ECON 4400 Lecture Notes - Tax Shelter

40 views10 pages

pucewildebeest131

9 Aug 2012

School

Department

Course

Professor

For unlimited access to Class Notes, a Class+ subscription is required.

Document Summary

Withdrawals: home buyers" plan, lifelong learning plan. Money contributed up to certain limits are deducted from taxable income. Interest and dividend income are earned within rrsp without tax being payable. If the maximum allowed rrsp contribution is not made, the amount is accumulated in an account called. Contributions can be made in a future year up to the amount in the unused rrsp deduction room . Allowed to contribute 18% of last year"s earned income into an rrsp (maximum of ,000 for 2009 year) These are contributions into an rrsp that have not been deducted on the taxpayer"s personal tax return. This is when a taxpayer puts more money into an. In addition to the regular rrsp contribution each year, there are some transfers into an rrsp which are allowed. These transfers are from: a registered pension plan, another rrsp, from a deferred profit sharing plan, from a retiring allowance (which includes unused sick leave)

Related Questions

Gross pay minus deductions, such as income taxes and Social Security contributions is known as your _____.

viridianwoodchuck348

You are considering joining a stokvel, which is a savings mechanism widely used in South Africa.
Different schemes have different objectives, but the general principle is that members of the stokvel
make a monthly contribution to a central fund which is used to cover unusual expenses (such as a
funeral), or pay a ‘windfall’ to the members on a rotational basis. It is a form of mutual financial
assistance, which can be viewed partly as insurance, partly as a savings mechanism and partly as
a means of building social cohesion.
You are mainly interested in the stokvel Mogodiso, which operates according to the rule that each
member contributes R150 per month. The money is banked in an account which receives monthly
interest payments of 0.75% per month. The members are paid out every two years only the sum of
their contributions (no interest), and they have the option of leaving the money in the stokvel.
Assume that you decide that you will leave the money in the stokvel, and withdraw the total amount
of your contributions after 10 years.
An alternative option for you is that you contribute R150 per month to your own savings account
which makes an interest payment of 0.75% per month.
Calculate the following, based on a period of 10 years:
a. What will be the value of your contributions to Mogodiso at the end of 10 years?
b. What will the future value be of your contributions to your savings account?
c. What is the value of the difference and who will get this money? Why might it be important
to you that you make this contribution?

magentafrog679

For the following questions, assume you face a 20 percent tax on ordinary income, but capital gains are taxed at a separate low rate of 10 percent. (Ignore phaseouts.)

a.) You buy a stock for $1000 in year 1. Its value rises to $1200 in year 2, and then you sell it for $1300 in year 3. (The stock pays no dividends.) Under U.S. tax rules, how do the stock trades change your tax payments in each of the three years? (Give numbers.)

b.) Under a genuine income tax how would the stock trades change your tax payments in each year? Explain the difference between your answers in (a) and (b).

c.) Suppose instead that your employer contributes $1000 to your company pension plan. Under U.S. tax rules, how does the contribution change your tax payments in year 1? Describe the rule you are using.

d.) After your employer contributes the $1000 to your pension plan in year 1, the value of this contribution again rises to $1200 in year 2, and then $1300 in year 3. You then withdraw the entire $1300. Under U.S. tax rules, how does the withdrawal change your tax payments in year 3? (Ignore penalties for early withdrawals.)

e.) If you had instead contributed the $1000 to a tradional IRA, and then withdrawn the $1300 in year 3, how would your tax payments change in years 1, 2, and 3?

f.) How would your answer to (e) change for a traditional IRA.

ECON 4400 Lecture Notes - Tax Shelter

Document Summary

Get access

Related Questions