A tax computation is a statement showing the tax adjustments to the accounting profit to arrive at the income that is chargeable to tax (“Preparing a tax computation”, n.d.
). According to the Income Tax Act 1961, every salaried person has to pay a certain sum of their salary amount as a tax to the country (PolicyBazaar, 2017). Based on the tax computation which has been calculated, Madam D need to pay tax amounted RM 601 per year. This mean RM 601 will be deducted from her salary every year. Madam D is a married woman with no child and lives together with her husband. But they filing a separate married return. This means each spouse is only responsible for the accuracy of his or her own separate tax return and for the payment of any separate tax liability associated with it.
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But married taxpayers who file separately lose their eligibility for quite a few tax deductions and credits, and they often pay higher tax rates. In other situations, filing separately can be advantageous for each spouse. Based on Madam D situations, Madam D can reduce her tax by remaining to file separately. Madam D can reduce her tax payable by stick with filing separately and pay any taxes that are due on her own income. This means that she responsible only for the accuracy of her own tax return if she audited and filed separately. If she filed separately, she only has to pay the taxes due on that return on income that she personally earned. There are some benefits that she can get if she filed separately. For example, in medical expenses deduction.
All taxpayer can deduct qualified medical expenses that exceed 7.5% of their adjusted gross income for 2017 and 2018. For example, if Madam D paid RM 10 000 in medical expenses in 2017, and she earned RM 25 000 while her spouse earned RM 75 000. In this case, if Madam D filing a joint return, she just can deduct amounted RM 2 500 for medical expense. But if she filing separately, she will get RM 8 125 medical expense deduction. Other than that, Madam D also have to reduce her income first if she wants to reduce her tax payment. The more money we make, the more taxes that we need to pay. The less money we make, the less taxes we will pay.
To reduce income, Madam D can donate to charity. If she make charitable contributions of up to 60% of her adjusted income, it can be deducted if you itemize it. The charitable contribution will deducted in income.
The charitable contribution that she make will reduce the amount adjusted gross income and also the taxes that she need to pay.Tax payment also can be reduce by your deductions and exemptions. Some people can arrange their deductions and almost everyone can make a deduction.
For example, Madam D can make deduction such expenses for health care, state and local taxes, personal property taxes (car registered fees), gift to charity and job-related expenses. Madam D also have to keep of her expenses throughout the year using a spreadsheet. From that, she can compare the itemized expenses with standard deduction. Taxpayer should always take the higher of the standard deduction.Madam D also can choose filing jointly to reduce her tax payment. This mean both of the spouse have a responsibility for the taxes and interest or penalties due on the return.
Other than, both of the spouse also have to be responsible for any underpayment of tax that might due later. In this file, if one spouse does not pay the tax due, then the other might have to pay the tax. Filing jointly will work effectively when one spouse has a higher income than the other. This is to capture the lowest rates. For example, if Madam D making RM 50 000 and her spouse earning RM 15 000.
Based on tax calculation, they will pay a higher rate on their incomes if they filed separately. The spouse with a higher income will pay 25% while the partner would pay 15%. Their combined income of RM 65 000 would stay in the 15% bracket, while the first RM 18 650 would be taxed at 10%.
This will happen when they filed jointly. But if they each filed separately, they both would hit the 15% bracket at RM 9 326. This show when on a combined basis, we can pay less in the total income taxes.
Madam D can choose any of the ways to reduce that suitable with her status. It depends on her condition and also her spouse. To find out the best and suitable way to use whether file jointly or file separately, she can prepare the return tax both ways. After that, he may determine the appropriate method for her and her spouse and may allow her to pay taxes at a low rate.