and they are asking for an explanation on this matter. How will the department treat this issue? Regards, Manoj Rathod

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Aug 24, 2023
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starstarstarstarstar 		Income Tax Cash Payment
by: BB

The acceptance of cash payments above a certain threshold may be subject to scrutiny and regulation under various tax laws, depending on the jurisdiction. In India, for instance, accepting a loan or deposit in cash exceeding 20,000 Rs might violate Section 269SS of the Income Tax Act.

The tax department may seek to understand the nature of the transaction, the relationship between the parties, the purpose of the loan, and compliance with the relevant laws and regulations. Penalties could be levied for non-compliance with the laws.

It would be wise to consult with a tax professional or legal advisor in your jurisdiction, who is familiar with the specific circumstances of the case, to ensure the proper response to the tax department's inquiry.

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Income Tax Dependency Claim

by Diana
(Fort Worth TX)

I just turned 18. I've been living with my boyfriend. Can he claim me on his income tax?

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Aug 24, 2023
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starstarstarstarstar 		Dependent Income Tax
by: BB

It's possible for someone to claim another person as a dependent on their income tax return, but specific criteria must be met. In the U.S., the IRS has specific rules to determine if someone can be claimed as a dependent.

For your boyfriend to claim you as a dependent, these general conditions typically must be met:

Relationship: You must live with him as a member of his household for the entire year or be related to him.

Age: There are no specific age requirements for claiming a non-relative as a dependent.

Income: You must not have provided more than half of your own support, and your gross income must be under a certain threshold.

No one else must be claiming you: If you can be claimed as a dependent by a parent or anyone else, then your boyfriend can't claim you.

It's crucial to consult with a tax professional or the IRS guidelines for the specific details and to ensure compliance with the current tax laws. These rules can be complex, and your individual situation may have additional factors to consider.

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Income Tax Exemption

by Divya
(Gurgaon)

I want to know that if a person is residing in her own house and showing the office that she is paying rent to his father-in-law. In that case exemption is allowed for House rent.

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Oct 13, 2023
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starstarstarstarstar 		House Rent Exemption
by: BB

House Rent Exemption Rules
Firstly, house rent exemption (HRA) rules can vary by jurisdiction. Generally, to claim HRA, you need a formal lease agreement and should actually be making rent payments. Simply showing that you're paying rent on paper might not be sufficient and could be considered fraudulent.

Verify Your Situation
If you're living in your own home but your office records show you're paying rent to your father-in-law, you should consult a tax advisor or legal expert to ensure you're complying with the law.

Steps to Take
Consult a Tax Advisor: Discuss your specific situation to find out whether claiming HRA in this scenario is lawful.

Get a Lease Agreement: If advised, formalize your rent payments to your father-in-law with a legal lease agreement.

Make Actual Payments: To legitimately claim HRA, make sure to actually transfer the rent money to your father-in-law, and keep records.

Submit Documentation: Provide all necessary documents to your office's accounting department to correctly claim HRA.

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Income Tax On Salary

by sameed
(hyderabad, india)

I have salaried employee with 4 lakhs taxable income. I have completed paid my income tax through company TDS. Nothing is pending to pay tax. I have profit of 10000 on short term shares.
How much do i need to pay tax?

Is it flat 15% on 10000 rupees (sec 111A of income tax)? Or is it I need to pay tax for 4lakhs + 10000 rupees? As income tax slab rate applicable?

Please clarify.

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Oct 13, 2023
Rating
starstarstarstarstar 		Short Term Share Profits
by: BB

Tax queries can be a maze, and when you mix salary with short-term share profits, things can get confusing. So, let's demystify the tax you'd owe on a ₹10,000 short-term share profit if you're already a salaried individual with ₹4 lakhs of taxable income.

Scenario Breakdown
You've got a taxable income of ₹4 lakhs from your salary and your tax is fully paid through your company's TDS (Tax Deducted at Source). That's one part sorted! Now, you have also made a short-term profit of ₹10,000 from shares.

Tax on Short-Term Share Profits
Under Section 111A of the Income Tax Act in India, the tax rate for short-term capital gains from equity shares is a flat 15%. This would mean a tax of ₹1,500 (15% of ₹10,000).

How It Adds Up
Now, do you add this ₹10,000 to your ₹4 lakhs and pay tax as per your income slab? No. The short-term capital gains tax is separate and it's a flat rate, not dependent on your income slab.

So in this scenario, you'd just need to pay a flat 15% on your ₹10,000 short-term share profits, which amounts to ₹1,500.

Quick Steps for Filing
Calculate Your Capital Gains: You've already done this and it's ₹10,000.

Apply the Tax Rate: 15% of ₹10,000 equals ₹1,500.

Make the Payment: Pay this additional tax when you file your income tax returns.

Report in ITR: Make sure to report this in your Income Tax Return under the appropriate section for short-term capital gains.

In Summary
You don't need to worry about your income slab rate for this one. Just a flat 15% on the ₹10,000, which is ₹1,500, and you're sorted!
Oct 13, 2023
Rating
starstarstarstarstar 		Short Term Share Profits
by: BB

Tax queries can be a maze, and when you mix salary with short-term share profits, things can get confusing. So, let's demystify the tax you'd owe on a ₹10,000 short-term share profit if you're already a salaried individual with ₹4 lakhs of taxable income.

Scenario Breakdown
You've got a taxable income of ₹4 lakhs from your salary and your tax is fully paid through your company's TDS (Tax Deducted at Source). That's one part sorted! Now, you have also made a short-term profit of ₹10,000 from shares.

Tax on Short-Term Share Profits
Under Section 111A of the Income Tax Act in India, the tax rate for short-term capital gains from equity shares is a flat 15%. This would mean a tax of ₹1,500 (15% of ₹10,000).

How It Adds Up
Now, do you add this ₹10,000 to your ₹4 lakhs and pay tax as per your income slab? No. The short-term capital gains tax is separate and it's a flat rate, not dependent on your income slab.

So in this scenario, you'd just need to pay a flat 15% on your ₹10,000 short-term share profits, which amounts to ₹1,500.

Quick Steps for Filing
Calculate Your Capital Gains: You've already done this and it's ₹10,000.

Apply the Tax Rate: 15% of ₹10,000 equals ₹1,500.

Make the Payment: Pay this additional tax when you file your income tax returns.

Report in ITR: Make sure to report this in your Income Tax Return under the appropriate section for short-term capital gains.

In Summary
You don't need to worry about your income slab rate for this one. Just a flat 15% on the ₹10,000, which is ₹1,500, and you're sorted!

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Related To Service Tax

by deepak
(panjab)

I'm an Indian working in India. I'm earning about 90000 Rs by giving advice to people where to invest in shares and commodities, my fee is below 20000 Rs from one person. Is there any service tax liability towards me? Currently I'm not taking any service tax from my clients. Kindly answer.

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Oct 13, 2023
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starstarstarstarstar 		Service Tax GST
by: BB

Earning from advising people on investments is a lucrative field, but it does come with its tax implications. Let's dive into your specific case—you're an Indian national working in India, earning ₹90,000 by providing investment advice in shares and commodities.

Is Service Tax Applicable?
Service Tax in India has been replaced by the Goods and Services Tax (GST) as of July 1, 2017. Under the GST regime, if you are providing a service, you're generally required to collect GST from your clients.

GST Registration Threshold
The current threshold for GST registration is ₹20 lakhs in aggregate annual turnover. If you're earning ₹90,000, you're well below this limit. So, based on this criterion, you're not obligated to register for GST or collect it from your clients.

Service-Specific Clauses
However, it's essential to look at specific provisions applicable to the type of service you're providing, which in this case is financial advisory. The standard GST rate for financial services is 18%, but specific exemptions and rules can apply. Always consult with a tax advisor to ensure compliance with the latest regulations.

What Should You Do Next?
Monitor Your Earnings: Keep an eye on your annual turnover. If it reaches near the ₹20 lakh mark, you will need to register for GST.

Consult a Tax Advisor: Laws can change, and sector-specific rules may apply. Consult a tax advisor to be sure of your obligations.

Keep Records: Regardless of your tax liability, keep thorough records of all transactions, as you may need these for income tax purposes.

Summing Up
As of now, with an income of ₹90,000, you are not required to collect GST from your clients. But always keep an eye on your turnover and stay updated with tax norms.

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Reporting Prize Incentive Earnings

I am trying to prepare my 1099's in QuickBooks and I need to include the value of the prizes/awards that my vendors received.

Should I use a journal entry? What can I do to have these amounts calculated in the 1099 misc. non-employee comp?

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Oct 13, 2023
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starstarstarstarstar 		QuickBooks 1099 Miscellaneous
by: BB

Preparing 1099s can sometimes feel like navigating a maze, especially when you have unique items like prizes and awards to include for vendors. Don't fret, I've been through this, and I have a straightforward approach for you to tackle this issue in QuickBooks.

Journal Entry: Yes or No?
A journal entry can certainly help you accurately allocate the value of prizes or awards, but it's crucial that you link the entry to the appropriate accounts. If done right, this will ensure that the amounts are correctly reflected on the 1099-MISC forms for non-employee compensation.

Here's How to Do It
Make a Journal Entry: Navigate to the 'Journal Entry' section in QuickBooks.

Debit and Credit:

Debit an expense account to show that you've incurred an expense for the prizes or awards.
Credit the same amount to a liability account like 'Accounts Payable' and associate it with the vendor.
Link to Vendor: Make sure the vendor's name is indicated in the 'Name' column of the credit line.

Review 1099-MISC Forms: Check the 1099-MISC forms in QuickBooks to confirm that the amount has been added to the non-employee compensation box. If not, you may need to manually map the expense account to the 1099-MISC form in the 'Prepare 1099s' settings.

Verify Information: Before filing, make sure the total amounts are accurate, and the vendor's tax ID and address are correct.

Final Thoughts
In summary, using a journal entry can work well, but you need to be cautious about linking everything correctly. That way, you can be confident that your 1099-MISC forms will reflect the accurate amounts, including prizes and awards.

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Tax Problem

by mandeep
(mumbai)

I want to buy an Audi A4 which cost 30 lakh rupees. Is it ok if I give them a check of 30lakhs and pick the car? I have cash saved up.

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Oct 13, 2023
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starstarstarstarstar 		Audi Car Purchase
by: BB

Planning to buy an Audi A4 is quite exciting, especially when you have the funds ready to go. But before you write that ₹30 lakh check and speed off in your new ride, there are some crucial points to consider.

Legality and Documentation
First and foremost, make sure that buying a car of this value with a check is legally compliant. In many countries, high-value transactions need to adhere to specific financial regulations to prevent money laundering or fraud.

Dealer's Policy
Different dealers have different policies. It's a good idea to call the dealer ahead of time and confirm that they accept personal checks for such a large amount.

Funds Availability
Ensure that your account has sufficient funds to cover the check and that those funds are readily available. A bounced check could result in legal troubles and damage your credibility.

Verification and Clearance
Be prepared for the dealer to take some time to verify the funds, which means you may not get to drive your Audi off the lot immediately. Check clearance can take anywhere from a day to a week, depending on the financial institutions involved.

Alternatives to Consider
Banker’s Draft: More secure than a personal check and usually clears more quickly.
Wire Transfer: Direct and immediate but check for any associated fees.
Summary
Yes, you can buy your Audi A4 with a ₹30 lakh check, but make sure to:

Confirm the dealer’s acceptance policy.
Ensure funds are available.
Be patient for fund verification and clearance.

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Taxable Income

Received 3 separate checks for a lawsuit against my previous employer for back wages for overtime. 1 was for overtime wages...1 was a settlement check and 1 was for 1% of the total lawsuit because there were other people involved and I got a finder's fee.... are all of these checks taxable?

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Oct 13, 2023
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starstarstarstarstar 		Overtime Wages Lawsuit
by: BB

Receiving multiple checks from a lawsuit can be both a relief and a bit confusing, especially when it comes to taxes. I've been through a few similar scenarios with my clients, and I can offer some general guidelines. However, keep in mind that you should consult with a tax professional for advice tailored to your specific circumstances.

Overtime Wages
Generally, the amount you receive as back wages for overtime is considered taxable income. It should be reported on your income tax return, and you can expect taxes like Social Security and Medicare to be applicable.

Settlement Check
Settlement checks are often also taxable, depending on the nature of the settlement. If the settlement is for lost wages or emotional distress, it's usually considered taxable income.

Finder's Fee
The 1% finder's fee is most likely taxable as well. This would be considered income and should be reported on your tax return.

Exceptions & Considerations
Legal Fees: You may be able to deduct legal fees incurred during this lawsuit. The tax rules around this are specific, so consult a tax advisor.

Form 1099-MISC: You might receive this form from the entity that paid you the settlement or finder's fee, and it's important for your tax preparation.

Tax Withholding: Sometimes, a portion of taxes is already withheld from these checks. Ensure you receive the appropriate tax documents that detail any withholding.

Summary
In most cases, all three types of checks — overtime wages, settlement, and finder's fee — are considered taxable income.

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Income Taxes Child Claims

Who can and who cannot file for a child?

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Oct 13, 2023
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starstarstarstarstar 		Claiming Child on Income Taxes
by: BB

Who Can File for a Child?
Biological or Adoptive Parents
The most straightforward scenario. If you're the biological or adoptive parent and the child lives with you for more than half the year, you're generally eligible.

Legal Guardians
If you have legal custody of the child, you can often claim them on your taxes.

Divorced or Separated Parents
Usually, the custodial parent (the one the child lives with the most) claims the child. However, non-custodial parents can sometimes claim the child if there's a written agreement.

Stepparents
You can claim your stepchild if they lived with you for more than half the year and you provided over half of their support.

Who Cannot File for a Child?
Non-Relatives
Friends or neighbors who take care of a child cannot claim them on their taxes unless they legally adopt the child or become legal guardians.

Short-Term Caregivers
Even if you've taken care of a child temporarily, you generally can't claim them unless they lived with you for more than half the year.

Parents Without Custody
If you're a non-custodial parent without a written agreement, it's likely you can't claim the child.

Multiple People
Only one person can claim the same child. If you're part of a complex family situation, make sure everyone is on the same page to avoid any IRS complications.

Summary
Eligibility to claim a child on your taxes is generally determined by your relationship to the child, the amount of time the child lives with you, and whether you provide financial support.

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