The Tax Formula – Calculating Income Tax
An early start in your tax and financial planning will Canadian taxpayers to save money that later serves to invest wisely. Learning about tax credit opportunities in the beginning of the year as part of your financial planning can make you save money later on.
Gross Income: The calculation of taxable income begins with gross income. Gross income includes ALL income, unless the tax law provides for a specific exclusion.
Deductions for Adjusted Gross Income: The first category of deductions includes the deductions for AGI. These deductions include student loan interest, a tuition and fees deduction, certain educator expenses, alimony payments, trade or business expenses, certain reimbursed employee business expenses paid under an accountable plan, moving expenses, the penalty on early withdrawal from savings, and contributions to qualified retirement plans. I am not going to go into detail about these deductions however if I can provide more detail in a later hub if enough people request it.
Adjusted Gross Income: The amount of adjusted gross income is sometimes referred to as the "magic line", since it is the basis for several deduction limitations. For example, the limitation on medical expenses is one. A tax payer's AGI is used to determine the phase-out of the otherwise allowable itemized deductions and personal dependency exemption amounts.
The second question is what can be done to protect the refund should an individual file for bankruptcy. Once the debtor's interests or assets become property of the estate, the debtor may claim certain exemptions protecting that property. One specific exemption that may apply in California is the "wild card" should a bankruptcy debtor choose the California (bankruptcy only) exemption statute. In this case, a debtor can exempt any property in the amount of $1,100 plus any portion or a residence or burial plot (around $20,000).
Thus, while in our situation (person filing for taxes in January 2011), the entire tax return for 2010 becomes property of the estate and subject to turnover to the trustee, it is possible, and potentially likely, that the property will remain with the individual through the use of statutory bankruptcy exemptions. Bankruptcy planning comes into play again and the use of exemptions determines what someone can keep and what they cannot.
Managing and building personal wealth is very important and can start with this excellent tax and financial planning strategy. Having the funds available for investment purposes it's often a challenge but participating in a tax saving program like Mission Life Financial could be the mean of freeing capital or cash that otherwise is not available.
Donating, recovering your hard-earned income, and invest; again and again, year after year, it's very simple and an easy strategy to do. If I have been able to do it, any Canadian taxpayer can do the same. It is not rocket science. It is decision taking action.
Harris Smith is a writer on personal finance education. Her article tackles the pros and cons of home equity line of credit See your Debt Consolidation savings online in minutes and learn about your debt relief options
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