Paying zakat twice

[psyah]

Re: Paying zakat twice

Close enough.

Peae USResident

I was going to answer this question but then recanted. For a car that is being used there is no zakat on it. However, for an extra car that is considered luxury then the zakat is payable on it.

In a similar sense don't you think that the business is being used and no zakat is on it, until it provides "produce" i.e. the company grows or the investment grows. Then the amount in zakat is payable only on the growth. Like you mentioned before.

I think there are distinctions made between useful or required amounts in order to undertake the function ... i.e. land required to grow crops. Car required to travel etc. to those amounts that are considered superfluous or luxurious upon which zakat is paid in addition to un-used amounts which I guess are un-used because they are not required but are considered excess.

In this sense both of the methods are correct but are employed in different conditions.

[USResident]

Re: Paying zakat twice

Peae USResident

I was going to answer this question but then recanted. For a car that is being used there is no zakat on it. However, for an extra car that is considered luxury then the zakat is payable on it.

In a similar sense don't you think that the business is being used and no zakat is on it, until it provides "produce" i.e. the company grows or the investment grows. Then the amount in zakat is payable only on the growth. Like you mentioned before.

I think there are distinctions made between useful or required amounts in order to undertake the function ... i.e. land required to grow crops. Car required to travel etc. to those amounts that are considered superfluous or luxurious upon which zakat is paid in addition to un-used amounts which I guess are un-used because they are not required but are considered excess.

In this sense both of the methods are correct but are employed in different conditions.

Yes that is the key point. Excess is subject to zakat. However the excess is subject to everyones living conditions. Growing wealth is also subject to zakat. Retirement savings is definitely not growing wealth unless it is invested after we have cashed it after retirement. Now whether we consider it excess is a matter of interpretation and subject to many constraints and circumstances.

Personally here is how I would do it. Say I get $100000 in retirement savings. I would 2.5% zakat when I get it i.e. $2500. Then say I draw $1000 from it each month as my sustenance. After the passage of a year I would be left with $85500. I would again pay 2.5% zakat that year on it i.e. $2137. Again keep withdrawing $1000 from it for a year as sustenance and then I would be left with $71363. Again I would pay zakat on this and so on. These amounts are pretty unrealistic though but serve only as an example.

One thing that I in reality do disagree with though is the nisab amount even though I do not practice what I think. I think the nisab amount should be redefined because it is just absurd according to todays living standards.

[psyah]

Re: Paying zakat twice

@USResident

Yes that is the key point. Excess is subject to zakat. However the excess is subject to everyones living conditions. Growing wealth is also subject to zakat. Retirement savings is definitely not growing wealth unless it is invested after we have cashed it after retirement. Now whether we consider it excess is a matter of interpretation and subject to many constraints and circumstances.

Personally here is how I would do it. Say I get $100000 in retirement savings. I would 2.5% zakat when I get it i.e. $2500. Then say I draw $1000 from it each month as my sustenance. After the passage of a year I would be left with $85500. I would again pay 2.5% zakat that year on it i.e. $2137. Again keep withdrawing $1000 from it for a year as sustenance and then I would be left with $71363. Again I would pay zakat on this and so on. These amounts are pretty unrealistic though but serve only as an example.

One thing that I in reality do disagree with though is the nisab amount even though I do not practice what I think. I think the nisab amount should be redefined because it is just absurd according to todays living standards.

Peace USResident

You can actually do one better on the zakat of retirement savings I think. The amount that is required for the year can be deducted up front and zakat given on the remainder.

Eg.

$100,000 calculate that x amount would be required for a year. Say that x amount comes to $1000 x 12. Therefore, $100,000 - $12,000 = $88,000 which is zakatable amount.

$2,200 would then be the zakat amount. At the end of year 1 that makes remainder is:

$100,000 - $14,200 = $85,800

Let's say that the plan for the next year is to go on travels costing $3500 in addition to the $1000 per month.

So take $85,800 - $3500 - $12,000 = $70,300 = zakatable amount
Therefore zakat = $1757.50

What I am getting at here is that zakat is not paid upfront but after a year. Does that make sense? The nisab is interesting it is quite low to redefine (i.e. to increase the limit) it would make things more difficult on the poor. The vast majority of the world are in poverty and for them the nisab is still a realistic amount. By increasing the nisab that would mean less charity will come from the West to the poorer places. I mean even after being so low the poverty still has not finished.

[USResident]

Re: Paying zakat twice

@psyah

Peace USResident

You can actually do one better on the zakat of retirement savings I think. The amount that is required for the year can be deducted up front and zakat given on the remainder.

Eg.

$100,000 calculate that x amount would be required for a year. Say that x amount comes to $1000 x 12. Therefore, $100,000 - $12,000 = $88,000 which is zakatable amount.

$2,200 would then be the zakat amount. At the end of year 1 that makes remainder is:

$100,000 - $14,200 = $85,800

Let’s say that the plan for the next year is to go on travels costing $3500 in addition to the $1000 per month.

So take $85,800 - $3500 - $12,000 = $70,300 = zakatable amount
Therefore zakat = $1757.50

What I am getting at here is that zakat is not paid upfront but after a year. Does that make sense? The nisab is interesting it is quite low to redefine (i.e. to increase the limit) it would make things more difficult on the poor. The vast majority of the world are in poverty and for them the nisab is still a realistic amount. By increasing the nisab that would mean less charity will come from the West to the poorer places. I mean even after being so low the poverty still has not finished.

That would be another way to do it however it involves uncertainty or predictability on your part for throughout the year. Ofcourse everyone would have a different circumstance and differing way of deducting expenses from their capital. I think though we are on the same page in concept.

The nisab is unrealistic and we cannot use the same yardstick for all. Countries have different economies and different poverty lines. All countries differ in the ir living circumstances or subsidized benefits. I dont think we should be using the lowest common denominator here. We have preserved the amount of nisab but not its principle today. The nisab amount centuries ago was enough to buy a modest family a years sustenance. We clearly violate that principle by choosing to keep the nisab amount the same today. And it is unrealistic. Someone who possesses an amount barely over the nisab of today is by all standards a poor person and actually deserving of zakat instead of having to give it. The nisab amount depending on the rate of gold can vary betweeb $700 - $1000 today. Someone with that amount of saving cannot last one month in USA let alone a year. But such a person would end up giving out zakat. Such a person should have to do only Sadaqah not zakat.

[psyah]

Re: Paying zakat twice

@USResident

That would be another way to do it however it involves uncertainty or predictability on your part for throughout the year. Ofcourse everyone would have a different circumstance and differing way of deducting expenses from their capital. I think though we are on the same page in concept.

The nisab is unrealistic and we cannot use the same yardstick for all. Countries have different economies and different poverty lines. All countries differ in the ir living circumstances or subsidized benefits. I dont think we should be using the lowest common denominator here. We have preserved the amount of nisab but not its principle today. The nisab amount centuries ago was enough to buy a modest family a years sustenance. We clearly violate that principle by choosing to keep the nisab amount the same today. And it is unrealistic. Someone who possesses an amount barely over the nisab of today is by all standards a poor person and actually deserving of zakat instead of having to give it. The nisab amount depending on the rate of gold can vary betweeb $700 - $1000 today. Someone with that amount of saving cannot last one month in USA let alone a year. But such a person would end up giving out zakat. Such a person should have to do only Sadaqah not zakat.

Peace USResident

To eliminate the uncertainty, then the payment can be made at the end of the year rather than the beginning. In which case your method applies but only after the first year has lapsed.

Also, about this nisab aspect. I still think there should be a global standard for it, or else there will not be enough international dynamics of wealth distribution. The zakat will remain fairly localised. Zakat is not there to tax and giving charity does not make one poorer.

I understand the economies are all different I was going to make that suggestion but then thought again. Gold is an international standard it more or less retains its price across the international boundaries.

[USResident]

Re: Paying zakat twice

@psyah

Peace USResident

To eliminate the uncertainty, then the payment can be made at the end of the year rather than the beginning. In which case your method applies but only after the first year has lapsed.

Also, about this nisab aspect. I still think there should be a global standard for it, or else there will not be enough international dynamics of wealth distribution. The zakat will remain fairly localised. Zakat is not there to tax and giving charity does not make one poorer.

I understand the economies are all different I was going to make that suggestion but then thought again. Gold is an international standard it more or less retains its price across the international boundaries.

Sorry for my late reply. Long weekend.

I realize I miststated the first application of zakat which is after the lapse of the first year. My bad. However we both agree thus far on that.

Now for the nisab question. The gold standard is not a measure of ones living standard. Each country abstractly may express its living standard in terms of its poverty line however the constituents which comprise this indicator vary from country to country and should remain so. I do not see any harm in zakat staying localized because its first recipients should be those in the local community in terms of priority. This is the same concept when zakat is first intended for the poor in your blood relatives, then relatives, neighbors and friends. Their is already the concept of precedence, given that ones local community should take precedence over other communities in the vicinity unless their is a pressing demand or need which warrants a deviation.

However what are your thoughts on nisab being the wealth needed to support ones family’s adequate requirements for a period of one year. This is what the nisab amount was intended for centuries ago. And this is what we have lost and I think we have failed miserably to denominate what really is excess wealth according to todays living standards. Wealth in excess to what we are currently calling nisab is definitely a wrong criteria from todays standards.

[StirCrasy]

Re: Paying zakat twice

By IRS code I believe 401(K) is strictly speaking a deferred income . So if we are quibbling about whether it is savings or wealth, here is a loophole!

[USResident]

Re: Paying zakat twice

By IRS code I believe 401(K) is strictly speaking a deferred income . So if we are quibbling about whether it is savings or wealth, here is a loophole!

This is one of the points I made early though not technically refering it as deferred income but income nonetheless after retirement or in simpler words, your source of income but not wealth that is in excess to your income.

[psyah]

Re: Paying zakat twice

By IRS code I believe 401(K) is strictly speaking a deferred income . So if we are quibbling about whether it is savings or wealth, here is a loophole!

Peace StirCrasy

It is not a loophole. Deferred wealth is not considered deferred if it supposed to be deferred for more than one year, in which case it is called savings. Also, we have to look at main income also. During the time the savings are being accumulated the job itself is providing the wealth, thus the 401K becomes the luxury or additional wealth source.

However, when a person does retire the account itself becomes the main source of income which provides the basis for only zakat of that amount which is not intended for use for that year.