Accounts-taxation

By Author: Niharika
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INTRODUCTION TO ACCOUNT TAXATION?

Tax accounting is the subsector of accounting that deals with the preparation of tax returns and tax payments. Tax accounting is used by individuals, businesses, corporations, and other entities. Tax accounting for an individual focuses on income, qualifying deductions, donations, and any investment gains or losses.

BENEFITS OF ACCOUNTS -TAXATION:

Tax Advantage is the investment or saving plan that provides tax exemption, deferred tax, and other tax benefits. Examples include Government bonds, Annuities, Retirement Plans, and other investment plans authorized by the country & Tax Department that provide benefits in terms of taxes.

TYPES OF TAX-ADVANTAGED ACCOUNTS:

• Pre-Tax Investment Accounts (Deferred Tax) –

These investments delay your taxes for a later date in the future until the investment provides gains and funds are withdrawn from investments.

• After-Tax Investment Accounts –

The tax you already paid contributes to this account. Gains/earnings ...
... from these accounts will not have any taxes applicable up to a certain limit.

• Pre-Tax Accounts –

In the U.S Traditional 401(k), 403(b), and 457(b) is mostly used employer-sponsored saving plans; most of these plans are funded by an employee, while certain employers provide a matching contribution in these accounts.

• 401(k) –

Most business organizations offer this plan. The employee selects their contribution up to certain limits with various investment options, mainly based on the tax-deferred principle. Some employers also contribute a matching amount to this fund. Yearly employees can contribute up to $19,000 to this account, while employees above 50 can contribute an additional $6,000.

The amount of employees invested in this account is safe even if the employee leaves an organization; upon new employment, the employee will have the option of switching or staying with the old plan. Up to the age of 70, an individual can eventually invest and keep their money in these accounts after they need to withdraw and pay taxes on their earnings as regular income.

• 403(b) –

Especially for employees from non-profit organizations, universities, schools, religious organizations, hospitals, etc.; Tax rules and contributions remain the same as the 401(k) plan.

• 457 –

Local and state government employees can invest in a 457 plan, similar to 401(k) for contribution limits and tax rules. Still, they do provide some additional tax benefits.

• Double contribution in case employers offer 403(b) when you

• Don’t have more than three years for your retirement age;

• If the employer offers all three mentioned plans, then your investment contribution in this tax-deferred account can be doubled,

i.e., $38000 or $50000 (for individuals above 50 years).

• Early withdrawals before age 59.5 are subject to taxes, but the penalty does not apply to this investment account.

OTHER TAX-ADVANTAGED SAVING PLANS:

• 529 plan –

Withdrawals are tax-free, but contributions can be decided by the individual, whether tax-deferred or after-tax.

• Coverdell education saving account –

Contribution can be made depending on a tax-deferred or after-tax basis; available withdrawals are tax-free but should be used before the child of an individual turns 30.

TRADITIONAL INDIVIDUAL RETIREMENT ARRANGEMENT:

Under this account, the contribution from an individual’s income is deductible.

In case the employer of an individual offers an employer-sponsored plan and the income of an individual crosses the limit of modified adjusted gross income, contribution in this plan may not be allowed for tax deductions.

All the above plans are considered with a point of view that when an individual retires and withdraws their investments, they will be in the lower-income group compared to when they were in employment, which gives them tax benefits at a future date when they retire.

• After-Tax Retirement Savings Account –

An account funded with income after tax is a Roth account. Select this option for people who expect higher taxes at retirement compared to the time of employment.

• Roth 401(k), 403(b), 457 Plans –

Similar to a tax-deferred option, an employer might also provide an after-tax investment option.

According to these options, individuals will not benefit from contributing to these plans. Still, they will receive a tax-free distribution on withdrawal after five years or after the age 0f 59.5.
Employer contribution will come under traditional plans, and a minimum distribution will be required for an individual over age 70.

• Roth Individual Retirement Arrangements –

Roth IRA does not provide tax deductions, but qualified tax-free distributions are available.

IMPORTANCE OF ACCOUNTS-TAXATION:

• Promotes Investments –

Proper investment using tax-advantaged funds will not just provide benefits in terms of taxes but also promote investment strategies for individuals.

• Multiple Strategies –

There are multiple strategies for tax advantage accounts available, depending on the individual’s goals and financial condition. They can decide which is more suitable for them.

• Future Planning –

Individual plans their investment for the future time like retirement, family, child education, healthcare, wealth planning, etc. Such accounts provide an overview and help to decide which strategy every individual should adopt.

• Reduce Tax Burden –

These investments help reduce the tax burden with various strategies, from tax-deferred to after-tax investments. E.g., Government bonds.

TAX-ADVANTAGED V/S TAX-DEFERRED:

TAX-ADVANTAGED -

• The tax advantage is a type of investment that will benefit an individual in terms of taxation through various investment options.

• Tax-deferred is a type of investment that will delay the taxation on your income for the future at the time of withdrawal.

• There are two tax advantages:
• Tax-deferred and
• After-tax.
• After-tax plans will provide tax-free withdrawal from the plan.
• Beneficial for All types of individuals, whether High-income groups or lower-income groups.

TAX-DEFERRED -

• Tax-deferred is a type of investment that will delay the taxation on your income for the future at the time of withdrawal.

• Tax-deferred focuses on various investment options, which delays taxation.

• Eventually, the individual has to pay taxes on their income on withdrawal after a certain time limit.

• Beneficial for the High-income group by selecting the tax-deferred plan, the tax might be less on income compared to current earnings in case of retirement.

QUALIFICATION FOR ACCOUNTS-TAXATION:

Most companies today want a competent individual who can get their job done so ideally there is no age bar to becoming a tax accountancy professional in India, but most companies will want at least a bachelor & degree in a relevant field, and also some hands-on training/experience in tax accounting before they hire ...

CAREER SCOPE OF ACCOUNTS-TAXATION:

Scope after Business Accounting and Taxation Course in India-
The average business accounting and taxation salary of a fresher after completing the BAT course can range from INR 2 to 8 lakhs per annum.
There will be job opportunities in the public as well as private sectors for BAT-certified candidates.

SALARY RANGE OF EXECUTIVE ACCOUNTS-TAXATION:

Accounts-Taxation Executive salary in India ranges between ₹ 1.5 Lakhs to ₹ 6.0 Lakhs with an average annual salary of ₹ 3.2 Lakhs. Salary estimates are based on 1.2k latest salaries received from Accounts & Taxation Executives.

CONCLUSION:

Tax planning is an important part of an investment since part of your income you pay to the government as taxes. Whether to choose from tax-deferred or after-tax investment depends completely on individuals’ decision to pay taxes at the time of earning or at the time of withdrawals; However, tax-saving today is better, and the benefits of receiving tax-free withdrawals in the future at cost after-tax investment are very high because of investment size.

Tax advantage plans to benefit all categories of individuals from various income groups. Individuals make decisions based on future financial goals, family requirements, health expenses, educational expenses for children, and wealth creation over a period. Utilizing both types of tax-advantaged strategies will provide flexibility and benefits.

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