The Institution of Zakat
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The Institution of Zakat
Monem Salam: Bismillah, alhamdulillah, salatu was salaam ‘ala rasoolillah [In the name of Allah, all Praise be to Allah, prayers and blessings on the Messenger of Allah]. Thank you very much for joining us for Saturna Capital’s seminar on the Institution of Zakat. We have some, inshallah, a packed presentation for you talking a little bit about how we make the calculations, how the calculation should be done, talking a little more deeper dive into zakat, and from there we’ll open it up for Q&A. I wanted to start off and really turn the floor over and introduce our first speaker, which is Jane Carten, and Jane is the President of Saturna Capital and a Director, and she’s been with the firm since 1997, graduating from Western Washington University, has an MBA and an undergraduate degree in Computer Science and Business. She is the one who basically oversees all of Saturna, as far as from the operations to portfolio management, investments, and those type of things. And so, I wanted to let her take the floor for a bit to be able to introduce the presentation and I’ll take it back over and we’ll get started. So, Jane, you have the floor.
Jane Carten: Thanks, and welcome everybody. Thank you so much for joining us, especially taking the time during Ramadan to join us and learn more about the way that we calculate zakat and some of the more detailed parts of zakat. So, I really just want to welcome you. Thank you for your interest in Islamic investing. Thank you for being here with us today. And please let me know if you have any questions and if you have anything you want to get to. And I spoke with the Chairman of the Amana Funds this weekend – Dr. Yaqub Mirza, who says zakat is one of his most favorite topics and that he has spent an awfully long time studying zakat and if anybody has any very technical questions he said not to hesitate to reach out to him, so we do have that offer standing and certainly, if you have a question that you’ve been wondering about for a long time and people haven’t been able to answer it for you, give it to us and if we can’t answer it then we will ask Dr. Mirza for you and get back to you straightaway. He is busy with a different board obligation right now otherwise he would have been joining us. So, with that said, I would like to give the floor back to Monem Salam, who’s our Executive Vice President at Saturna Capital and the newly primary portfolio manager on the Amana Income Fund.
Monem Salam: Thank you, Jane. And one thing about Dr. Mirza, and again, I think neither Owaiz nor I are scholars in the area of zakat, but we do have a lot of practical knowledge from being able to be doing this for a long time. Saturna has been calculating zakat for shareholders ever since the early 2000’s and Dr. Mirza had actually done a lot of good pioneering work in this area, borrowing from scholars like Yusuf Qaradawi and the late Taha Jaber Alawani from the Fiqh Council of North America. And on our website, we actually do have a zakat brochure which does give an explanation of what we’re gonna talk about today. Not detailed, but I think this presentation is a lot more of that. But we do have a zakat brochure for you to be able to refer to after this presentation is over and be able to get a little bit more information. If you do want to have us calculate the zakat for you, we can do that. And we do ask you to download the zakat brochure, fill out the information and send it back to us. And inshallah, by next year, in January, we’ll be able to do the zakat calculation for you. So, with that, we’ll start with the presentation. I wanted to also, Owaiz, introduce Owaiz, who is our Director of Islamic Investing. And he will be… we’re gonna kind of tag team, basically, to talk about this presentation, feeding off of each other. Basically, the institution of zakat, as we all know, zakat is one of the Pillars in Islam. The Five Pillars. It is an obligation. And a lot of Muslims around the world choose to be able to not only calculate but also pay their zakat during the month of Ramadan, but also more specifically than that, they like to do it the last ten nights of Ramadan, and more specifically, they like to do it on the 27th night, which is going to be tonight. So, I thought it was a good time for us to be able to do this presentation. We aren’t going to be talking anything about the Funds themselves. However, if you obviously since you’re an investor or if you’re gonna be putting money with the Amana Funds, you have to know that obviously it comes with some risks of the market or the Funds going down in value. So, it’s important for you to be able to read the prospectus and look at the risks and the charges of the Funds before you actually do that. The presentation itself, what we’re gonna do is actually do a little bit of introduction why zakat is important. But that’ll be a fairly brief part of it. And then we’ll get into more specifics about zakat, the calculation of it, what are the definitions of Nisab, what haul means, and specifically, I’ll let Owaiz handle that part of it. And then I’ll come back and I’ll talk a little bit about the zakat calculations and give you a real-life example of how we actually do that, or what needs to be done and then we’ll just close it off with maybe some final points on where you can spend the money and what else, if anything, you can do with zakat money yourself. So, inshallah, with that, I will turn it over to Owaiz.
Owaiz Dadabhoy: Alright. Thank you very much, Monem and Jane as well. It’s great to be here with all of you that have joined us today and, you know that it’s Ramadan as Monem mentioned. He mentioned some of what I was going to say which is, you know, the 27th night is one of the biggest nights of donations in the Muslim community in the entire year. And so, we thought we would do it at this time. Just to give you some background, as well, and some of where I get my experience. I am part of the Shura Council of Southern California, and also a local Masjid that I’m on the board of and a zakat administrator that deals with local zakat. And so, what we see every year is that, I would say, at least 60% of the zakat that comes in comes in during the month of Ramadan, and in the last 10 days of Ramadan the majority of that. So, I would say probably 80% of the zakat in the month of Ramadan comes in the last 10 days. So, you probably all are trying to figure out where to give your zakat which we’re not really gonna get into too much today, although there’s probably a hundred different options out there where to give your money. And also, how do you calculate your zakat? How do you treat different kinds of classes of money? We have bank accounts, we have homes, we have rental properties. Do you pay on your car? What about stocks and mutual funds? That’s what we’re gonna talk about. This is also a 101 course. This is for you to get a little bit of information and then this should spur your desire to go back and learn more from your local scholars and ask the right questions. There are multiple ways to do things in Islam, just as we know. You can take something as simple as how to make your Salat. And different people pray with slight variations. But we all pray five times a day. So, it’s the same thing with zakat and we’re gonna get into some of that today about what are some of the nuances and what are some of the differences? And it’s, you know, we have a way of calculating that goes way back when. The Funds were first formulated in 1984 and launched in 1986 and then our current guidelines were put together in 2004 with the help of the Fiqh Council of North America. We worked with them specifically and came up with the guidelines and we also have an independent auditor that looks at all four of our Shariah compliant funds. So, every quarter we send them our portfolio, they look at it, and they send us back their feedback or certification that says these are Shariah compliant. And annually, they give us a certification that says you’re good to go and you’ve done what you need to do to keep this Shariah compliant or based on Islamic principles. One way to calculate zakat, as you know, that the majority of people in America and throughout the world have been using is they classify everything in one lump sum. So, they’ll take stocks, they’ll take mutual funds, they’ll take their checking account, they’ll take cash from their home and they’ll put it all together, even gold and silver and everything and they’ll multiply the value at 2.5%. This is the majority of what people will do. Now, if you’re doing that you can continue to do that. However, we are calculating it based on the other methodology which is 10% of the gain, which we’ll go into in a second. But the reason I mention this is because, you know we don’t need to calculate 2.5% for you, that’s easy enough to do. You just put all of your assets together and calculate a number. But if you wanna use this other methodology, as Monem mentioned, that Dr. Mirza has worked on for many years with Saturna and Amana Mutual Funds, you do need someone to calculate that for you. That’s what we’re gonna talk about today. The other thing I want to mention before we get into the surahs, or the ayaat is that you can use zakat calculators to make it easy on yourself. There’s no guesswork really needed these days. You can go to your favorite large charity and they’ll have a zakat calculator for you. And you know, it’ll ask you how much you have in your second property, gold, silver, cash, mutual funds, stocks, etc. and it’ll give you a number at the end. I would use a couple of those, and you know, if you have specific questions about which ones to use, you can contact us, and we’ll give you that. We don’t want to give just random names right now. We also, another point real quickly, is that if we do calculate the zakat for you annually, which we do for a number of our clients, we are not going to take out money from your account and pay the zakat for you. I have an example from when I traveled with my parents years ago. I went to a foreign country and one of my uncles showed me his statements for his banks and investments and everything when I was young and he said, “See, they take out 2.5% of my investments and they pay it directly to zakat and it goes to the country and they distribute it.” Well, we don’t do that here. It’ll be up to you to distribute it yourself. So, the first ayaat that I wanted to mention to you today is from Surah Baqarah verse 3 and it says, the translation is, “Those who believe in the unseen, observe the prayers and from our provisions to them, they give to charity.” And so that’s the zakat that we’re talking about today is charity and of course we have more than one obligation of charity. The main obligation is zakat. And the other one that we want to make sure to do is to give Sadaqa, which is going to help us build schools and masjid and other organizations. And zakat we’ll tell you in a little bit, is very specific on who you can give it to. The second ayaat I wanna mention to you, is from Surah Baqarah as well, verse 180, which says, “Let not those who withhold, and hard Allah’s provisions think that this is good for them. It is bad for them. For they will carry their hoarding around their necks on the day of resurrection. Allah is the ultimate inheritor of the heavens and the earth. Allah is fully cognizant of whatever you do.” And the next ayaat that I want to mention is from Surah Ali Imran, verse 103. “Take from their money a charity to purify them and sanctify them and encourage them for encouragement reassures them that Allah is the hearer and omniscient.” Now as you can see in this particular ayaat it says to purify and that’s what we want to talk about next. When you’re giving zakat, we shouldn’t look at it as a tax. We shouldn’t look at it as, “I’m losing value. I’m losing money that’s mine.” Right? If you have $100,000 in your bank account and you have to pay $2,500, we should look at this as a purification of our money or a sweetening of the money that is going to remain. And we know that there’s a baraka factor that remains as well, so giving and doing the right thing is going to help with the baraka factor for all of us. Not everyone is going to pay zakat as you may well know that if somebody does not have enough for themselves, they will not be obligated to pay zakat. We’re gonna talk about that. There’s a calculation called Nisab. Whenever we’re giving money, I told you that I’m on a board of a masjid and what we’ll see sometimes is people will come to the donation box and they’ll say, “Which box should I put this money into?” And it’s labeled zakat, Sadaqa, general funds, and maybe something else. Payoff for the qard hassan or something. And the question we’ll ask them is you know, “Do you have intention of this being zakat?” and many people, believe it or not, they say, “Oh, I don’t know, I just give. I just give whatever I need to do.” It’s really important that we calculate how much money we have, what our assets are, and we write zakat on the checks, that’s after our intention, right? So, when we’re writing zakat, you’ve already made the intention that this is going to be zakat. So, if you’re giving it to an organization. If you’re giving it to your Masjid, please be sure to make the intention and let them know, because if you use it for zakat, then they will use it for the right purpose. If you say it’s just general or Sadaqa, they can use it for other methods as well. Zakat and Sadaqa are different. Zakat has very different rulings and very specific rulings. Sadaqa is, you can go to your local let’s say cleanup effort and you can give Sadaqa. You can give Sadaqa to almost anything, right? And we know that Sadaqa is also smiling or removing a branch from the road, right? So Sadaqa is so vast. Zakat is very specific in who you have to give it to. We’ll talk about that as well. Something that you may have heard of, and I’ve seen many times is, and even some family members have mentioned it before, maybe in jest. But they say, “We already paid tax and taxes to the state and federal government help people with food stamps and with housing and with social security, with so many different things. So, aren’t we already paying enough charity?” And the answer is that is something completely separate. We don’t know exactly where that money is going, plus you didn’t make an intention for zakat and even if you did, zakat is very specific in where it has to go. So, let’s not make that error and consider taxes to be zakat. So, Nisab. Hopefully you’ve heard of this. If you haven’t, you can do a deeper dive by googling Nisab. Nisab is meant to say that if you don’t have enough money to live your life, then you shouldn’t have to pay zakat because you might need to be a recipient of zakat. So how do you calculate this? There’s two different versions and if you want to take the conservative version, you’re going to go with the calculation that talks about the amount of silver you may have and in this time, we don’t use silver and gold as currency so we would translate that into dollars and cents. So, if you have five, and this is from the time of the Prophet, sallallahu alaihi wasallam, if you have 595 grams of silver, which if you calculate the number of ounces, almost exactly 21 ounces of silver, multiply it times $17.54 which I looked up yesterday, would be about $368. So, if you own $368 dollars’ worth of assets, money, mutual funds, whatever you have, then you would pay zakat. If you have less than that, you wouldn’t, under this calculation. The second calculation is based on gold. And this is a higher number because gold has a much higher value these days. 85 grams versus 595 grams and that is about three ounces, 2.998 ounces of gold at $752 which is the value today, would mean that your Nisab would be $5,256, which means if you own more than that, you would need to pay zakat. So, conservative scholars will tell you use the silver number so that you can be conservative and make sure that you hit the right number. Others might tell you to use gold. You can talk to your local scholar, Imam, about which one you’d like to use, but if you want to be conservative, use the silver number. Now, one of the reasons why we’re doing this… one is because you can’t calculate this yourself if you’re using the methodology that we are introducing you to today. Or you might already know if you’ve been receiving our calculations, the 10%. The other reason we’re doing it is to let you know that all money is not the same. Gold and silver are static. Checking and savings account money is static. It’s non-productive. Productive money means that you bought a kebab restaurant, or you invested 50% in a kebab restaurant and what that does is it employs people. So, if you’re giving that investment, that restaurant can open up, now you might be employing 5, 6, 10 people. Your money is productive. So, in this same way, the methodology here says that if you own shares of Apple within Amana Income Fund or some other fund, what that would mean is that you own, just like the kebab restaurant, you own a share in something that is productive. And so, productive assets are investment properties, stocks, mutual funds, and investments in your IRA, education savings accounts, health savings accounts, and so forth. The static money is cash and it could be gold and silver, etc. So, and you know, we’re talking about the productive capital again. So, the definition here that we can get to, “Any asset that is generating income or growth,” not just sitting and getting some type of interest income or no growth at all, if it’s sitting in your house. So, the idea here is if people were hoarding money and just keeping it to themselves and not using it in a productive way, there would be no means of giving charity from that if it was not instructed, right? So, people might give to charity, but they wouldn’t… it wouldn’t be a definite thing that they would give to charity. So that’s why the 2.5% number is on that. So, people are not keeping the money and keeping it away from those in need. You would even do this on your vested stock options so that’s something to look at. Your equity balance in your home, potentially. Investment homes. Cash value of various variable life insurances, because they have stocks within it or mutual funds within it as well. The static capital that we talked about, again, and I think we already talked about this enough, but it’s going to be a percentage that we’re gonna use on cash, on gold and silver, which is 2.5%. Now, we had a number in here which is 2.57% as you can see on Unproductive Land and vacation homes and such. 2.57% is used because if you’re calculating form January 1st to December 31st, you have a percentage of extra time because the lunar calendar is a little bit shorter than the Gregorian calendar. So, if you’re using a full 12 months, you would add the 0.007 to it, and multiply it times 2.57%. And we’ll go to the next one and talk about productive capital. And this is where we’re gonna get into, you know, the heart of the matter today. So, if you have something that is productive. Your share in a kebab restaurant, for example. Your equity share in it. Your share in mutual funds or stocks. The way that you would calculate it is you would say, “What is the gain after one year?” If there is a gain, I’m going to pay 10% of that gain if I’m using the lunar calendar. If I’m using the regular Gregorian calendar, I’m going to go with 10.3% because again, there’s extra time that we have in the regular Gregorian calendar that we use here in America and throughout the west. So, it would be 10.3% on the gain. We can calculate that for you and again if you want to use 2.5%, that’s easy enough for you to calculate. If you want us to calculate the 10.3%, we’ll be happy to do that for you. And this is, you know, Monem is gonna talk after this about a specific case study which we think it going to be very helpful to you, cause it’ll go through each one of the different pieces of what you own and what does qualify to pay zakat and what you don’t have to pay zakat on. So, let’s just take a look at your Amana Funds balances at the end of the year. So, at the end of 2019, let’s say you had a value of $100,000 and in 2020 you added another $5,000. So now, you’re going to subtract $5,000 because that was new money introduced, so now you have $95,000 and maybe you took out $10,000 of your original amount so you’re gonna add that back, so you’re gonna get $105,000 so that’s your adjusted year-end value. We’re gonna take that $105,000 adjusted year-end value at the end of 2020 and subtract it from the beginning value which was $100,000 and that means you have a $5,000 gain. This is why we need to calculate it for you, right? It’s difficult for you to see what you put in throughout the year. You might have auto-contribution which is a great idea to be able to build your wealth. You might have had some dispersements. You might have the minimum required distribution if you’re 70.5 or above. So, we do the calculation for you so in this case it would be a $5,000 gain and so you would pay 10.3% on that $5,000 so roughly $500 in zakat. We hope that part of it helps. Monem is gonna come back now and talk about a case study and you can see his picture there. And he’ll talk to you about, I think, five or six different slides about the very specific pieces of what people own in their lives.
Monem Salam: So yeah, we wanted to kind of give you a real-life example of how you would go about calculating your zakat both taking into account your static capital and also your productive capital. So, hypothetic example, again, we have a person, Monem Salam, which is me. And there’s certain things that I own. I own some gold, silver, other jewelry I could own. I have a checking account. I have a savings account. I have a house maybe through an Islamic mortgage. I have two cars fully paid for. Furniture, home. I have clothes in my closet, obviously, and I have mutual fund accounts, and maybe IRAs or ESAs or just maybe regular taxable accounts. So, we’ll go through these and maybe try to make a calculation as to what or how you would end up looking at your zakat due. Okay, so the first thing we have to do is really look at the gold and the silver, right? So, assuming that we have no bars or coins. We do have jewelry in a safe deposit box. For example, my wife has maybe some jewelry she was given. There hasn’t been any weddings or any occasions to be able to use that jewelry and so we never had the opportunity to take it out from the safety deposit box. Or it’s sitting in our closet at home and really what the idea is for one entire year it has not been used. Okay? And then we have basically no silver utensil sets. So, there’s no calculation to make on that part of it. If you did have a silver utensil set which, again, you haven’t used for one year then you would owe zakat on the silver. So that’s pretty simple. We have 10 ounces of jewelry and you multiply that by $300 and you get $3,000 so that’s the total value. And then depending on whether the jewelry is silver or gold, is where you’re gonna come up with this $300. And then, the $3,000 which you get. You multiply that by .0257, again to adjust for the Gregorian calendar to the lunar calendar. And you end up with you owe $77 in zakat for this portion of your assets. Okay? So, we’ll move on now. The second example we have is now I have some checking accounts, right? And I have some savings accounts. And so, if I look at my balance as of, let’s say, the end of 2018 and there was $3,000 in the bank. In the checking account. And then at the end of 2019 there was $4,000. So basically, what we’re looking at is that $3,000 of that lasted an entire year. And it wasn’t touched. So, it’s basically saying, on average, the balance never went below $3,000 and for that you have to calculate zakat on it since you didn’t use it. And again, it would be 2.5% or 2.57% and again you end up with $77. On the savings account, right? Same thing. I started the year off with $5,000. I ended the year at $10,000. Now I’m subtracting the two because the $5,000 was actually an addition that I had made into the account, right? So that’s why, basically, you take $10,000 minus the $5,000 because the $5,000 has not had one entire year that has gone by. So that’s left with $5,000 and again you multiply that again by 2.5% or 2.57% and you end up with $129. Okay? So that’s the second part of the calculation. The other part of it is there are certain assets that, because you’re using them, right? You don’t actually owe any zakat on it, whatsoever. So, the house that you live in, for example. You don’t owe any zakat on. If I had two cars that I have that they’re fully paid for, I don’t owe any zakat on those. Furniture in my house, again I’m using it. I don’t owe any zakat. Clothes that I have in my closet. Again, I use them. They’re use assets. So, there’s no actually zakat on use assets. So, whatever it is in your house in your properties or other things that you’re actually using for the year, then that would not be something that you would be subject to zakat. So now, let’s take a look at the investment accounts, right? In this particular example, at the end of 2018, I had $5,000 in mutual funds in my IRA. Right? So, throughout the year, I contributed about $5,000. And so, my balance at the end of the year was $14,000. So that’s my balance. What I need to do is as we go back to the original formula, we need to adjust for the $5,000 that we added to the account. So, what we do is we take our end of year balance, which is $14,000, we subtract out the contributions you’ve made toward the year, which is $5,000, and then if I had taken any distributions, I would add that back in. But I didn’t do that. So then, I’m left with about $9,000 in value adjusted year-end. And I take the $9,000 which was my adjusted year-end and I subtract it from my year-end in 2018 which is $5,000 and I’m left with $4,000. And then, because this is productive capital. We’re only taking it on the gains. You take $4,000, multiply it by 10% or 10.3% and you end up with $412 dollars. Right? Now, this was a gain for the year so if there was a loss, then we would not owe any zakat on this money. So again, you’re taking your end of year balance, subtracting out your contributions, adding back in your distributions, taking that balance which is your adjusted year-end, subtracting it from the beginning year, ending up with an amount which is $4,000 and you multiply that by 10.3%. Those were for the IRAs. I might have some ESAs for the children as well. And so again, a very similar example in this particular one, right? Which is at the end of 2018 I had a $4,000 balance, right? I contributed $4,000 so I contributed $2,000 for each of them, which is the maximum I could do. And at the end of 2019 I ended up with $10,000 as a balance. Similar to our previous calculation, I take my end of year balance, I subtract out the new money because it has not been a year, so minus the $4,000 and then I would add back the distribution, but I don’t have any in this particular case. So, I’m left with $6.000 which is my adjusted year-end value. So, I take that, and I subtract out my end of year balance for 2018 or beginning year balance for 2019 and I end up with $2,000 worth of gain. And the $2,000 I multiply by either 10% or 10.3% and I end up with $206 using the 10.3% calculation. Alright? At the end of this I’ll add all of these up to tell you what I exactly have. And there you go. So, then if you recall back the jewelry and everything I had I had $77 in zakat. In my checking and savings, I had $77. In my IRAs I owed $412 and my ESAs I owed $206 and if I add all of those up it comes to $772 and that’s how much zakat I would owe for 2020 and I could pay that tonight for the month of Ramadan and Laylatul qadr. And with that I’ll turn it back over to Owaiz and he can kind of conclude with his presentation, inshallah.
Owaiz Dadabhoy: Alright. Thank you very much, Monem. Appreciate that. Going through hat case study hopefully was helpful to everyone. So, just wrapping up here with Saturna Capital’s services. We do calculate zakat for you, using the end of year values. We’ll send you a letter in January telling you exactly what that is, and then it’s up to you when you pay that. You can pay it in Ramadan or what I like to do is I like to schedule it out for the whole year so that way you’re not writing one large check at one time. That is up to you. People do calculate their zakat in Ramadan. At this point we’re not able to do that for you. That’s why we do the year-end values. Because remember, Ramadan changes on a yearly basis by 10, 11 days or so, so it’s a moving target and more difficult for us to calculate it for you. If you go to Amanafunds.com you can check out our zakat brochure, it has the calculation for you and it has a way for you to sign up to receive the calculation every year also, if you’re interested in learning about that. We will not take out the money from your account and pay zakat for you—that is completely up to you. And what I had mentioned before is you can go to your favorite charities and look up their zakat calculator and that way you can see, you know, if there’s anything else that you want to put in there that you may have missed, because all we’re going to do is we’re going to take your accounts here held at Saturna. That was one of the private questions in the chat group is can we calculate someone’s 401(k) for them when it’s not sitting with us. And so, to calculate some of these other numbers you may want to use an outside service. We are looking at an online calculator to calculate zakat for you, and so once we have that we will share that with our clients and first with the folks that are already signed up for zakat calculations. This next part here is something we should take very seriously. If you have zakat that you need to pay, it’s different from Sadaqa as we mentioned earlier. So, who can you pay the zakat to? You can pay it directly to people that you may know that are poor, or destitute, which means that not only are they poor, they have nothing. They have a very, very bad situation. They need much more help than the average person. In Muslim majority countries, they may have an administrator from the state or the country or the government that administers the zakat and so they would take a portion of that because they’re going to go out to everyone and collect the zakat and then distribute the zakat as well. Some organizations in the United States also do that. Those who are held captive and believe it or not, that still happens today, where people are held and there’s human trafficking. So, if there’s a case of that, zakat could be used. You know, if you’re in debt you can’t ask for zakat necessarily, right? You went and bought a home and got a Bank of America loan for $500,000. Zakat organizations are not going to bail you out with that but what this really means is somebody that was already in a bad situation and they borrowed money from someone---$500 or $1000—and that person is really looking to collect and is putting a lot of pressure on that person. In that situation, their debt can also be paid. What I notice with one of the local charities in Southern California that I work with, local zakat administrator here helping people in need locally, is people, believe it or not, are stranded when they come to California based on they’re going to find a job here, somebody tells them hey come over here we’ll give you a job. When they come here, the person is no longer found, right? So, it doesn’t work out for them and then they have nothing. They’ve come with nothing thinking they’re going to have a job and they literally are stranded, so you would help them, get them in a motel, provide some food, and even help them back to where they came from if that was the issue. In the cause of Allah, or Fi Sabilillah, which is a vast area of study, so this is something that organizations throughout the United States or the world would use their zakat or your zakat money for. So that’s something you can look deeper into. And you can give it to people in your family and not directly to your wife or children. But you can give it to cousins and nephews and nieces that are going through serious situations somewhere else and if they’re zakat eligible you’d be able to assist them as well. The final thoughts here: there are foundations that people start up. There are endowments that organizations start up and people ask us the question: can I give my zakat to this new endowment that’s started, or this endowment that’s been around here for a while? And the answer is no. Zakat needs to be paid to the people, especially in the first categories that we gave you here, needs to be paid to the people so they can use that money and it has to be done in that year. So, if you give zakat money and you hold it in an endowment or a foundation and you’re supposed to pay $5,000 in zakat but you ended up holding that money for another year or two years, that goes against what zakat teaches us, or the rulings of zakat teach us. Because the people need the money this year. They need the money this month and next month and so you wouldn’t want to hold it from them. This question comes up: do you have to pay zakat on an account that you don’t have access to? The majority of the scholars tell us yes. You do have to pay on a 401(k) or IRA or Education Savings Account or Health Savings Account, even if you don’t have access. So, if you’re 42 years old and you have a 401(k) you don’t have access to that, you’ll pay a penalty. You’ll pay tax to pull out money so you don’t really have access, but the scholars say yes, you can’t use that as a zakat shelter and not pay money from that to zakat and help the people in need that are here today. So, what’s the best way to do that? If you have to pay $5,000 of zakat from your 401(k), do you want to remove the money from your 401(k)? The better way to do this is to use your checking or savings account balances to pay your zakat instead of pulling out the money with taxes and penalties. So, that would be our advice to you. We thank you all for your time. We appreciate it and we will be happy to take any questions. If you have specific questions that you’d like to ask us that you’re not able to ask here, please feel free to email us. You have different contact folks right here. My email address is firstname.lastname@example.org. Monem’s is there as well as three of our other team members. And so, questions about zakat or about anything else. I wanted to mention one more thing since we’re all on the phone here, or on the Zoom meeting together is that the CARES Act that came out this year does provide some additional benefits to people, one of which is you are able to now file your taxes instead of April 15th, on July 15th, and so what this means to us right now is that if you did not put money into your IRA last year, you missed the deadline of April 15th, the new deadline is July 15th. You can do this with your HSA, ESA, and your IRA account as well. If you’re somebody that’s over the age of 70.5 and you have to take our required minimum distributions, there are rules under the CARES Act for that, so please contact us if you have questions, we’ll give you some general information on that. And of course, contact your tax professional as well. You know, it’s worth spending some time with them. It should translate into some saved money for you. Thank you very much and we’ll open it up for questions.
Monem Salam: Thank you, Owaiz, for that. There are a couple of questions that I’m just gonna go down the list. Some of them I’ll answer, some of them I’ll turn over to you. So, the first question was, “Where does the number 10% come from? Why isn’t it 5% or 20% for example?” I’ll just quickly take that if you don’t mind. There’s a hadith of the Prophet that mentions that on land, which is irrigated by rainwater, right? It’s ‘ushr of the produce, so it’s 1/10th of the produce, and so that’s where this number, 10%, comes from. And so, land, irrigated by rainwater or from a nearby river, those type of things, is akin to a passive investment, meaning that you’re not actively involved in that investment. It’s basically happening passively; the water is basically showing up into your farmland. And so, the Prophet says that’s 10% of the gains. And so, if you look at the opinions of both Yusuf Qaradawi and of late Taha Jaber Alawani, they were of the opinion that stocks and mutual funds, because mutual funds invest in stocks, are more applicable for this hadith rather than just a regular asset which would be charged the 2.5%. The next one that came up was does the IRA zakat contribution change if you are over 65-70 versus if you are younger at age 40. So Owaiz, do you wanna take that one?
Owaiz Dadabhoy: Sure. The calculation does not change based on the age. The calculation remains the same. I think the question here really is somebody that is using the money when they’re 65 or 70, should there be an allowance for that? The question also could be, maybe an understanding that in an IRA or 401(k), accessible after a certain amount of time—it’s actually 59.5. And so, there’s three different ways to look at 401(k)s and IRAs. I’m gonna give you all three of them. And, you know, you’re gonna be responsible with figuring out which one you’re going to use and what I like to suggest here is not to, you know, to come up with your own resolution or solution but go to people that you’ve been talking to your whole life in your local community that can give you some guidance as well. So, I’m gonna give you three different scenarios here. If you have money in an account that you’re not able to access—so your 401(k)—and let’s say you have $100,000. If you’re using the 2.5% number, you’re going to pay $2,500 in zakat. If you’re using the 10% number, you’re going to pay 10% on the gain for the year. There are some in the minority opinion that say you do not have to pay any zakat until that money is accessible to you. So, in this case, you’d have to be 59.5 before it’s accessible. The second opinion, which is a little bit stronger opinion, says that you would subtract out the penalty and some say subtract out the penalty and the taxes and then you’re left with $100,000, taxes and penalty would be about 35%, so you have about $65,000 left—pay on that amount. The third opinion which is the majority opinion that I’ve been able to find so far… and again, Monem mentioned at the beginning that we’re not scholars but we’re transmitting information that we’ve learned and experiences that we’ve had in the type of work that we do, is that you would pay on the full amount. And that’s what I was saying in an earlier slide is pay from your checking and savings account if you’re able to, so you don’t have to break the IRA or the 401(k) and pay the taxes and penalties. I hope that answers that question.
Monem Salam: Thank you for that, one more thing to add if you don’t mind, and that is those people who think that they have to subtract out the taxes from the actual payment, please do keep in mind that when you put the money in, you did save taxes as well. So, going in you save taxes, now coming out of it you shouldn’t have to do that. So, we’ll move on, inshallah, with some more questions. Can we get values any time from Saturna as we may not be using the 12/31 for our zakat calculations? You wanna take that?
Owaiz Dadabhoy: Sure. So, we calculate it at this time once per year and again, because Ramadan is a moving target every year, but when we come up with the zakat calculator, there may be an option there for you to calculate it anytime. That is something that’s still being developed so once we have that information, we’ll share it with you.
Monem Salam: And then moving on, I think we answered the one about the penalties and taxes. That was one of them as well. Another one was according to your method, if someone has a large balance in their checking account but makes no additional contributions over the year, they will not need to pay zakat--- for example if you have $1,000,000 and you’re just living on that, are you not supposed to pay zakat on that? So, in our calculations, I’ll just quickly answer that. In our calculations, what we do is we do actually take into account the average balance that stayed in your account for that year and if it never dipped below that amount, then we do actually say that you have to owe zakat on that. So, for example, the last example I gave, if you have $4,000 in the beginning of the year and it’s a checking out so you’re putting money in, taking money out, putting money in, taking money out. And at the end of the year it went up to $5,000 or ended up being back at $4,000, right? Then you do have to calculate zakat on the $4,000 because it never went below that amount. So yes, we actually do take that into consideration as well. The next one I have basically says, “I’m retired, all of my money is on my checking account and every year my expenses are taking from that, and the balance is decreasing. Do I not pay zakat on that?” And again, I think I just answered that question so that’s okay. Assuming my zakat due this year is $12,000. Can I pay $1,000 per month or must I pay all at once?
Owaiz Dadabhoy: I like this question a lot because you have to look at it as… Think about your own household. If you get a paycheck every two weeks, it’s much better than receiving a paycheck every year. And people in need, organizations need zakat on a regular basis, not once a year. So in order to smooth out the revenue for the organizations and to be able to provide to people in need throughout the year, I would say that it’s better to definitely put some money every single month to the organizations that you want to give to. It also helps you, because you will not have to write one big check at the end of every year or in Ramadan or whenever you decide to do it. Is it permissible? Absolutely it’s permissible.
Monem Salam: Thank you and then the next one says, “When I compute my zakat using the two methods, which is the 10% of the gain, or the second one of 2.5% of capital, I end up with two completely different amounts. Which one would I pay?”
Owaiz Dadabhoy: You wanna take that one?
Monem Salam: Yes, thanks for handing it over. My recommendation to everybody is that if you’ve been making a certain calculation for a number of years, to stick to that calculation. Don’t keep changing it year on year. The reason why we came up with this idea of the 10% calculation is because we do think it’s a stronger opinion, but it’s definitely not the majority opinion. Majority opinion is that it’s 2.5%. We tried to explain to you our reasoning why we use the 10% and if we’ve been able to convince you that it’s the right thing to do, then use the 10%. If you think, “No, I’m not convinced, or I’ve been doing it for 2.5% so I’m gonna continue to do it that way,” you’re more than welcome to do that because that’s, again, it’s a very valid majority opinion and you’ve been doing it that way so you can continue to do that. One thing to keep in mind is that if you’re using the 10% methodology which I mentioned to you earlier and I think Owaiz did also, is that any year that you have a loss, you don’t have to pay any zakat, right? So, one could argue, well, on one year I have loss, I’ll pay the 10% and if I don’t have a loss then I’ll pay the 2.5% and so that’s where I would discourage anybody and I know scholars discourage you from going back and forth in your calculation. Use one, the one you’re most comfortable with, the one you understand, and then stick to it. Okay? And then the next one was, “How do I account for the mortgage?” And I know, Owaiz, you mentioned something about a mortgage, so I’ll let you speak to that a little bit.
Owaiz Dadabhoy: Right, so if you look at the online calculators, you’re not going to take out your entire debt. And this is an issue I think the calculators have is they say, “Tell us what your checking account balance is, your stocks, your mutual funds, your gold, etc. and then take out your debt,” and what people do is they take out their entire financing from the equation which means that if you want to, you can shelter your money from zakat completely, right? So if you owe $50,000 a year in zakat, you can say, “Well okay let me just go increase my home financing… or my home financing is paid off, let me go put $50,000 on there—I won’t have to pay any zakat, I’ll just subtract it out.” So, the way that you’re supposed to use this is subtract the amount that you would pay for a month in your financing, so let’s say you pay $2,000. You’re looking at your checking account balance—subtract $2,000 because that money is going to be leaving your account and going to pay that financing. That’s how you would account for your mortgage. Allah knows best.
Monem Salam: Maybe we’ll just take two more questions then we’ll end it. But do keep in mind, I have up here on the shared screen all of the contact information for everybody so please don’t hesitate to reach out to Owaiz, myself, or any of the other regional managers as well. And the next questions and maybe, Owaiz, you might know this from a practical perspective. Can I pay zakat for the next few years now?
Owaiz Dadabhoy: You can. The obligation is that you must pay it. As long as you make sure to calculate the numbers every year. So, let’s say this year you have to pay $5,000, and so you say, “I came into some money, I wanna pay $5,000 this year, $5,000 for next and $5,000 for the year after—I’m paying three years at one time.” That’s fine. You can do that. Your obligation is done. However, next year you need to calculate how much money you need to pay in zakat. For example, 2021 comes up and you owe $7,000 in zakat… well, remember you paid $5,000 for the next year, so you have to pay $2,000 more to be able to keep on this, right? Or subtract it from the third-year money that you put in. So, let me make it a little bit more simple because I gave you three years. If you have to pay $5,000 this year and you say, “Well I’m gonna pay for next year as well,” and pay $10,000… next year when it comes up and you actually owe $7,000… you only paid $5,000 so you have to make sure to put in another $2,000 to make up for that.
Monem Salam: Last question we’ll call it a session here, is if you have a large sum of money that is earmarked for something such as education or purchasing a house, do you need to pay zakat on this money?
Owaiz Dadabhoy: My understanding is that if that money has been with you for a year, even if it’s earmarked, it still is in your possession, because you may not end up using it for the purposes you have intended. This is my understanding. This is definitely something that you want to ask a scholar, especially if it’s a large sum of money that’s going to make a large difference in your zakat calculation. From my understanding that is the case. Monem, if you have anything different to add please do.
Monem Salam: The one year is important and the minimum required. The minimum required is called Nisab. The one year is called haul and so both of those are required. As long as you meet those criteria, you are going to have some type of zakat due. So inshallah, with that, I think we’re running up on time, so I wanted to just end by thanking everyone for being able to call. Thank you, Owaiz, for those explanation. Thank you, Jane, for being able to come on and introduce us and also be a host for this event. And as I mentioned, just finally, if there are any questions you have further to this, or more details, please don’t hesitate to reach out to us. You can always call us. You can email us. And you can always get your account balances online by logging in. So inshallah, with that, thank you very much for your time and we will hopefully talk to you on another seminar.
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