The Solution: 50/30/20 Budget
While the 30% rule has worked in the past its not as realistic with rising rent costs and unmatched income.
The solution is the 50/30/20 budget.
Heres how the percentages break down:
- 50% for essential expenses
I personally love the 50/30/20 budget as it allows you have some flexibility with your spending.
Many people fail at budgeting because it is so strict that it doesnt allow people to spend any money. Humans are only so disciplined.
Eventually, after saving every penny to pay off debt or reach a financial goal, you might lose willpower.
Its no different than someone who is losing weight and never gets a cheat meal.
Budgeting is all about finding the right balance and figuring out what works with your financial goals.
How Do I Do A Tax Return
There are 3 steps to follow to do a tax return: Choose the process you want to follow, Gather your income and deductions, Submit. You can lodge a tax return electronically, either through your tax agent or in the myTax app. It is possible to lodge a return via paper form however, this process can take significantly longer. The ATO generally prefers to deliver refunds electronically and will only make payments into Australian bank accounts.
- Read the full story by Ursula Lepporoli, KPMG
When To Pay Estimated Taxes
The IRS receives payments at regular intervals throughout the year when you have taxes withheld from your paychecks. Your employer is responsible for sending that money in by certain deadlines. You’re expected to do the same as a freelancer by paying estimated taxes. These are quarterly payments that you should send to the IRS every three months.
You must pay estimated taxes throughout the year if you’re earning freelance income and expect to owe $1,000 or more at tax time. These payments should be the tax you owe on your income for the quarter that’s just passed.
Most states also require that you file estimated taxes. When these payments are due and how much you’ll have to set aside will vary by your state of residence. You may have to pay estimated taxes to more than one state, depending on where you live and where you earn income.
Estimated tax payments for the year are generally due on:
The IRS delayed the income tax return filing date for individuals from April 15, 2021, to May 17, 2021, in response to the coronavirus pandemic, giving you just over an additional month to file your 2020 tax return. Your estimated taxes were still due on April 15, however.
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How Much Tax Do I Need To Pay In Australia
How much income tax you pay will depend on your personal situation and criteria such as your residency status, taxable income, and the tax rate and bracket that apply to you based on Australian Taxation Office requirements. If you are an Australian resident for tax purposes with a tax file number, you may be eligible for a tax-free threshold of $18,200. According to the Australian Governments Treasury, the largest amounts of income tax in Australia are paid by high income individuals. OECD figures show Australians had a net average tax rate of 23.6% in a recent year, which was slightly lower than the OECD average at the time of 25.9%.
Using Your Spouse And Children To Reduce The Tax Burden
Suppose that you are a small business corporation owner and also the head of a family. You have three children, ages 20, 19, and 13. You can set up a family trust for all family members ages 18 and older . Your family trust can legally become a shareholder of the corporation and receive dividends, and the family trust can then pay those dividends to the kids.
Come tax time, the recipients of the trust pay little or no taxes on dividend income thanks to exemptions and tax credits. These exemptions and credits start to fall off when the recipients earn other income during the year, so this technique is probably most useful for children who are in university.
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Canada Pension Plan And Employment Insurance
These programs are run by the federal government and participation is mandatory. You may benefit in the future by receiving payments from these programs. For example, EI protects workers who become unemployed by paying out benefits to those who apply and qualify. If you retire after age 60, the CPP pays benefits to seniors who qualify.
In addition to the amounts that are deducted and withheld from your pay, your employer also makes contributions to EI and CPP on your behalf. The amount depends on how much you contribute.
Tax Planning Using Dividends
Dividends can be a useful tool when planning for your personal and business taxes. Other than the deferral mentioned above, new businesses can take advantage of an interesting two-year deferral. New companies can lend funds interest-free to their shareholders for two years.
For new companies, after two years, the amounts are deemed to be dividends. This means you can defer payment of your taxes for that period, helping with cash flow early on in the business. You want to make sure you set aside money to pay the taxes at the end of year two, because the bill might be quite high.
Other more complex planning can allow you to split your dividend income with members of your family through family trusts or shares with discretionary dividends. These useful structures are complex and should not be put in place without professional advice.
As always, there is no single correct answer when determining if a salary or a dividend is the best way to pay yourself. You should consider every case on its own merits, but it is worth putting in the effort early on to avoid paying unnecessary taxes.
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How To Determine How Much House You Can Afford
Most people use a mortgage to buy a home, but everyones income and expenses are different. Because of this, youll want to calculate your potential monthly payment based on your current financial situation. Youll need to calculate some figures like:
- Income: This is how much you earn on a monthly basis from your regular day job and any side hustles you have. Make sure you have gross and net numbers at the ready. You can find these on your most recent pay stub. If you have a fluctuating income, use your most recent tax returns for guidance.
- Debt: Debt consists of what you currently owe money on. This would include things like credit cards, student loans, car loans, personal loans and other types of debt. Debt isnt the same as expenses, which might fluctuate month-to-month .
- Down payment: This is how much cash youll pay up-front for the cost of a home. A 20% down payment might remove private mortgage insurance charges from your monthly costs, but its not always required to buy a home. The higher your down payment, however, the lower your monthly mortgage payment will be.
- : Having good or excellent credit means you can get the lowest interest rate available offered by lenders. A high interest rate typically means a higher monthly payment.
How To Estimate How Much Money To Set Aside For Income Tax
If this is your first year in business, you can approximate how much money you need to set aside by estimating your income and your tax bracket.
- If you made $400 a week all year, your income before tax would be $20,800the lowest your income would be.
- If you made $800 a week all year, your income before tax would be $41,600the highest your income would be.
So we can guesstimate that your income would be in this range and use these figures to see approximately how much tax you will pay by using the Canada Revenue Agency’s Canadian income tax rates for individuals. The federal tax rates for 2021 are:
|33.00%||$216,511 and over|
In your case, both the low and high estimates are still within the 15% tax bracket, so you want try to put aside at least $3,120 , and it would be better if you could put aside $6,240 to cover your potential tax bill.
Now it’s not quite that simple, because this estimate does not take into account provincial and territorial tax rates, which vary depending on what province you’re in, or the fact that presumably you’re going to have various business expenses and income deductions that will lower your net income.
Keep in mind that these are estimates, and any overpayment or underpayment will get sorted out when you complete your tax return at year end, but setting aside these amounts will ensure that you won’t get any unpleasant surprises at tax time.
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State And Local Taxes
Most state governments impose income taxes on wages and salaries in much the same way the federal government does. Some states have a flat tax rate, such as Pennsylvania at 3.07% as of 2021. Other states have graduated, progressive tax rates like those of the federal government.
Nine states have no income tax on earned income at all: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming. New Hampshire taxes only dividends and interest.
Some cities and localities throughout the nation impose their own income taxes as well. New York City is perhaps the most famous example of a city with an income tax. Local taxes are imposed at the city level in Ohio, while other taxes are imposed at the county level, such as in Indiana. Still other taxes are set by school districts, as in Iowa.
How To Get Into A Lower Tax Bracket And Pay A Lower Federal Income Tax Rate
Two common ways of reducing your tax bill are credits and deductions.
Tax credits directly reduce the amount of tax you owe they don’t affect what bracket you’re in.
Tax deductions, on the other hand, reduce how much of your income is subject to taxes. Generally, deductions lower your taxable income by the percentage of your highest federal income tax bracket. So if you fall into the 22% tax bracket, a $1,000 deduction could save you $220.
In other words: Take all the tax deductions you can claim they can reduce your taxable income and could kick you to a lower bracket, which means you pay a lower tax rate.
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Canada Pension Plan Payments
In addition to income tax, you are required to make contributions to the Canada Pension Plan if your income is greater than $3,500 in a given year, even if you are self-employed. The rate for CPP contributions in 2021 is 10.9%, up to an annual maximum of $6,333 .
When making quarterly installment payments you can include an additional amount for CPP contributions based on your annual income, or pay the assessed amount for the year when you complete your tax return.
Tax Brackets & The Tax Cuts And Jobs Act Of 2017
The Tax Cuts and Jobs Act of 2017 guides current tax policy. Among its notable achievements:
- Number of brackets remained steady at seven.
- Four of the lowest five marginal rates dropped between one and four points the top rate sank 2.6 points, to 37%.
- Modified bracket widths.
- Eliminated the personal exemption, but nearly doubled the standard deduction.
- Indexed brackets and other provisions to the Chained Consumer Price Index measure of inflation .
- Retains the charitable contribution deduction.
- Caps the mortgage interest deduction to the first $750,000 in principal value.
- Deduction for state and local income, sales, and property taxes limited to a combined $10,000.
While taxpayers still may use itemizing if their total deductions work to their advantage , boosting the standard deduction was designed to simplify calculations for the vast majority of filers and it worked. For the 2018 tax year, 90% of households opted for the standard deduction, up from 70% in recent previous years .
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You Can Outsource Payroll Tax
Payroll tax is complex. The calculations are nitpicky and penalties are steep. Even paying payroll taxes just a day late comes with a 2% penalty on the amount due, with that penalty rising as high as 15% for past due payroll taxes.
We highly recommend outsourcing your payroll to a company like Gusto. Theyâll take the headache out of everything from paying your employees the right amount at the right time, to handling pesky withholding calculations and payroll taxes.
When it comes time to record payroll costs on your books, Bench can take care of that for you. Learn more about how we are saving small business owners hours of admin every month.
At What Income Level Is Social Security Income Taxed
You may have to pay income tax on up to 50% of your benefits if you file as an individual and your combined income is between $25,000 and $34,000. You may pay income tax on up to 85% of your benefits if your combined income is more than $34,000. Combined incomes between $32,000 and $44,000 may be taxed up to 50% of the total, and above $44,000 may be taxed up to 85% of the total, if you’re married and filing a joint return.
Those who are married but file separate returns will likely have to pay taxes on their benefits.
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Canadian Income Tax Brackets
Tax Brackets are ranges of income that determine how much tax you will have to pay on the income in that bracket. Each bracket has a lower and upper limit as well as a tax rate.
If you earn more than the lower limit, you will have to pay that tax rate on any additional income up to the upper limit. Any amount beyond the upper limit will be taxed based on the next tax bracket. Each province has their own set of tax brackets, which can differ from the federal tax brackets.
For example, if you earn $80,000, you will be in the $49,020 to $98,040 tax bracket with a tax rate of 20.5%. This means that you are taxed at 20.5% from your income above $49,020 . Any additional income up to $98,040 will be taxed at the same rate. Any income beyond the upper limit will be taxed at the next tax bracket rate of 26%.
At $80,000, you will also have income in the lower two tax brackets: $0 to $13,229 and $13,230 – $49,020. Your income within those brackets will be taxed at their respective tax rates of 0% and 15%.
The basic personal amount of $13,229 has a tax rate of 0%. This means that if you make $13,229 or less, you will not have to pay any federal income tax. Different provinces have different basic personal amounts. The basic personal amount will gradually increase to $15,000 by 2023.
How Does The Cpp Work
You will contribute towards the CPP from your employment earnings from age 18 to 70. The CPP Investment Board then invests CPP funds. Once you retire, you will then receive a monthly retirement pension that is equal to a certain percentage of your lifetime average earnings.
The base CPP benefit provides a monthly pension of up to 25% of your contributory earnings for the best 40 years of earnings. With changes enhancing CPP contributions, the monthly pension amount can rise to up to 33.33% of your contributory earnings. This pension amount counts as income, and so you must pay income tax on your CPP benefit.
The earliest that you can receive your retirement pension is when you turn 60 years of age. If you have a disability, you may receive the CPP disability benefit if you are under the age of 65, or the CPP post-retirement disability benefit if you have already started to receive your CPP retirement pension.
If you start receiving your pension between 60 and before you turn 65, your pension amount will be permanently reduced at a rate of 0.6% for every month before age 65, for a maximum reduction of 36%.
Every month after age 65 permanently increases your pension amount by 0.7%, up to a maximum of 42% when you turn 70.
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Overview Of Georgia Taxes
Georgia has a progressive state income tax. It is fairly average among states charging income tax. Property and gas tax rates for the state are also both near the national average.
|Number of State Personal ExemptionsDismiss|
* These are the taxes owed for the 2021 – 2022 filing season.
What Is The Cpp
The CPP, short for the Canada Pension Plan, is a mandatory public retirement pension plan run by the Government of Canada. All Canadians over the age of 18 with employment income are required to contribute towards the CPP, with the exception of those employed in Quebec. Instead of the Canada Pension Plan, the Province of Quebec administers a similar pension plan, called the Quebec Pension Plan.
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How To Determine Your Tax Bracket
As mentioned above, determining your tax bracket hinges on two things: filing status and taxable income. Here are some useful details:
The IRS recognizes five different filing statuses:
- Single Filing Unmarried, legally separated and divorced individuals all qualify all single.
- A married couple agrees to combine income and deduct the allowable expenses.
- A married couple files separate tax returns to keep an individual income lower. This is beneficial in certain situations like repaying student loans under an income-driven repayment plan.
- Head of Household Unmarried individuals who paid more than half the cost of keeping up a home for the year and have a qualifying person living with them in their home for more than half the year.
- Qualifying Widow A widow can file jointly in the year of their spouses death. A qualifying widow has a dependent child and can use the joint tax rates and the highest deduction amount for the next two years after their spouses death.