Reddit mentions of Simple Zakat Guide: Understand and Calculate Your Zakat

There are two ways of paying your Zakat:

1- FIRST APPROACH: for every stream of income that you have, on the day it goes above the Nisab, you start counting from that day and if that amount remains above the Nisab for one year, then you pay Zakat on it one year from that date.
This is very similar to the cash method of accounting.

Example: I made 500 dollars on Ramadan 1st 2018, if that stays above 300 (Nisab) until Ramadan 1st 2019, then I pay 2.5% of 500.
Example: I made 2000 on 15th of Shawwal 2018, and on Shawwal 15th 2019 I have 1200 left. I pay 2.5% of 1200.
Example: I made 3000 on 23 of Dhul-Hijjah 2018, and by 23rd of Dhul-Hijjah 2019 I only have 100 left, I don't pay zakat on that amount.


Pro: you're only paying zakat on what is immediately due. You're never pre-paying any amount.

Con: when you have multiple streams of income this message becomes extremely difficult. Additionally deducting expenses and paying debts becomes a challenge if you have more than one stream of income.

2- SECOND APPROACH: Regardless of how many streams of income you have, you simply choose one day out of the year on which you will pay your zakat. On that day you look at your balance and if it is greater than Nisab, you pay on the entire amount that is in your balance.
This is very similar to the accrual method of accounting.

Example: throughout the year I earn different amounts, 500 in Ramadan, then 2000 in Shawwal, then 3000 in Dhul-Hijjah. Over the year I take a loss of 1500 and Ive designated Ramadan 1st as the day I pay Zakat.
On Ramadan 1st I check my account and I have 4000 in my account (500+2000+3000-1500=4000) so I pay 2.5% of 4000. So on 1000 of the 4000, I am paying on time, and on the 3000 earned in Dhul-Hijjah I am pre-paying by 2 months.

Pro: I do not need to worry about calculating these a zakat year for each stream of income. I also have the convenience of prepaying amount so that I do not have to calculate them again later.
Con: if I need that 3000 in between the time that I pay and the time that it is due, then I may be using it prematurely. However the amount calculated for Zakat is negligible.

PREFFERED METHOD:
I advise all of my clients and students to follow the second method. Because while the cash method works for people that do not have steady streams of income, it can become complex and unruly, and many people will simply not tolerate the number of calculations they have to make for the multiple streams of income they have and instead just give up and not pay Zakat at all.


Therefore it is better to simply choose one day out of the year to calculate your zakat on. You will pay on the total amount in your account after expenses.

For more read my book:
Simple Zakat Guide: Understand and Calculate Your Zakat https://www.amazon.com/dp/0996519203/ref=cm_sw_r_cp_apa_i_aCrdBb28H0NG4

Ok, so this is something that I've been thinking about and researching as well. I have found Joe Bradford's blog as very valuable for researching this: http://www.joebradford.net He also has a book on Amazon that I've been thinking about picking up: https://www.amazon.com/Simple-Zakat-Guide-Understand-Calculate/dp/0996519203

There are a number of factors to consider here as Islamic scholars have debated this forever and there isn't a clear cut answer.

You need to figure out what rate and method is applicable stocks. There are two opinions: the first opinion is that 2.5% of the stock worth must be paid in zakat every (lunar) year. If you are targeting a withdrawal rate of 4%. The first year you retire you're going to be withdrawing 6.5% of your investments to pay for yourself and your zakat. However, keep in mind that subsequent years you will be increasing the percentage you withdraw to keep up with inflation, however, the 2.5% will remain the same.

The second opinion is that stocks are like produce, and in that case you are paying 10% on the return for that year. So assuming that your return on investment is 7% for that first year, you're going to be paying 0.7% on top of your initial withdrawal rate of 4% leading to 4.7% as your first withdrawal. These numbers will then be adjusted for subsequent years.

Joe Bradford takes the first opinion, and then provides additional guidance on retirement accounts. He argues that as you cannot freely remove money from traditional IRAs and 401ks no zakat is due on them until you are allowed to withdraw, in this case at 59 and 1/2 you must pay zakat on the net worth of those accounts, and then ever year after that. Other scholars take the opinion that you can withdraw from most retirement accounts, and that you have to pay zakat on them every year by paying zakat only on the maximum withdrawal amount, minus penalties and taxes that you would pay if you did withdraw.

Permit me to delve into the faith based and spiritual aspect of zakat and move away from the rational math based aspect of it. Those of you with little tolerance of that should probably skip the rest of this post.

<spiritual>

As you've mentioned, zakat is to "purify" your wealth but it's also a way of showing gratitude to God for allowing us to accumulate that wealth in the first place. It also helps us avoid being too attached to our wealth as greed and miserliness are sins (But generosity with others and frugalness with yourself is encouraged). We want to provide for our families and lead a good life, and that's totally compatible with Islam. We need to keep in mind that giving zakat isn't just to avoid hell, it's to do good in this world and recognize that we are rewarded for paying it, both now and in the afterlife. Finally, from a purely faith based perspective, you will never become poor by paying zakat. I'm not saying that by paying zakat you're going to magically beat the market, but I am saying that God will protect you from other potential financial calamities or even provide you with windfalls.

</spiritual>

tl;dr the 2.5% on stocks net worth is debated, and it could actually be 10% of ROI for that year.

our very own /u/joebradford has a simple zakat guide, that you can get for 10 bucks off amazon

here is his website where you can find other resources for zakat

you can also go to your local masjid, someone can assist you there.

in a lot of muslim communities, a lot of times we just go to a accountant, who also is certified in fiqh matters relating to finance and zakat, and they just help you through that.

if you cant figure it out, im sure we can get someone here to help you out.