If you are living in Canada, you will need to file your personal income tax return. The reason for this is that the government has to make sure you are paying your taxes. In addition, if you cannot pay your taxes in full, you can work out a payment plan.
1. Calculating Your Tax Rate
Knowing your personal income tax rate can help you make a budget. It can also help you plan ahead for major life changes.
The first thing to know about your personal income tax rate is that it will vary with the amount of income you have. Tax rates differ based on your filing status, your taxable income, and your state of residency.
Effectively, the best way to calculate your personal income tax rate is to take your gross income and subtract your standard deduction and other itemized deductions. For example, if you have $80,000 in taxable income, you’ll subtract the standard deduction from that figure.
The next step is to determine how much you actually owe in federal taxes. You do this by using a tax calculator. The calculator will estimate the total amount you owe in federal and state taxes.
The calculator will estimate your refund as well. If you qualify for a tax credit, you can enter that information manually into the “Other” field.
2. Exempt Items From Personal Income Tax in Canada
There are a number of items that are exempt from personal income tax in Canada. These items include property that is acquired with the intention of reselling it to another individual, gifts to a spouse or minor children, and interest income. However, capital gains are also taxable.
Other exemptions are provided for certain assets and businesses. For instance, farm property may qualify for lifetime exemption amounts up to CAD1,000,000.
Similarly, certain farm shares of small business corporations may qualify for a lifetime exemption of up to CAD892,218.
Another type of item that is exempt from personal income tax in Canada is a Canadian pension plan. Whether or not a plan is taxed depends on whether or not the taxpayer is a resident of Canada. In general, if an individual is a non-resident, he or she is subject to tax on all income earned in Canada. If the taxpayer is a resident, he or she is subject to tax only on Canadian sources of income.
3. Filing a Tax Return by the Deadline
The best way to ensure that you don’t miss the deadline for filing a tax return is to file as early as possible. This will give you a better chance to get your money into your pocket faster and it will also help you to avoid penalties.
There are several important tax deadlines in the coming year, so it’s wise to keep these in mind.
4. Working Out a Payment Plan if You Can’t Pay Taxes All at Once
If you are unable to pay your taxes in one lump sum, you should consider applying for an installment plan. Some consultations offer a number of ways to make tax payments, such as a payment plan, offer in compromise, and partial payment installment agreement.
By taking advantage of these options, you can make your tax payments easier and more affordable.
When applying for an installment plan, it is best to find a CPA or a tax attorney to help you. This way, you will have someone to work with and you can get an answer to your questions.
You can also apply for the plan online. Once you apply, they will contact you within a month. Your minimum payment amount will depend on your financial status, your income, and your ability to pay.
There are also temporary delays in payment, so you should consult with a tax specialist like Blackspark to ensure that you do not get in trouble for not paying your taxes.
